Summary: Voluntary employee benefits are optional insurance coverages, such as dental, vision, life, accident, and critical illness insurance, that employees choose and usually pay for through payroll deductions. Core benefits are the foundational offerings, like health insurance, retirement plans, and paid time off, that employers typically fund or share the cost of. Together, they let small businesses offer a competitive package while keeping costs manageable.
Key Takeaway:
- Voluntary benefits are usually employee-paid, so employers can expand their benefits package with little or no added cost.
- California requires certain benefits, including paid sick leave and access to a retirement plan, but health insurance is only federally required for employers with 50 or more full-time equivalent employees.
- Many voluntary benefits can be paid with pre-tax dollars and may stay with employees if they leave the company.
Employee benefits are the backbone of how businesses support their teams. They help employees stay healthy, plan for the future, and feel valued.
However, not all benefits serve the same purpose.
Core benefits cover the basics, like health insurance and retirement plans. Voluntary employee benefits, on the other hand, offer extra flexibility and personalization. Together, they create a package that supports employees and meets legal requirements.
Happy employees aren’t just better at their jobs; they’re more efficient. The numbers speak for themselves. According to Gallup, 75% of medical costs come from preventable conditions, and burnout costs businesses $322 billion globally in turnover and lost productivity.
Poor well-being can also drive up voluntary turnover costs by 15%–20% of the payroll. Therefore, investing in benefits that boost well-being is smart for any business.
In this post, we’ll dive into the difference between core and voluntary employee benefits. We’ll also examine how voluntary benefits can benefit employers by providing flexible, personalized insurance options that cater to a diverse workforce, improving satisfaction, retention, and overall workplace success.
Let’s get started.
What Are Core Employee Benefits?
Core employee benefits are the foundation of any benefits package. Employers provide these essential offerings to support their workforce’s health, well-being, and financial security. Common examples include health insurance, retirement plans, and paid time off.
In California, core benefits often go beyond the basics. State laws require specific offerings like paid sick leave and disability insurance, and employers face several California-specific health plan compliance rules.
For instance, California’s Paid Sick Leave Law requires employers to provide at least 40 hours or five days of paid sick leave per year, and employees who accrue it earn at least one hour for every 30 hours worked. Similarly, State Disability Insurance (SDI) provides partial wage replacement for employees unable to work due to a non-work-related illness or injury. SDI is funded through employee payroll deductions, which employers withhold and submit to the state.
A strong benefits package signals that you value your team’s well-being. This can set your business apart in competitive hiring markets like San Diego, where employees often weigh benefits as much as salary when deciding where to work.
What Are Voluntary (Ancillary) Employee Benefits?
Voluntary employee benefits, also known as ancillary benefits, are optional perks employers offer to complement core benefits. These are not mandatory but allow employees to tailor their benefits to fit their unique needs, depending on where they are in life.
Common examples of voluntary employee benefits include:
- Dental Insurance: Covers routine check-ups, cleanings, and major dental procedures.
- Vision Insurance: Helps with the cost of eye exams, glasses, and contact lenses.
- Life Insurance: Provides financial security for employees’ families in case of an untimely death. Learn more about life and disability insurance options.
- Accident Insurance: Offers financial support for unexpected injuries and related expenses.
- Critical Illness Insurance: Covers costs associated with severe illnesses like cancer or heart disease.
- Hospital Indemnity Insurance: Helps cover out-of-pocket medical expenses related to hospital stays.
- Supplemental Disability Insurance: Adds income protection on top of California SDI, which replaces only part of an employee’s wages.
- Pet Insurance: Provides coverage for veterinary expenses for employees’ pets.
These voluntary employee benefits can greatly affect how employees perceive their overall compensation. While core benefits provide the essentials, voluntary benefits show that an employer cares about the “extras” that enhance quality of life. 81% of employees say they are likelier to stay at their jobs if benefits meet their needs.
Offering voluntary benefits is a win-win situation for businesses. Employees gain additional resources without the employer shouldering the full financial burden, as many of these perks are employee-funded through payroll deductions. This flexibility allows employers to build attractive packages while managing costs effectively.
Key Differences Between Core and Voluntary Benefits
Core and voluntary employee benefits serve different purposes but work together to create a well-rounded compensation package.
Core benefits provide every employee’s essentials, while voluntary benefits add flexibility and personalization. Understanding the distinctions can help employers design a comprehensive voluntary benefits program that meets legal requirements and employee preferences.
Before looking at each difference in detail, here’s a side-by-side view of how core and voluntary benefits compare.
Core vs. Voluntary Benefits at a Glance
| Feature | Core benefits | Voluntary benefits |
|---|---|---|
| Examples | Health insurance, retirement plans, paid time off | Dental, vision, life, accident, critical illness, hospital indemnity, pet insurance |
| Who pays | Employer-funded or cost-shared | Usually employee-paid through payroll deductions |
| Required by law? | Some are (in California: paid sick leave, SDI withholding, retirement plan access) | No |
| Employee choice | Standard coverage for eligible employees | Employees choose what fits their needs |
| Tax treatment | Often pre-tax | Often pre-tax through a Section 125 plan, depending on the benefit |
| Portability | Usually ends when employment ends | Many policies can continue after leaving |
In short, core benefits set the foundation every employee relies on, while voluntary benefits let each person build on that foundation in a way that fits their life. The sections below explain each difference in more detail.
Purpose & Nature
Core benefits are the backbone of employee compensation. Some core benefits are required by law, such as paid sick leave in California, while others, like health insurance, are required only for larger employers. Under the Affordable Care Act, employers with 50 or more full-time equivalent employees must offer affordable health coverage or face potential penalties. Either way, core benefits are very important for employee well-being.
