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Labor and benefits comprise the largest percent of costs for most American corporations, and the retail industry is not exempt. According to the Food Marketing Institute’s (FMI) The Food Retailing Industry Speaks 2007, food retailers spent a median of 3.2 percent of their total company sales on benefits. These same retailers reported a hefty 7.0 percent increase in health benefits costs in 2006. Additionally, combined store labor and benefit costs represent 13.8 percent of total sales. No other expense category comes close to this percentage.

It’s obvious with those numbers that annual reviews of your benefits programs are essential. Designing programs that are tailored to your store, your employees’ needs and your bottom line is a daunting prospect. But as benefits continue to play a large part in retailers’ ability to attract and retain great personnel, it’s important that you do your homework and give your own benefits program an annual checkup.

The Cost of Doing Business
Employee benefits remained relatively stable from 2006 to 2007, despite a slight decrease in the percentage of organizations offering some financial and compensation benefits, according to the results of the Society for Human Resources Management’s (SHRM) 2007 Benefits Survey.

The annual survey of human resource (HR) professionals gathers information on the types of benefits employers offer to their employees. Conducted since 1996, it includes the percentages of human resource professionals whose organizations offered each benefit, comparisons across organization staff size and industry, and year-to-year trends.

The most commonly offered benefits were direct deposit of paychecks, paid holidays, professional development opportunities, payroll deductions, prescription drug program coverage and dental insurance. Additionally, almost all organizations offered some type of health insurance plans.

The SHRM study also noted that with a few exceptions, organizations with larger staff sizes were more likely than smaller ones to offer any particular benefit. HR professionals indicated that their organizations spent an average of 38 percent of payroll on total benefit costs: 20 percent of the costs were due to mandatory benefits and 18 percent to voluntary benefits.

An interesting response from HR personnel indicated they planned within the next year to include pro-active wellness programs in coming benefit packages such as weight loss programs (5%), smoking cessation programs (6%), health screening programs (5%), and health care premium discounts for getting an annual health risk assessment (6%).

Overall, 41 percent of HR professionals indicated that their organizations offered some form of domestic partner benefits (opposite-sex partners, same-sex partners or both).

Thirty-eight percent reported that their organizations offered health care benefits for dependent grandchildren, and 29 percent offered health care benefits for foster children.

For the seventh consecutive year, dependent care flexible spending accounts was the most commonly offered family-friendly benefit. More than three out of four HR professionals (76%) indicated that their organizations offered dependent care flexible spending accounts to allow employees to set aside pre-tax dollars that can later be reimbursed for dependent care expenses.

FMI Speaks: The Cost of Rising Health Care
FMI Speaks reports that for four consecutive years, food retailers battled double-digit insurance premium increases. The median increase in health care costs in 2006 was 7.0 percent. For 2007, retailers are predicting an 8 percent increase.

In 2006, overall employer health insurance premiums increased by 7.7 percent. The annual premium for an employer health plan covering a family of four averaged nearly $11,500. The annual premium for single coverage averaged more than $4,200.

The reports details the impact that rising healthcare costs are having on retailer operating margins.
“While total benefits made up a median of 3.2 percent of retail sales in 2006, healthcare costs alone averaged 1.2 percent. Food retailers have explored various strategies to contain costs, including increasing the employee share of the overall benefit costs, employee education, incentives for preventative measures, making changes to their benefits plans and researching lower-cost alternatives,” the reports states. “Three-quarters of supermarket companies that experienced cost increases in 2006 passed on part of the costs to their employees. Twenty percent of companies fully absorbed the additional expenses, and no companies reported passing on the full increase to their employees. Independents were much more likely to absorb the cost increases fully than larger companies, especially chains. At the same time, independents are the most likely to increase employee eligibility requirements as a way to reduce the impact.”

FMI research also relates that retailers were far less likely to reduce benefits in the past two years. Only 30.9 percent of retailers did so. Independents were most likely to reduce benefits at 34 percent, compared with 29 percent of regional operators and 26 percent of chains.

More than one-third of companies (37.8%) offered incentives for preventative measures such as regular checkups and exercise programs. Experts expect an increase in the number of companies offering these kinds of plans. Among companies that currently do, 77.4 percent provide incentives for screenings, regular checkups (51.6%), nonsmokers (45.2%) and exercise programs (35.5%).

Almost one-fifth of retailers (19.5%) found ways to reduce their health plan costs. Additionally, 9.1 percent managed to keep their spending the same as the year before. Of those retailers that reported increases, the costs jumped between 1 percent and 28 percent.

Overall, 55 percent of associates employed by the supermarket companies surveyed are eligible for healthcare. On average, employees have to work a minimum of 30 hours to be eligible for benefits. The kind of benefits may differ based on the number of hours worked each week, with part-time employees less likely to have access to the range of health benefits. Among companies where at least 20 percent of all employees are unionized, the percentage of employees eligible for health insurance is much higher at 90 percent.

2006-2007 showed that the majority of companies (92.7%) share the cost of health insurance with employees. Very few (7.3%) pick up the full cost. All companies surveyed made at least one kind of plan available to their full-time employees and slightly below half offer benefits to their part-time employees as well. Preferred Provider Organization (PPO) plans are the most common types offered. PPOs help control costs by steering patients into more affordable medical settings, negotiating provider discounts, encouraging preventive measures and developing networks of doctors and hospitals. For about one-third of companies, healthcare coverage eligibility starts at 90 days of service, followed by 30 days at roughly 30 percent of companies.

