The cost of employee benefits has increased by almost 10% in the past year, and may not be sustainable in the long term at that pace of growth, according to the findings of The Conference Board of Canada’s inaugural employer-sponsored survey of benefit programs.

“Last year was a challenging one for employers. Now that the economy has emerged from the recession, employers are looking to find the right balance between containing costs and ensuring that benefit programs are competitive in attracting and retaining key talent,” said Karla Thorpe, associate director of compensation and industrial relations, and author of the report.

The report, Benefits Benchmarking 2009: Balancing Competitiveness and Cost, is based on the Conference Board’s inaugural survey of employer-sponsored benefits, which included responses from 255 Canadian organizations.

Although the economy has started to grow again, a number of structural issues are fundamentally altering the landscape in which employer-sponsored benefits are offered, the report says. These issues include: an aging population, which is increasing utilization rates for benefits; new and expensive drugs that have come onto the market; and an ongoing shift of costs from public health care to employers.

Of the organizations surveyed, 78% said they have well-developed benefits strategies, but only 14% said they believe their benefit programs are very effective at meeting the objectives of their strategies.

Some of the areas where employers fall short include enhancing employee health, increasing the connection between benefit programs and employee engagement, and containing costs.

With costs accelerating at a year-over-year rate of 9.7%, the priorities for organizations in the next 12 to 18 months are to ensure that employees understand the value of their benefits program, and to contain expenditures.

The average cost of employee benefits is 19.9% of gross annual payroll, according to the Conference Board. Costs are slightly higher in the public sector, at 22.5% of gross annual payroll, compared to average private sector costs of 18.8%.

Roughly one-third of all spending on benefit programs is comprised of legally-required payments, including Canada Pension Plan/Quebec Pension Plan contributions, employment insurance premiums, workers’ compensation, and other expenses such as the Ontario Health Tax.

Retiree benefits are offered by 45% of respondents, and employers that do offer these programs are looking at models that include greater employee cost sharing. The average annual cost of benefits for retirees was 1.9% of gross annual payroll.

IE