Modern suite of benefit options increasingly a differentiator

This article was produced in partnership with Brock Health.

Mallory Hendry of HRD sat down with Kenton Shouldice, founder and CEO of Shouldice Wealth, to discuss what modern benefit options really means and what employers should be paying attention to.

When it comes to workplace benefits, the gold standard is to create a modern suite of options that attracts and retains talent, as well as boosts productivity all while saving money. If you ask Kenton Shouldice, a health spending account should be the core of any benefits strategy because it covers every major box employers should aim to check – and when it comes to his evaluation of the traditional benefits that employers so often default to, he doesn’t mince words.

“They’re too expensive, less flexible and worse in [almost] every way,” Shouldice, founder and CEO of Shouldice Wealth Ltd., sums up.

Standard benefits are much more rigid that health spending accounts (HSA): there’s a list of what they cover, whether up to a dollar amount or a percentage, and there’s no option to change those allocations. They’re also high cost: Canadian insurance companies are an oligopoly, with Manulife, SunLife and Great West with over 80% of the market share. They have pricing power and build in a target loss ratio – AKA a profit margin – of around 28%. This margin is even higher for smaller firms. An HSA is typically less than 10% – with Brock Health, a private health services plan that provides comprehensive employee benefits, it’s a flat 5% fee. This cuts insurance fees between 300-600% while providing employees with the flexibility to align the funds with their priorities.

“Benefits are provided as an insurance product because for insurance companies it’s that old analogy that if all you have is a hammer everything looks like a nail,” Shouldice says. “Employers can still offer insurance with a high deductible for life, critical illness and disability coverage – things that are rare but catastrophic – and provide health spending accounts which are cheaper and more flexible to cover everything else.”

Part of the problem is that the benefits industry can be overwhelming: employers see other companies providing things like ping pong tables and nap rooms and wonder if that’s what they should be offering as well. Shouldice recently wrote an educational guide on workplace benefits that outlines a checklist of four questions employers should ask themselves to narrow down what to provide and why:

1. What problems can I solve for my employees? If you don’t know, ask them! Solving these problems will make prospective employees more likely to join and existing employees more likely to stay.
2. What prevents or distracts my employees from doing their work? Maybe they’re stressed about their finances, health or who’s going to pick their kid up after school. Whatever it is, focus your efforts on minimizing or eliminating these issues.
3. How can I show employees that I care? For example, offering life insurance shows that the company cares not only about the employee, but also about their family. If employees see that the company cares for them, they will take care of the employer.
4. What employee expenses can I cover tax-free? If they are already being paid for out-of-pocket with after-tax money, the employer can use benefits to cover them tax-free, leaving both employee and employer with more money after-tax.

An HSA ticks all 4 boxes, you’re solving a problem that distracts employees from work, while showing you care and covering it all tax-free. As a result, employers are able to boost productivity and save money while they attract and retain top-tier talent. This is more important than ever as we transition from the old-world ideal of working for the same company for 30 years and retiring with a gold watch and a pension, to a cohort of people who are very much willing to change up their career for a variety of reasons.

Whether you call it the gig economy or something else, it’s characterized by high turnover – the cost of which is only increasing. A study by Forbes concluded, “off-the-shelf estimates are available, which set the cost of an entry-level position turning over at 50 percent of salary; mid-level at 125 percent of salary; and senior executive over 200 percent of salary”. Our neighbours to the south are a leading indicator of what’s coming: currently, there are 5 million more job openings than unemployed people, or 1.8 jobs for every unemployed person.

“In that environment as an employer you’re competing for talent,” Shouldice says. “They need to focus on ways to attract, retain and keep employees productive – so solve some problems for your employees so they can solve problems for you.”

While the first three questions are valuable, the last one is more tangible and easier to quantify. As someone in finance, Shouldice loves to explain how everybody wins if employers cover health costs with pre-tax corporate revenue instead of employees paying taxes on their salary and using after-tax money to pay for benefits. Employers save on taxes by paying for benefits before tax, leaving both the company and its employees better off. The only entity who loses out is the government, he says, and he’s OK with that.

“Because we’re talking about people’s health issues, I think government would be OK with that too. It’s covering legitimate costs and if people fall through the cracks because they can’t afford health care, it eventually comes back to them anyway.”

Shouldice urges employers not to overlook perks, which “are interesting because they provide benefits that cost nothing but are very valuable.” Many can only be provided by the employer, as is the case with flexible hours or remote work options. Employers can also offer discounts on company products or services, paid time off and education or development within the company. This last one ensures employees can advance their careers within the company instead of feeling they need to move on to move up.

“These things are free or almost free to the employer, and extremely valuable to the employee,” Shouldice says. “Benefits don’t always have to be about money – don’t overlook perks.”

Ultimately, if he had to narrow it down to one piece of advice, Shouldice says employers must keep in mind that benefits are not one-size-fits-all. If you’re a tech company hiring programmers straight out of university, a retirement plan probably isn’t their priority. They’re likely more concerned about graduating with record-high student debt levels, and a program to help pay student loans is a more valuable use of a benefit. On the other end of the spectrum, if you have an older workforce that retirement plan is likely going to be highly prized.

If you have a diverse pool of employees, why not offer both? Tell employees they may allocate the money the company is matching to either a retirement account or towards debt repayment and let them prioritize what matters to them. Shouldice recommends taking a step back and simply asking your workforce what they want, instead of telling them what you’re giving – that way they’ll be more satisfied with what they get.

“Having a flexible benefit strategy like that afforded by a health spending account is valuable,” Shouldice says. “You can design it around your workforce and everybody’s happy. Yes, benefits require time and money but the benefits certainly outweigh the cost – pun intended.”

Kenton Shouldice has over 13 years of experience in the investment management industry. Most recently, as Vice President of Portfolio Management at Fiera Capital where he oversaw $3 billion in High Net Worth client assets. Mr. Shouldice founded Shouldice Wealth in 2016 with the goal of bringing integrated wealth management services, typically only available to high net worth individuals, to the emerging affluent. Kenton is also a CFA® charterholder.