DIY: A Southern Season
Specialty independent retailers are faced with their own sets of demands when examining employee benefits. First, there is the size of your store’s operation, coupled with state and federal benefits requirements.

A Southern Season in Chapel Hill, N.C., is a single-store operation. But with a cooking school, restaurant, large catalog and Internet business, it’s a company with an extensive staff. There are approximately 300 full-time people working at A Southern Season; 120 part-time associates; and another 250 seasonal staff.
human resource manager Codruta Roberts explained that A Southern Season offers all salaried employees medical, dental, life insurance, short-term/long-term disability, as well as supplementary life insurance. It also offers a 401k/Profit Sharing plan that provides employees a retirement savings program with additional incentive based on company performance.

Roberts suggests retailers who are researching their first or reviewing their existing benefits programs first poll their employees to find out what services are important to them. She also suggests starting with a per person budget based on standards in your area and industry.

“Look at the research and see what is more important for the employees. Ancillary benefits are also very important. Surveying your employees is very helpful. Where I worked before, there were a lot of moms with children, so flex time was important. In retail, that is not the case,” she explained. “There is a whole lot of research out there based on size and industry. North Carolina averages $2,700 a year per employee for benefits.”

In order to have a true contributory plan, employers must contribute a minimum of 50 percent of the cost of the program. Federal and state regulations mandate a variety of offerings. While federal programs are a minimum standard, state regulations often add another layer of requirements.

“North Carolina mandates that group policies have prostate cancer checks, mental health and substance abuse benefits, coverage for mammogram and PAPs,” Roberts explained. “Massachusetts has an infertility option.”
She continued, “Most companies in North Carolina offer at least group medical insurance to their employees; North Carolina legislation requires employers to pay at least 50 percent of the premiums. As part of ancillary coverages, they can also offer dental, life, short- and long-term disability, and other voluntary coverages (employees pay for them, but it is payroll deducted). We offer medical, dental, life, std, ltd, vol. life, retirement benefits (401k profit sharing), we have the employee discount, the employee referral bonus and PTO.”

Next year, A Southern Season will begin offering Health Savings Accounts, an option that receives high ratings from HR representatives across the board. Roberts said the IRS Web site provides great information on these programs. Other sites to begin your research include large health care organizations such as United Health Care, Coventry, Aetna, Cigna or Blue Cross/Blue Shield.
Once you determine the per employee budget and the types of services you want to provide, Roberts suggests employers go to a licensed agent and ask them to provide details on what the budget you have will provide.

“Once you set your program,” Roberts said, “plan for an annual review and an increase. Last year, we saw a 6 to 7 percent increase. I would budget 15 percent. But if I had a staff of 15 young men who were my employees, I would not budget as much as if I had a staff of women in their child-bearing years or older employees who may have additional health issues.”

Benefits are an area of your budget and your employee services that can make you stand out against the competition. Companies who offer creative and well-designed programs are able to attract and maintain loyal staff. But it’s important to maintain a close watch on available programs, price increases and changes to state and federal regulations. Developing a close working relationship with a licensed agent/broker and keeping track of local and national trends will ensure your success.

If you would like to comment or send us your feedback, please send e-mail to mmoran@gourmetretailer.com.

What are Benefits
In general, benefits fall into three categories:
Voluntary Benefits: Most employment-based benefits, particularly retirement plans and health insurance, are provided voluntarily by businesses. The government supports these voluntary employment-based benefits by granting favorable tax treatment both to the employers that sponsor them and to the workers who receive them.
Mandatory Benefits: Certain other benefits, including Social Security, unemployment insurance, workers’ compensation, and family and medical leave, are mandatory under federal or state law.
Individual Programs: The government also supports individual financial security programs through individual retirement accounts (IRAs), favorable taxation of life insurance contracts and tax-free death benefits.
Most national benefits providers will detail programs including the following:
Medical — including industry-leading, consumer-directed health benefits and insurance plans
Dental — boost your bottom line with routine dental coverage
Pharmacy — solutions to address rising prescription drug costs
Behavioral Health — enhance employee performance and lower absenteeism
Health Programs — innovative offerings with a holistic approach

Additional Terms:
Flexible Spending Account (FSA). Flexible spending accounts allow members to use pre-tax dollars for certain eligible medical and dependent care expenses. Members fund their FSAs with contributions that come out of their paycheck.
Health Maintenance Organization (HMO). A health maintenance organization is a healthcare system that assumes or shares both the financial risks and the delivery risks associated with providing comprehensive medical services to a voluntarily enrolled population in a particular geographic area, usually in return for a fixed, prepaid fee.
Health Savings Account (HSA). Health savings accounts allow members to put money into tax-advantaged accounts. Qualified contributions made to HSAs are tax-deductible, and funds withdrawn to pay for qualified medical expenses are tax-free. More information about qualifying expenses and the HSA regulation, Section 213(d) of the IRS Tax Code is available on the IRS Web site.
Health Reimbursement Arrangement (HRA). Health reimbursement arrangements are accounts that employers can establish for employees to reimburse a portion of their eligible family members’ out-of-pocket medical expenses, such as deductibles, co-insurance and pharmacy expenses.
Preferred Provider Organization (PPO). A preferred provider organization is a healthcare benefit arrangement designed to supply services at a discounted cost by providing incentives for members to use designated healthcare providers who contract with the PPO at a discount. Members enrolled in PPO coverage can also receive coverage for services by healthcare providers who are not part of the PPO network.