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Insights & advice

How much do benefits cost employers?

Dec. 2021 – 15 min read

Key takeaways

  • While the average annual premium is about 15% of payroll for a smaller business or up to 30% of payroll for large companies, there are small business options for as low as 1% to 5% of payroll.

  • The reasons to offer a benefits plan include employee retention, employee wellness and morale, and some potential tax advantages for employers

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The average cost of employee benefits plans in Canada

Because Canadian health and dental plans vary, it’s difficult to know an average cost. According to MaRSOpens a new website in a new window - Opens in a new window , the average annual premium works out to about 15% of payroll for a smaller businesses or up to 30% of payroll for large companies. 

However, there are benefits plans that cater to small businesses allowing them to offer a plan for as low as 1 to 5 % of payroll.

If you’re setting up an employee benefits plan, and a retirement savings plan at the same time, you may also be able to “bundle” both benefits to save money. 

Note: the percentages quoted here don’t include the mandatory benefits that all Canadian business must provide:

  • Vacation and statutory holidays (varies by province)
  • Maternity and parental leave
  • Sick leave
  • Critical illness leave
  • Compassionate care leave
  • Canada Pension Plan/Quebec Pension Plan contributions
  • Canada Employment Insurance

What percentage of the benefits plan do employees pay?

Employers (plan sponsors) must pay at least 25% of the cost of the plan, which means employees usually pay up to 75% of the cost of benefits.

What types of benefits should you offer?

  • Health insurance – Reimburses the employee and dependents for all or part of expenses for physiotherapy, chiropractic, massage therapy, etc.
  • Drug – Reimburses employee and dependents for all or part of expenses for prescription drugs and drug supplies such as syringes. 
  • Vision – Reimburses employee and dependents for eye exams and a portion of prescription eyeware and contact lenses. 
  • Dental – Reimburses employee and dependents for all or part of expenses for regular check-ups and dental treatments.
  • Out-of-country insurance – Covers medical expenses for employee or dependents if they have a medical emergency outside of Canada.
  • Life insurance – Provides for the employee’s family if the employee dies while they are a plan member. Coverage is usually based on a multiple of employee’s salary.
  • Accidental death and dismemberment (AD&D) insurance – Provides benefits to employee’s family should the employee die accidently, become paralyzed or lose a limb, sight, hearing or speech in an accident.
  • Critical illness insurance – Provides benefits to the employee’s family should the employee be diagnosed with a critical illness from a defined list.
  • Disability insurance – Provides the employee with regular income to replace lost income due to a lengthy disability due to disease or injury.

The benefits of benefits

  • Attract and retain employees – Today, most employees expect, and value,  benefits. In fact, according to Sanofi Canada - Opens in a new window , 86% of plan members  agree their health benefits plan is an important factor when deciding on a job offer. That’s why a benefits plan helps smaller employers compete with larger ones.

  • Healthier employees – Benefits help keep your employees healthier by making health care costs easier to afford, which can lead to fewer sick days.

  • Morale boost – Knowing you care about their well-being builds loyalty and appreciation.

  • Tax advantages – The cost of many employee benefits can mean a tax deduction for the employer.

  • A foundation for success – Offering employee benefits sets the stage for you to succeed and grow by attracting, hiring and keeping good employees. According to the Sanofi Canada - Opens in a new window , 71% said their health benefits plan is a strong incentive for them to stay with their employer.

When should you consider getting health benefits for employees?

There are benefits plans available for companies as small as 2 employees.

These are the signs it’s time for you add a benefits plan:

  • Your business can afford it
  • You need to compete for employees with other companies that provide benefits
  • You’re looking for ways to increase morale, productivity and loyalty
  • You have key employees whose skills and knowledge are valuable to the success of your business
  • You’re looking for additional ways to reward your employees

What’s next?

Now that you understand more about how much benefits cost, you may want to meet with an advisor to:

  • Learn more about how adding an employee benefits plan could help keep your business successful

  • Get a quote on a benefit plan for your employees

Contact us to learn how our benefits and savings solutions can help your small business

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The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.