Voluntary Benefits
Voluntary Benefits are optional, employee-funded benefits that are offered through the employer but paid for by the employees, usually through payroll deduction. They can range from life and disability insurance to pet insurance and more. Such benefits supplement core employee benefits, offering a more comprehensive coverage or protection.
Last updated: September 28, 2023 • 8 min read
What Does the Term "Voluntary Benefits" Refer to in Human Resource Management?
"Voluntary Benefits" refers to optional benefit programs that employers provide to their employees. They cover a wide range of services beyond mandatory benefits, often including life insurance, disability insurance, accident insurance, critical illness insurance, health insurance, retirement plans, etc. Employees have the choice to opt-in or out and usually fund these non-employer sponsored benefits themselves, often through payroll deductions.
What Is the History of Voluntary Benefits?
The concept of voluntary benefits traces back to the early 20th century when life insurance companies started selling policies to employees at their workplace with the employer’s permission. The idea gained traction during World War II. The U.S government put a freeze on wages but allowed employers to offer benefits in a bid to attract workers. This led to the rise of employer-sponsored health insurance.
In the 1950s and 60s, an era of strong labor unions, collective bargaining resulted in an expansion of employee benefit offerings, including pensions and healthcare. However, the subsequent decades saw the rising costs of these benefits, and by the 1980s, employers began to cost-shift to employees. This shift fueled the growth of voluntary benefits that allowed employees to pick and choose additional coverage to suit their personal needs.
In the 21st century, high healthcare costs and changing demographics in the workplace have put a renewed focus on voluntary benefits. Particularly with the advent of technology and the gig economy, voluntary benefits have evolved. Now they often include a host of additional, non-insurance benefits such as tuition assistance, student loan repayment, wellness programs, and customized benefits catering to diverse workforce needs.
What Are Some Examples of Voluntary Benefits?
Here are some examples of voluntary benefits:
- Health Insurance Plans: These can include vision, dental, and general health insurance.
- Life Insurance: This can be term life, whole life, or universal life insurance.
- Disability Insurance: This includes both short-term and long-term disability insurance.
- Accident Insurance: This provides coverage in case of accidents or injuries.
- Critical Illness Insurance: This provides coverage in case of serious illnesses like cancer or heart disease.
- Retirement Plans: Examples could be a 401(k) or Individual Retirement Accounts (IRAs).
- Education Assistance: This can include tuition reimbursement or college savings plans.
- Legal Assistance: Some employers offer prepaid legal assistance as a voluntary benefit.
- Employee Discount Programs: Offers discounts on products or services.
- Wellness Programs: These can include gym memberships, weight loss programs, or smoking-cessation programs.
- Financial Counseling Services: This aids employees in managing their finances, debt counseling, etc.
- Pet Insurance: This helps cover veterinary costs for employees' pets.
- Travel Assistance: This can include services related to travel emergencies when employees are away from home.
What's the Difference Between Voluntary Benefits and Supplemental Benefits?
In the context of employee benefits, the terms "voluntary benefits" and "supplemental benefits" are often used interchangeably, and the distinction can be somewhat blurred. Generally, both refer to benefits that are offered through an employer but are not included in the employer's core benefits package.
"Voluntary Benefits" usually refers to a range of insurance and other programs that employees can choose to participate in at their own expense. These can include life insurance, dental coverage, vision coverage, disability insurance, and more. The key characteristic of voluntary benefits is that they're elected by the employee and typically paid for by the employee, often through payroll deductions.
"Supplemental Benefits", on the other hand, generally refers to additional coverages or policies that an employee can purchase to supplement their main health insurance plan. These might include policies for critical illness, accident insurance, or hospital indemnity insurance, which provide additional coverage in the event of specific healthcare needs or events not fully covered by their main health insurance.
In some contexts, however, the terms may be used differently, with "supplemental benefits" also being used to describe any benefits beyond the employer's core benefits offering, whether or not they're insurance-related and whether they're paid for by the employer or the employee. Ultimately, the precise definition can depend on the context and the specific benefits program.
What Are Some Examples of Supplemental Benefits?
Here are some examples of supplemental benefits:
- Accident Insurance: Pays out in the event of an accidental injury. It's designed to cover the gaps in coverage that major medical insurance may not cover.
- Critical Illness Insurance: Provides a lump sum cash payout if an employee is diagnosed with a covered critical illness such as cancer, heart attack, stroke, etc.
- Hospital Indemnity Insurance: Provides a daily, weekly, or monthly cash benefit for hospital stays to cover non-medical related expenses.
- Disability Insurance: Offers income protection if an employee becomes disabled and is unable to work for a period of time.
- Life Insurance: Provides a death benefit to beneficiaries upon the insured's death, helping to cover funeral costs, unpaid medical expenses, and living expenses.
- Dental and Vision Insurance: These help cover the costs of dental and vision care, which are not often covered by standard health insurance.
- Long-Term Care Insurance: Covers care not typically covered by health insurance, Medicare, or Medicaid, such as assistance with routine daily activities like bathing, dressing, or getting in and out of bed.
- Pet Insurance: Helps with the veterinary costs.
- Travel Insurance: Covers unexpected events when traveling, such as trip cancellation, loss of luggage, or medical emergencies.
Remember, these are voluntary and employees can choose whether or not to enroll in them.
What's the Difference Between Voluntary Benefits and Ancillary Benefits?
Voluntary benefits and ancillary benefits are two different types of employee benefits, although they can overlap.
Voluntary benefits refer to the additional benefits offered by an employer that are not part of the mandatory benefits package. Employees have the choice to opt-in, and these benefits are usually paid for by the employees, often through payroll deductions. Examples include life insurance, critical illness insurance, accident insurance, and more.
