Quick answer: Not offering benefits can look like a way to avoid a cost. The effects show up elsewhere, in recruiting, turnover, and morale. Here's what ND and MN small businesses can run into when they skip employee benefits.
When the benefits conversation comes up, the reasoning is often simple: benefits are a visible expense, and not offering them is not. The effects of not offering benefits are spread across recruiting, turnover, morale, and productivity, and none of them appears as a line item on the books. That is why skipping benefits can look like the easier choice when it isn't always.
What Turnover Involves
When an employee leaves, replacing them takes more than a job posting. The work includes:
Recruiting: Job postings, background checks, and, if you use a recruiter, the recruiter's fee.
Management time: The hours your managers or owners spend reviewing applications, running phone screens, interviewing, and debriefing on candidates.
Onboarding and training: A new hire takes time to reach full productivity. During that period, the new employee is producing below full capacity while consuming training time and manager attention.
Knowledge and relationship loss: When a long-tenured employee leaves, they take client relationships, operational knowledge, and institutional memory with them. That shows up in client satisfaction, repeated mistakes, and the time it takes to rebuild expertise.
Benefits are one of several reasons employees stay or go. A package that is not competitive is one reason an employee may leave.
How Benefits Affect Recruiting
A vacant role has a carrying cost: work that doesn't get done, overtime your existing employees absorb, or revenue you don't generate because you're understaffed.
A business posting jobs in the Fargo area or across ND and MN without a benefits package competes for the same candidates as businesses that offer one. That can mean:
- Fewer applicants for a posting
- Longer time to fill a role, because a candidate who receives a competing offer with benefits may accept it
- Pressure to offer more in salary to make up the difference
The Morale Impact on Existing Employees
Benefits affect not only the employees who might leave but the employees who stay. When a business offers no health insurance, the employees know it, and so do the spouses, family members, and friends who hear about their employment.
Financial stress: Employees without employer-sponsored health coverage are either uninsured or paying for individual coverage out of pocket. That burden doesn't stop at the door of the workplace, and it can affect engagement and focus.
Perceived employer investment: Employees notice whether their employer has invested in their well-being. An employer who offers no health coverage may be read as one who hasn't made that investment, and that perception can wear on trust.
Comparison to other employers: Employees talk to peers at other companies. When those peers have health insurance and other benefits, the difference is noticed and discussed, whether or not the employer is aware of it.
The Tax Treatment of Employer-Paid Benefits
Part of the cost of benefits is often left out of the employer's thinking: the tax treatment. Employer contributions to group health insurance are generally deductible as a business expense, are generally not subject to payroll taxes, and are generally not taxable income to the employee. Because of that treatment on both sides, employer-paid health benefits can be a more tax-efficient form of compensation than equivalent cash wages. The details depend on your entity type and your situation, so confirm them with your tax advisor.
To talk through benefits for your business, visit employee benefits advisory or who Kain helps. Schedule a conversation to talk through your situation.
Kain Carlson is a licensed insurance agent in Fargo, ND, licensed in North Dakota and Minnesota, working across business, employee benefits, and personal coverage so the whole picture has one reader. Book thirty minutes to go through how your own coverage fits together.