As cost-cutting kicks in, here are the benefits employers are protecting—and the ones they are axing

Companies are increasingly turning to cost reduction as inflation and an uncertain economy persist, including trimming down certain employee benefits.

For some insight, I had a conversation with Johnny C. Taylor, Jr., president and CEO of SHRM, the Society for Human Resource Management. In an economic downturn, historically, companies would cut their training and development budget, Taylor told me. However, “because of the rate of job change and the need for upskilling and reskilling, employers have decided—we can’t afford to cut learning and development,” he says. Instead, U.S. employers are deciding to make cuts to leave for new parents (to legally required minimums) as it will have the least disruptive impact on their workforce, he says.

In 2022, organizations offering paid maternity leave (other than what’s required by law) decreased to 35% from 53% in 2020, according to SHRM’s employee benefits survey released this summer. Twenty-seven percent of organizations are offering paid paternity leave (other than what’s required by law), down from 44% in 2020. 

The research found that this decline is partly due to companies getting back to normal offerings of maternity and paternity leave that were enhanced as a direct result of the pandemic, Taylor says.

In addition to the research findings, Taylor shared with me what employers are saying. “What we’re hearing anecdotally from employers is, ‘We’re getting ready for an economic slowdown, whether you call it a full recession or not, and we need to do what we can to manage the expenses that we can manage, this [benefit] is one that is totally controllable by us,'” Taylor explained. “One of the ways that you can easily reduce costs is under these leave offerings because they’re typically paid for by the company.” They didn’t eliminate maternal or paternal leave, he noted. “They just went back to the standard FMLA, of about 12 weeks, which the federal government obligates you to do, as opposed to offering extra,” he says.

Another thing Taylor is hearing from conversations with employers: “This is just being blunt. They’re saying, ‘The job market is softening, so we don’t have to offer these super competitive benefit offerings anymore,'” he says. The overall quit rate was 4.1% in July, which is down from 5.9% a year ago, indicating that The Great Resignation may be slowing somewhat. “Ford Motor announced it’s laying off 3,000 people,” Taylor says. “So, when that happens, the perception is that the market is now flipped.” 

But, does cutting back on maternity and paternity leave benefits that are beyond what’s required by law really help companies save substantially? “If a person steps out for six months, you’ve got to go to market and temporarily fill [their position],” Taylor explains. “And that’s actual dollars that go out of your door. So, I’ve got to pay Johnny and replace Johnny. You do that in a large employer 1,000 times, that’s a lot of money.”

What if this upsets employees? “We use the term internal customers and external customers to distinguish between the people on the outside and our employees,” Taylor says. “What remains to be seen is how much noise will the internal customers make. If it’s a lot, then you’re going to see companies back off. If it’s not a lot, then they’re going to say, ‘I guess the customer didn’t miss it.'”

‘Health care is at the top of the food chain’

There’s one area of benefits that most likely won’t be on the chopping block—health care. “According to our data, 88% of employers say health-related benefits are more important,” Taylor says. “So, health care is at the top of the food chain.”

U.S. employers expect health benefit costs per employee to rise 5.6% on average in 2023, according to early results from Mercer’s National Survey of Employer-Sponsored Health Plans 2022 released Aug. 10. The survey launched June 22 this year and remains open. However, the full effect of price inflation in health plan cost increases hasn’t been felt yet, Sunit Patel, Mercer’s Chief Actuary for our Health and Benefits practice, told me. Health plans typically have multi-year contracts, and it will take time for them to renew, Patel says.

“So, the expectation is that health care costs will accelerate in the coming years regardless of what happens to inflation,” he says. Mercer’s research also found that employers were not looking to put the brunt of rising health care costs on employees, such as raising deductibles or copays. Just 36% of survey respondents are making cost-cutting changes in 2023, down from 40% in 2022 and 47% in 2021.

“I think employers understand how valued health benefits are,” Patel says. “Even though they don’t always explicitly recognize it, there is obviously a link to productivity, wellbeing, and creating a good culture.” 

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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