Ancillary benefits, on the other hand, are additional types of benefits that broaden the scope of coverage for employees. These can also include non-insurance benefits that contribute towards the wellness of employees. They are typically categorized into three groups: health insurance-related products (like dental and vision insurance), disability insurance, and life insurance.
The key distinction lies in that ancillary benefits are typically paid in part or entirely by the employer, whereas voluntary benefits are generally paid for by the employee. However, in practice, the lines can blur and the terms can be used interchangeably, depending on the specific offerings and policies of each company.
What Are Some Examples of Ancillary Benefits?
Here are some examples of ancillary benefits:
Dental Insurance: Provides coverage for a range of dental services, from preventative care to more significant procedures and surgeries.
Vision Insurance: Covers costs of routine eye exams and can defray the cost of glasses or contact lenses.
Life Insurance: Provides a payout to beneficiaries upon the death of the insured individual.
Disability Insurance: Offers income protection in the event the employee becomes unable to work due to disability. It can be either short-term or long-term.
Retirement Plans: These are plans, usually involving some form of contribution matching from the employer, which help employees save for retirement.
Employee Assistance Programs (EAPs): Programs that provide confidential resources for handling various personal issues, potentially including mental health resources or financial counseling.
Wellness Programs: These might include gym memberships, onsite fitness classes, or weight loss programs aimed at promoting employee health and reducing healthcare costs.
Legal Assistance Plans: These offer access to legal consultation and services, usually for a subscription fee.
Education or Tuition Assistance: Some employers offer to cover or subsidize the costs of further education for their employees.
Childcare Assistance: Some employers offer onsite child care, subsidies for child care, or access to emergency/back-up child care services.
Remember, these are generally provided on top of a base insurance plan, and are often paid for, at least in part, by the employer.
What Factors Influence an Employee's Choices Regarding Voluntary Benefits?
Several factors can influence an employee's choices regarding voluntary benefits:
Personal Needs: Employees choose benefits based on their personal needs and circumstances such as family size, age, health conditions, lifestyle, and financial situation. For instance, someone with a family might prioritize life insurance, while a younger, single employee may care more about tuition reimbursement.
Cost: The cost of the benefit is a significant factor. Employees are more likely to opt for benefits they find affordable.
Understanding of the Benefit: If an employee doesn't understand the benefit or its value, they are less likely to opt for it. Hence, communication and education about the benefits from the employer are crucial.
Peer Influence: Employees may be influenced by their colleagues' choices and experiences.
Future Considerations: Employees may choose benefits based on future considerations and life planning. For instance, they might invest in a retirement plan or health insurance to secure themselves for later years.
Financial Security: Any benefit that offers financial security in case of unforeseen circumstances, such as disability or critical illness insurance, may be a deciding factor for many employees.
Availability of Similar Coverage: If an employee's spouse or partner already has robust coverage for a given area, the employee may decide not to duplicate that coverage.
Quality of the Benefit: The reputation of the insurer and the perceived quality and scope of coverage can also influence an employee's decision.
Convenience: Some employees may choose benefits that simply make their lives easier or more convenient, such as childcare services or flexible working hours.
Personal Preferences: Individual attitudes, preferences, and values also play a role. For example, a pet-loving employee might appreciate pet insurance, while others might find it unnecessary.
What Advantages Do Voluntary Benefits Offer to Employees and Employers?
Voluntary benefits offer several advantages to both employees and employers:
For Employees:
Customization: Voluntary benefits allow employees to customize their benefits package to suit their personal needs and lifestyle.
Cost efficiencies: Because these benefits are typically part of a group plan, employees can often avail of them at lower rates compared to purchasing them individually.
Convenience: Payroll deductions make it simple and easy for employees to pay for their benefits.
Financial Security and Protection: These benefits provide added financial protection against unforeseen circumstances (like illness, injury, disability, etc.) that are beyond what the traditional benefits cover.
For Employers:
Enhanced Benefits Package: Offering voluntary benefits enhances the employer's benefits package, making the company more attractive to current and potential employees, and could therefore contribute to attracting and retaining top talent.
Cost-Effective: These benefits are cost-effective for employers as they are typically employee-funded.
Improved Employee Morale and Productivity: A robust voluntary benefits package can boost employee morale and productivity, as employees will feel valued and cared for, leading to increased job satisfaction.
Employees' Personal Needs Addressed: By providing a range of benefits, employers can cater to the diverse needs of their employees, which can increase engagement and loyalty.
Administrative Support: Often, benefit providers deliver plan administration and member services support, reducing the employer's workload.
What Are the Negative Effects of Voluntary Benefits?
While voluntary benefits offer several advantages, there are also potential drawbacks that should be considered:
For Employees:
Cost: Because employees generally pay for voluntary benefits themselves, these plans can represent an added cost. This might be especially burdensome for employees with limited disposable income.
Complexity: Understanding the details of various benefit options, including the terms and conditions, can be complex and confusing for employees. Making the “wrong” choices could lead to insufficient coverage or unnecessary costs.
Under-utilization: Employees may not fully use the benefits they sign up for, either because they forget they have them or don't fully understand how to utilize them.
For Employers:
Administrative Burden: Although voluntary benefits are typically employee-funded, administering these programs, including managing payroll deductions and resolving potential issues, may increase the workload of the HR Department.
Communication Challenge: Employers may struggle with effectively communicating the value of voluntary benefits, leading to low enrollment rates and misunderstanding of such benefits among employees.
Potential for Discontent: If the voluntary benefits offered don't align with the needs and wants of the majority of employees, it could lead to dissatisfaction.
Liability Risks: If there is a misunderstanding or lack of clarity regarding coverage, employers might face liability risks.
Overall, it’s vital for employers to thoughtfully consider and design their voluntary benefits program, ensuring it meets both their organizational needs and the needs and preferences of their employees.