Staying within tight budgets & adding new benefits

In an inflationary and uncertain economic environment with large medical increases, Finance may be reluctant to approve additional spend, especially for HR expenditures. Tight budgets make it particularly difficult to overhaul policies and benefits in a post-pandemic world where employees now place much greater emphasis on work-life balance, remote work, paid leave, and culture.

Below are five finance approved strategies from a former CFO that HR can leverage to find the budget for new, high-impact programs and policies.

Leverage differentials in perceived vs. real value

How do you get that new policy implemented and save finance money? The interesting, well, benefit, about benefits, is that their value to employees, the “perceived value”, can far exceed their cost for the company, their “real value.”  HR leaders can leverage this to their advantage, but only for those policies, perks, benefits, or incentives with high perceived value.

This principle of perceived vs. real value is one you’re likely already familiar with: the punch card reward system at the local coffee shop. Loyal customers are incentivized by the perceived value of the free coffee after their 10th paid coffee, but in reality, it only costs the business their cost of goods, or pennies on the dollar. 

We can apply this same principle to tight budgets. High perceived value policies are those that are highly requested and have been proven to retain employees. 

While it’s unoriginal to shift the budget from salary increases to benefits, HR can take this strategy a step further with high-perceived value policies by decreasing the raise budget by more than the cost of new policies. For example, cutting average raises from 5% to 4.5%, and layering in a high perceived value product that costs just 0.2-0.3%, saves money and adds a valuable offering in return. This strategy improves the employee experience and has a net reduction on the budget, a win-win. For an added boost, HR can pair the new investment with another high value policy that has low to no net cost. Extra PTO or an added company holiday are coveted by employees but cost a fraction of salary.

Since few policies will be 100% universal, though, HR shouldn’t be afraid to move forward with a policy that attracts and retains only a subset of the company.

Shift low perceived value policies to employees

The post-pandemic world has forced organizations to thoroughly scrutinize, if not overhaul, their rewards packages to match the shift in employee desires, especially now that millennials are the largest generation in the labor force.

Similarly to reallocating the budget for salary increases, HR can shift low perceived value policies from fully funded to voluntary, or reduce their generosity altogether. While a well-known strategy, having employees absorb the expense for low perceived value policies is easier to accept when the company swaps in high perceived value policies: flexible and remote work, family-friendly benefits, additional PTO, to name a few.

Surveys of employee preferred policies can be a good starting point to determine which offerings to reduce or make voluntary.

Lean on statutory programs to free up reserves

In 2024 many state statutory disability and paid family leave programs will launch higher weekly salary caps and reimbursements; so, many self-funded plans may need to accrue less. For firms that self-fund disability policies, this frees up reserves to redistribute. For instance, California’s statutory plan will pay a higher percent of salary to many employees on disability alongside a higher weekly cap.

Spending the time and energy to really understand upcoming statutory benefit changes will be well worth it. These savings probably won’t fully fund new programs, but, combined with other cost savings strategies, can help HR find the budget for new offerings.

Tap into risk pools to reduce costs

Pro tip from a former CFO: Finance wants budget certainty, especially during volatile times. This is an opportunity for HR to tap into innovative vendor and insurance products. Insurance mitigates risk, so HR can lean into new insurance solutions. By tapping into the pools of new programs and products for offerings (fertility benefits, paid parental leave, caregiver leave) companies can keep costs in check.

But it’s not just insurance that offers pooling benefits. Companies can pool resources with nearby businesses to set up their own private daycares, and, optionally, subsidize the cost. Making childcare accessible is high value (while outsourcing its management) for employees, directly linked to ROI.

Unlimited PTO

Unlimited PTO has a cultural benefit because employees perceive workplaces as healthier and more family-friendly when it’s offered. According to MetLife, 72% of employees want unlimited PTO and believe it conveys trust and work-life balance. In reality, study after study shows that employees often take less time off when offered unlimited PTO. Namely reports that employees take 13 days of PTO with unlimited policies vs. 15 days under traditional PTO policies.

Related: L&D programs when budgets are tight: A Q&A with Jeremy Walsh

While unlimited PTO is beneficial for company culture, it’s not altruistic. Unlimited PTO means no requirements on finance to accrue liabilities or reserves and no PTO payouts when employees turnover. This frees up capital that can be allocated toward preferred and results-driven policies. 

Summary

Whether fears of a recession subside and things return to normal, Finance will remain cautious, driving HR to be creative in how employee offerings are added and shifted. With inventive and flexible strategies, HR can create packages that drive employee retention and satisfaction, without breaking the bank. 

Dirk Doebler, founder and CEO, Parento