How to Measure Employee Benefits ROI

The majority of the businesses know the significance of an employee benefits program, but not all of them can measure employee benefits ROI.

ROI (Return On Investment) is one of the measures that one can use to assess the efficacy of an employee benefits program.

There is no perfect method towards limiting the financial impact of being a plan sponsor. As a matter of fact, one man’s food is another man’s poison, meaning that what works for one company might be completely absurd for another company. Finances play significant role when it comes to deciding on what will work best for your organization, but your competitors might play an equally key role in the decision-making process.

Take your time to research other organizations in your industry and see the type of benefits they provide for their employees and how much of the premium they are covering. This will give you an insight to what employees in your market are expecting or looking for from their employers and potential employers. In other words, research before you embark on anything.

Health benefits are the first fringe benefit provided by employers, and are an essential part of the strategy for employee recruiting and retention. A lot of employers look at employee benefits as an investment in employees. Companies who execute clear contribution benefits, like long-established health benefits, are looking to quantify their ROI.

Comparing the cost of employee turnover with the cost of employee benefits is one way to measure ROI on defined contribution health benefits. You can do this at the beginning of the employee benefits program (as a yardstick), and as a continuing exercise. Follow these 2 steps to calculate ROI in this way.

Step 1

Compute Your Present Cost of Employee Turnover

The cost of losing an employee differs by role at the company as well as the industry. You can calculate the cost of employee turnover by pay grade or role.

Step 2

Compute the ROI of Defined Contribution Employee Benefits

Compute the costs of your employee before implementing the employee benefits and after a time period like a quarter, to get the ROI of the defined contribution health benefits program.

ROI is computed using this equation:

ROI = [(Payback – Investment)/ Investment)]*100


Investment = Cost of the employee benefits

Payback = Amount saved by implementing employee benefits program

Computing the ROI based on defined contribution employee benefits offers companies with quantified ROI measurement of the impact of employee benefits. This is an appreciated measurement to give board members as well as use as a key performance indicator for HR.

The associated cost and absenteeism is another way to measure ROI on employee benefits. Make sure you track the days missed before you begin to provide health benefits, and over time.