Salary Increase vs. Group Benefits

As the economy rebounds employee compensation continues to be a topic at the top of mind for many employers. The two most common types of compensation for employees are Salary Increases and Employee Benefits. Many companies are still faced with cutting back annual pay raises from an average of 2-3% to 1% or less. Therefore it is more important than ever to make sure employees see value in their compensation package. While Employee Benefits may appear to be an added expense to an organization, they hold distinct tax and cost advantages, both to the employer and employees. The following is a sample comparison of costs of a salary increase vs. employee benefits. (See table1)

A comparison of costs for the Employer: (table1)

Raise Group Benefits
Enhancement $1,050.00 $1,050.00
EI $30.87 N/A
CPP $51.98 N/A
WSIB* $22.99 N/A
Sales Tax** N/A $84.00
Payroll Tax $10.29 N/A
Total: $1,166.13 $1,134.00

*Using an industry average of 2.19% (circa 2003)
** 8% Ontario Retail Sales Tax

The net impact: it costs the employer almost $30 more to implement a raise in pay, as opposed to group benefits. However, the real difference is found when comparing the benefits to the employee. (See table2)

A comparison of benefits for the employee: (table2)

Raise Group Benefits
Enhancement $1,050.00 $1,050.00
EI ($22.05) N/A
CPP ($51.98) N/A
Income Tax Deducted N/A N/A
Payroll Tax $362.40* N/A
Total: $613.57 $1,050.00

*This is the total Income tax deducted over I2 pay periods

As you can see, there is a distinct advantage to both employer and employee to implement group benefits as opposed to a salary increase. Consider that:

  • For a group of l0 employees at $30 an employee, the employer saves $300 per year
  • Employees gain an additional $436.43 per year
  • The added value to the organization will help attract and maintain valuable employees
  • Benefits promote good health and productivity
  • Benefits offer comfort and security to both employees and employer

If you would like to discuss the added value of a Group Benefits program for your employees, please contact Chris Pryce at Ideal Benefits at 416-904-8726.