Employee benefits play a critical role in attracting, retaining, and engaging top talent. For employers, they’re a strategic investment, but they can come with a price tag. Understanding the costs of a comprehensive total rewards package lets you keep budgets under control while remaining competitive.
According to the Bureau of Labor Statistics (BLS), the total cost of benefits for employees in the private sector averaged $13.58 per hour worked in June 2025. Adding state and local government workers to this number raises benefits cost for “civilian workforce” to $15.03. Wages and salaries averaged $33.02.
From comprehensive wellness programs to attractive leave policies, employees expect more from employers than just a paycheck. But, how do you pay people fairly and competitively and still offer the right benefits mix from the many desirable options available? Understanding the cost of employee benefits helps People teams stay competitive while balancing the total compensation package.
This guide will help you and your team make sense of the cost of employee benefits programs by exploring the average expenses associated with various benefits.
What are employee benefits?
Employee benefits are nonwage elements of the total compensation package that supplement an employee’s pay. They’re meant to attract and retain top talent while enhancing job satisfaction, overall well-being, and financial security. In the United States, the government mandates some employee benefits, such as employer contributions to Social Security and Medicare. Companies voluntarily provide other fringe benefits to remain competitive and build a strong company culture.
Why are employee benefits important?
Research shows a robust employee benefits program leads to a happier workforce and lower rates of turnover. However, benefits cost companies money. So, knowing the average monthly cost of employee benefits is critical to ensuring you select the most effective ones without breaking your budget.
Average costs associated with employee benefits
Employee benefits comprise nearly one-third of total compensation. In June 2025, BLS reported the average cost of major benefits categories for US private company (nongovernment) employees:
- Legally required benefits: Employers spend $2.17 per hour worked on Social Security and $0.54 on Medicare contributions. Including federal/state unemployment insurance and workers’ compensation expenses, the total cost to the employer per hour worked for legally required benefits is $3.31 or 7.3% of total compensation.
- Paid time off (PTO): PTO—or paid leave—includes vacation, holiday, sick, and personal time off, making up 7.5% of total compensation at $3.44 per hour worked.
- Insurance benefits (health, life, disability): Tied with PTO for the largest outlay on employee benefits at 7.5% of total compensation, employers spend $3.44 per hour worked on insurance benefits. The average employee health insurance cost per month takes up a significant chunk of total at $3.23 per hour worked.
- Retirement and savings: Retirement and savings plans, such as 401(k)s and pensions, cost employers $1.54 per hour worked, or 3.4% of total compensation.
- Supplemental pay: This BLS category includes overtime pay, shift differentials, and nonproduction bonuses. It makes up 4.0% of total compensation at $1.84 per hour worked.
That means the average person costs around $12.76 per hour to employ, on top of their wage.
What factors affect employee benefits costs?
The cost of a comprehensive benefits package continues to increase, with average annual employee health insurance premium costs alone up between 6% and 8% in the US. Many factors influence the benefits costs. Here are the most important ones.
Company size
Large companies that achieve economies of scale with 500 or more employees can often negotiate lower bulk rates on benefits like employee health coverage. Smaller companies tend to have less leverage, but also smaller budgets to pay for extensive benefits.
Country
If you employ internationally, you’ll see cost variation in different parts of the world. Many European and Latin American countries have strong public health care systems that shift the cost burden to the government, making private employee plans less or not necessary.
The same applies to retirement and savings programs. The strength of a country’s Social Security system, public health infrastructure, and overall welfare state can impact how much companies spend—and where they direct their benefits spending.
Changing employee needs
Many employees expect more than basic health insurance and retirement savings. As part of a comprehensive plan, they want health reimbursement arrangements, mental health services, and perks such as gym memberships.
Beyond health care, customized benefits that address near-term financial concerns, such as student loan repayment and emergency funds, have become more common as part of holistic wellness programs. For long-term financial planning, offering equity incentive plans alongside traditional retirement plans can solidify an employee benefits program.
Geographic differences and virtual work structures
Benefits in high-cost metros remain important, but compensation packages can prioritize base pay needs. If you operate in San Francisco or Manhattan, where cost of living is higher, you may need to commit a larger share of your People Ops spending to wages and salaries. You might also negotiate employee discounts with local businesses to help your workforce with day-to-day expenses.
In less expensive parts of the world, fringe benefits might take a larger percentage of your benefits package, relative to monetary compensation. The same applies to off-site and hybrid work situations. Employees who work from home use benefits differently than those who regularly commute to the office. For example, on-site employees might value commuter benefits (e.g., free or discounted public transit), whereas remote employees often prefer perks such as home-office reimbursements.
Your benefits mix directly impacts the costs as well as the types of benefits you offer.
How to reduce employee benefits costs
Reducing benefits costs is a top priority for many People Ops departments. But it’s a balancing act—you need to keep your employees happy with the right mix of benefits while avoiding wasteful spending.
Here are some ways to find the sweet spot:
- Research which benefits matter to your employees: Ask your people what they need and want. Survey them regularly and anonymously. For example, if your workforce reports near-term financial stress, maybe a 401(k) with basic options is sufficient. The team might benefit more from a financial wellness program with features such as instant pay or a savings plan. Look for ways to provide flexibility within your core benefits package (e.g., a health savings account alongside standard insurance).
- Choose the right provider: This goes beyond shopping for insurance companies and 401(k) plans. Small and medium-sized firms can benefit from using Professional Employer Organizations (PEOs), while larger companies should consider partnering with an employer of record (EOR) like Oyster. PEOs and EORs have scale to negotiate better benefits rates than many companies can get on their own.
- Learn which benefits have tax benefits: Consider ways for employees to pay for benefits with pretax dollars. For example, under section 125 of the Internal Revenue Code in the US, cafeteria plans allow employees to pay for certain benefits with earnings before tax. The employer saves money because the IRS doesn’t consider those wages for federal income tax purposes, reducing your Payroll tax burden.
Offer competitive employee benefits with Oyster
Structuring fair and competitive compensation packages with a healthy mix of wages and salaries and employee benefits is tough to do in one state or region. Add the complexities of operating across state borders or internationally, and it becomes a headache for People teams. Expanding benefits packages to include perks such as commuter benefits and employee discounts compounds the challenge.
With Oyster’s Employer of Record (EOR) service, you have the flexibility to provide competitive local benefits no matter where you do business. When you partner with Oyster, you can tailor employee benefits packages to different parts of the world. Our all-in-one EOR solution ensures your employees receive not only great incentives but also the support they need, enhancing their overall work experience and productivity.
Explore Oyster’s Total Rewards program and optimize your employee benefits today.
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About Oyster
Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.
