Column: How to balance benefits and profits

Question: We”™re not sure what to do about health care. We”™re worried about getting hit with increases in premiums this year, which could eat into our profits. How do we sort it out?

Thoughts of the day: Figure out what your company can and can”™t afford to pay. Health care has been in constant change for the last several years for every company ”” it”™s time to discuss that reality with your employees. Considering encouraging employees to turn to your state”™s exchange for insurance? Be sure you have someone lined up who can help explain all the policy options. Make sure you can explain what you”™re doing and why.

Look at your ratios. Set a target range for all salaries and benefits calculated as compared to revenue and to gross profit. As you consider adding or adjusting benefits, and paying out bonuses, make sure that your changes don”™t blow the target ratio.

Ideally, any growth in benefits and bonus payouts comes from growth of the company. Forecast increases in revenue and gross profit, and figure out if you”™ll need any additional personnel. Deduct that increased personnel plus any material costs from the increase in forecasted revenue and gross profit. What”™s left over is the amount of income you can use to build up profits, pay additional benefits and bonuses, invest in savings and infrastructure and use to pay taxes on profits.

Not sure whether your salaries and benefits are in line with your industry? Turn to your industry association for advice and benchmarks. Some industries have stats posted online, so check that as well. You can also contact peers in your industry across the country and ask them what they”™re spending. Keep in mind that both coasts tend to have a higher cost of living.

Many companies struggle as they take on additional health care costs, benefits and pay increases without sufficient revenue growth. If that”™s a problem your company is facing, be honest about what”™s going on before potentially sending the company into a financial black hole.

Raises and additional benefits should happen as a result of increased profits. Over the past several years, companies have had to absorb a number of mandates regarding how employees are paid and what benefits they receive. The cost of these mandates is equivalent to annual cost-of-living pay raises and then some.

Many companies have taken on substantial increases in cost of pay without seeing significant growth in revenue or improvement in profitability through increased productivity.

Show your employees how much the company pays on their behalf, above and beyond salary. Start with federal insurance and unemployment contributions; don”™t forget to add in the costs of medical, dental and life insurance, child care, time off from work, and any other benefit programs your company provides.

Have a rationale and set limits on how benefits are distributed and paid for. The simplest way to handle health care is to pay for the company”™s individual premium or a percentage of that. Employees who want to elect more coverage for their family can do so and use a portion of their paycheck to cover the cost.

Be careful when considering higher benefit costs for managers. Keep in mind that managers tend to be more expensive in salary. Loading additional costs onto an already expensive manager may make that person so costly that they can”™t prove they can deliver enough profits to allow the company to break even.

When getting ready to give out raises, calculate the raise as a percentage of the existing salary. One company decided to give employees an hourly raise, without realizing it was a 10 percent to 15 percent increase in pay across the board. They would have been better off giving this money as a bonus and making it clear to employees that it was only going to continue if profits stayed up.

There are some great reasons for providing employees with benefits. Employees who take time off regularly tend to be significantly more productive. Those who can afford to see a doctor regularly are more likely to be healthy and productive. Employees who can afford to stay home when they”™re sick recover more quickly. Employees who know their children are safe are less distracted. The list goes on.

Looking for a good book? Try “The Employee Benefits Answer Book” by Rebecca Mazin.

Andi Gray is president of Strategy Leaders Inc., strategyleaders.com, a business-consulting firm that specializes in helping entrepreneurial firms grow. She can be reached by phone at 877-238-3535. Do you have a question for Andi? Send it via email to AskAndi@strategyleaders. Visit AskAndi.com for an entire library of Ask Andi articles.