Cutting employee benefits to save costs? Experts warn: think twice before acting
Recent cuts to employee benefits, especially parental leave, by companies like Deloitte and Zoom have drawn attention. Mercer consulting actuary Rich Fuerstenberg points out that amid continuously rising healthcare costs, companies should make cautious decisions, as actual savings from benefit cuts may be far lower than expected and could damage employee trust. He advises companies to assess the value of existing programs, benchmark against standards, and evaluate real savings before acting, while also considering other cost-control methods such as unlimited paid time off.
Recently, companies such as Deloitte and Zoom have made headlines for deciding tocut employee benefits—especially parental leave.
Ashealthcare costscontinue to rise, other companies may want to follow suit. But Rich Fuerstenberg, a senior consultant and actuary at consulting firm Mercer, says any benefits decision should be made carefully.
An April Mercer report found that about three-quarters of U.S. finance leaders with budget oversight rank healthcare costs among their top five operating expense concerns, with 38% saying they havecut other benefits spending。
"Everything is on the table," Fuerstenberg said.
Companies look for savings wherever they can, and sometimes CFOs come in with a "sledgehammer," he said. HR departments can help add nuance to the conversation, explaining ROI in terms of retention rates and putting benefits costs into context.
"If we work with a client to reduce life insurance rates by 10%, their rates drop by 10%. But if you cut parental leave from 20 weeks to 15 weeks, costs don't drop by 25%, because not everyone takes the full 20 weeks," Fuerstenberg said.
The savings from cutting paid parental leave also vary by industry and state, he said.
For example, in a hospital or retail setting, if someone takes leave, that position likely needs 100% replacement. But in a white-collar workforce, work might be redistributed, he said. Meanwhile, many states mandate paid family leave, so employers don't bear the full cost of leave.
"The optics of this cut certainly won't be accepted by employees. Do we really get the value from this cut that we see from a macro perspective?" Fuerstenberg said. "If we're only saving this nominal amount, is it worth the negative backlash from employees?"
Before making a cut, companies should consider three questions, he said: how to justify the value of existing programs; how they perform against benchmarks; and how much they can actually save.
"When you factor in state-mandated benefits, productivity costs, exempt versus non-exempt employees, is it still worth it? When you start adding up those hidden costs, maybe it's not worth it," Fuerstenberg said.
He noted that companies have other potential ways to cut costs, including offering unlimited paid time off (PTO).
"If you cut parental leave from 20 weeks to 10 weeks, the company wins and the employee loses. That's it, no negotiation," Fuerstenberg said.
When moving to unlimited PTO, the only ones who typically lose out are those who had accrued paid leave when they leave, he said. "Since everything is on the table, I have to find savings. I think that's one of the areas where savings can be found."