Employee benefits in the United States of America

The US generally prefers to let the market decide its perks selection, and because of this element of competition a substantial baseline offering is still is needed in the management of talent, says Nic Paton

It is often said that America and England are two countries divided by a common language. On employee benefits, UK organisations may assume that the US operates similar practices but, in fact, it is a different environment across the pond.

What’s more, as Tesco has discovered, it is not always a comfortable one. The supermarket giant was recently lambasted by the powerful United Food and Commercial Workers’ Union (UFCW) for not entering into a dialogue with it over pay and benefits ahead of plans to launch its Fresh & Easy concept on the west coast. Tesco says it will be up to employees to decide whether to join a union or not, and has since written to the UFCW explaining that it has yet to finalise pay and benefits.

Employers need to recognise that while in the US there is a plethora of legislation protecting employee rights, there is little in the way of statutory entitlement to benefits, says Chuck Moritt, client manager at consulting firm Mercer. “Unless you are in a unionised environment, benefits provision is generally more driven by competitive issues. There is, for instance, no requirement to offer paid time off for sickness or even vacations and every industry may have different norms,” he points out.

But if employers want to survive and prosper, they shouldn’t take the view that they can get away with offering nothing. There are various “baseline” benefits employees will expect to see on the table before they consent to joining an employer, says Kevin Overby, managing partner at benefits specialist Clarepoint.

The most important of these is healthcare insurance, with its provision probably one of the biggest differences between the US and UK, which has the NHS. In fact, such is the focus on healthcare insurance Massachusetts has moved to make it compulsory for employers, with 11 staff or more, to offer it, while approximately six other states are considering varying degrees of healthcare perk compulsion. “The healthcare delivery system, by and large, is the employer, and employees expect employers to pay a good share,” says Overby.

In a tough, and ageing, employment market, it is not uncommon for employers to be prepared to cover 100% of an employee’s healthcare bills and 80% of family charges, he adds.

Another baseline expectation is dental insurance, with policies, again, normally covering both employee and family. Similarly life insurance, normally one-to-two times salary, and disability benefit, often 60% income replacement, are widespread.

The second most important benefit to offer, argues Mercer’s Moritt, is paid time-off. Employers normally provide around two weeks’ paid vacation for a new starter. Entitlement will probably rise to a maximum of four weeks after around eight years of service. Most employers will add on federal or public holidays, such as Labor Day and Thanksgiving. On top of this, many employers will offer five to 10 days off sick, emergency or “duvet day” leave entitlement, often simply classified as “paid time off”.

It is also becoming more common for employers to offer, although not necessarily fund, a “menu” of benefits – legal services, dependant care, gym membership, EAPs, even pet insurance – from which employees can choose, says Steve Raetzman, senior consultant at Watson Wyatt in Washington. “If you want to be an employer of choice and compete for talent, benefits are now one of the key elements that people think about,” he points out.

That includes a pension or retirement plan. Much as in the UK, the pensions’ market has been for some time shifting away from final salary (DB) to defined contribution pension schemes, especially on the non-union side. The predominant type of scheme in the US, is the 401(k), which is a type of employer-sponsored retirement plan that allows an employee to save for retirement while deferring income taxes on the saved money and earnings until withdrawal. It is technically a type of profit-sharing plan and is different from a DB plan as contributions are voluntary and perks are not defined. Moritt says staff will look for a programme where employers make matching contributions.

At executive level, it is common to offer more comprehensive health, life insurance and disability benefits, says Raetzman. There may also be a requirement for more generous car or relocation allowances. “It is important for firms coming into the US to have a pretty good understanding of what it will take in total to attract and keep the best senior leadership team,” he says.

The US is notoriously litigious. But from a perks perspective, employers need to remember liabilities not because they do not offer something, but in how they administer or apply it†


If you read nothing else read this…

  • While there is little statutory entitlement to benefits in the US, perks are key in the management of talent.
  • Be prepared to shell out on healthcare, disability, dental and life insurance.
  • Include some “paid time off” on top of annual holiday leave.
  • Recognise that US unions still have industry or regional clout.
  • Staff look for funding match on occupational pensions.†