Employee benefits are an important part of total compensation, but many employers ask the same question again and again: How much should we actually spend on benefits?
No single percentage works for every business. The cost of an employee benefits plan depends on factors such as the size and demographics of your workforce, the benefits included, employee utilization and how the plan is funded.
Rather than focusing on a specific percentage, employers should focus on whether their benefits spending is providing meaningful value for both the business and its employees.
What does an employee benefits plan cost?
There is no universal average because group benefits plans can vary significantly from one employer to another.
We’ve found that annual premiums can range from approximately 15% of payroll for some smaller businesses to as much as 30% for larger companies. These are broad estimates, not a target that every employer should aim for.
A plan that includes extended health, dental, disability, life insurance, paramedical services, and additional wellness benefits will cost much more than a more basic plan.
What determines the cost of employee benefits?
Several factors influence how much an employer pays.
The benefits you offer.
First, consider what your plan actually covers.
Common group benefits include extended health and prescription drugs, dental, vision care, life insurance, disability coverage, travel insurance, paramedical services and wellness or health spending accounts.
More comprehensive coverage can mean higher premiums, but more coverage isn’t automatically better. The goal is to offer benefits that are relevant to your workforce and aligned with your budget.
Employee utilization.
How employees use their benefits can significantly affect plan costs.
Higher-than-expected claims, particularly in areas such as prescription drugs, paramedical services and other health benefits, can influence future premiums.
Looking at claims and utilization data can help employers understand where their benefits dollars are going and identify areas that may need attention.
Your workforce.
The size and makeup of your workforce also affects pricing.
A benefits plan for a small business with 10 employees will look very different from a plan for a company with hundreds of employees. Factors such as employee demographics, family status and the types of jobs employees perform can all influence how a plan is used.
Cost-sharing.
Employers don’t necessarily have to cover 100% of every benefit.
Depending on the plan, employers may choose to share premiums with employees or make certain benefits optional. Cost-sharing can help manage a benefits budget, but consider it alongside employee expectations and the role benefits play in recruitment and retention.
Is spending more on benefits always better?
We don’t think the answer is always yes.
A benefits plan should provide value, not just the longest list of covered services.
Cost is clearly an important consideration for employers in Canada. In a 2025 survey, 82% of employers identified cost as their primary consideration when defining and reviewing their benefits plans.
At the same time, only 45% of Canadian employees surveyed reported being satisfied with their employer’s benefits plan.
For us, that raises two questions: “Can we reduce our benefits costs?” and “Are we spending our benefits dollars on the things our employees actually value?”
How can employers manage benefits costs?
When premiums increase, reducing coverage isn’t the only option. A thorough benefits review uncovers other opportunities to manage costs while maintaining meaningful coverage.
Understanding which benefits are used and where costs are rising can help you make targeted changes instead of cutting coverage across the board. Then, compare your coverage and costs with similar employers. This will provide valuable context. In 2025, 91% of Canadian employers surveyed said they planned to benchmark their benefits plans against market practices.
Next up, ask employees what they value. Your employees use the plan. Employee feedback can reveal where your benefits meet expectations and where gaps may exist.
Lastly, look at the plan as a whole. A benefits review should consider premiums, coverage, claims experience, employee contributions, administration and how the plan fits into your overall compensation strategy.
What should you budget for employee benefits?
Instead of starting with a predetermined percentage of payroll, start by considering what you want your benefits plan to accomplish.
Ask yourself:
- Who are your employees and what benefits matter most to them?
- What are you currently spending?
- Which benefits are being used most?
- Is your plan competitive within your industry?
- Are upcoming renewals or workforce changes likely to affect costs?
With rising benefits costs continuing to be a concern, these questions are extremely important and something we ask all companies to consider when we work together.
Have Navy & Sage Benefits review your plan.
At Navy & Sage Benefits, we help Canadian employers understand where their benefits dollars are going and identify opportunities to create a plan that works for both their business and their employees. If you haven’t reviewed your benefits plan recently, let’s talk.