Employers offer voluntary benefits to fill gaps in traditional health insurance and enhance employee satisfaction. Voluntary employee benefits are add-ons designed to supplement core benefits, giving employees options that cater to their individual needs, like dental or vision insurance.
Cost Structure
How are they paid for? Core benefits are typically employer-funded or cost-shared. For health insurance, employers usually pay a large share of the premium, and many small group carriers require employers to contribute a minimum percentage of employee-only coverage.
Voluntary employee benefits shift some of the financial responsibility to employees. These perks are often funded through payroll deductions, making them an affordable way for employees to access additional resources and reduce out-of-pocket expenses.
Flexibility & Customization
Every person has their own needs. Core benefits are generally standardized across the company. Eligible employees receive the same baseline coverage, which helps ensure fairness and consistency.
Voluntary employee benefits, however, are all about choice. Employees can select the options that make the most sense for them, whether extra coverage for their family or specific policies tailored to their lifestyle.
Advantages of Offering Voluntary Benefits
Offering these voluntary employee benefits signals that you care about the whole person, not just the job they do. And when 51% of employees are watching for or actively seeking a new job, the numbers are stacked against you.
Employee assistance programs (EAPs) are another valuable benefit that provides support in areas such as mental health and personal well-being. EAPs are often employer-paid and low cost, and some carriers include them with life or disability coverage.
Here’s how voluntary benefits can make a difference:
Enhanced Employee Satisfaction and Morale
Employees feel valued when they can access benefits that meet their specific needs. Voluntary benefits like dental, vision, or accident insurance show that the company is invested in their well-being. This leads to higher job satisfaction, which can boost overall morale across the team.
Increased Employee Retention and Loyalty
Employees who feel supported are more likely to stick around. Voluntary benefits help build a workplace where employees feel cared for, reducing turnover. It’s a small investment that fosters long-term loyalty and saves employers the cost of recruiting and training replacements.
Attraction of a Diverse Talent Pool
In competitive job markets, benefits can set your business apart. Offering voluntary benefits appeals to a wide range of candidates, from those starting families to those planning for retirement. This flexibility helps attract a diverse workforce, bringing fresh perspectives and varied skills to your team.
Potential Cost Savings for Employers
Voluntary benefits often come with minimal direct costs to employers, as they are typically employee-funded. Additionally, these benefits can reduce absenteeism and healthcare expenses by providing resources that keep employees healthier and more engaged.
How Employers Can Implement a Voluntary Benefits Program
Adding voluntary employee benefits doesn’t have to be overwhelming. A clear plan makes it easy to offer perks employees will value.
This process starts with listening to your team. Small steps can lead to big improvements in how employees feel about their workplace.
Here’s how to start:
1. Evaluate Employee Needs and Preferences
Find out what your employees care about most. Send surveys or host focus groups to collect feedback. Ask about the benefits they value, like dental or supplemental health coverage. Use this input to focus on options that will make the biggest impact.
2. Collaborate with Insurance Providers and Insurance Brokers
Partner with experienced insurance providers. Compare plans to find ones that match your employees’ needs. Look for bundled options to simplify your offerings. Choose a provider with clear pricing and flexible options.
Working with an insurance broker like Terri Yurek Insurance also simplifies the process. Brokers understand the market and can help you identify plans that fit your employees’ needs without breaking your budget. They can work with insurance providers on your behalf, compare bundled options, and help make pricing clear.
Long story short, a broker’s knowledge saves you time while building a benefits package your team will appreciate.
3. Communicate the Value of Voluntary Benefits
Make sure employees know what’s available. Explain how each benefit works and why it’s useful. Share examples, like how accident insurance covers unexpected bills. Use emails, meetings, or handouts to spread the word.
The Hidden Power of Voluntary Benefits in Employee Happiness
Voluntary employee benefits are a way to show employees that their unique needs matter. They complement core benefits, offering flexibility, choice, and a personal touch that can make your business stand out.
For employers, they’re an opportunity to build loyalty and attract a diverse, engaged workforce.
If you’re self-employed or run a small business, navigating the world of employee benefits can feel overwhelming. That’s where professional guidance makes all the difference.
Working with an experienced insurance broker will help you craft a benefits package that balances employee satisfaction with cost efficiency.
Get in Touch With Our Team
Terri Yurek Insurance specializes in making benefits work for businesses like yours. Whether you’re looking to enhance your offerings or explore new options, we’re here to help.
Reach out today to learn how voluntary benefits can elevate your business and support your team. Let’s build something great together.
Frequently asked questions (FAQs)
1. What are voluntary employee benefits?
- Voluntary employee benefits are optional insurance coverages, like dental, vision, life, accident, critical illness, and hospital indemnity insurance, that employees can choose to enroll in. They’re usually paid for by employees through payroll deductions.
2. Do employers pay for voluntary benefits?
- Usually not. Most voluntary benefits are employee-paid, though some employers choose to contribute. Employers typically handle setup and payroll deductions.
3. Are voluntary benefits pre-tax?
- Many are. Dental and vision premiums are commonly paid pre-tax through a Section 125 cafeteria plan. The tax treatment of other benefits depends on the type of coverage and how premiums are paid.
4. Are small businesses required to offer health insurance?
- Not under federal law unless they have 50 or more full-time equivalent employees. California requires other benefits, such as paid sick leave and access to a retirement plan through CalSavers or an employer plan.
5. Can employees keep voluntary benefits if they leave?
- Often, yes. Many voluntary policies are portable, allowing employees to continue coverage by paying the insurer directly.
