Written by: Matt Lederman, Managing Partner, Next Benefits

If you are a start-up founder beginning to hire beyond your original team, you know my next statement to be true: there is a war for tech talent in Canada.

Our government has come through on its promise to invest in innovation. As a result, we have become a magnet for skilled workers coming from overseas (or from our neighbours to the South, aided no doubt by a tense political climate).

Software engineers and developers demand recruiting and retention strategies amid a sea of competition. This trend will continue. How are you positioned for the future?

While each situation is unique, I have observed some patterns.

Once you are able to pay for work outside of your founding team you will likely contract out as much as you can. For instance, you can take on a few younger customer service and sales reps or even interns for relatively low pay.

But somewhere around your third to sixth hire, you will be looking for someone who has big company experience and that experience will include coverage on a big company benefits package.

Multiple factors play into whether an individual will jump ship to join your mission. However, if you’re looking to hire a more senior-level employee, this person likely has a spouse and kids and is used to having their dental procedures and prescription medicine paid for.

You know you need A players and how difficult early hiring can be on a bootstrap budget. When implementing your first employee benefits plan, like everything in a start-up, you have to be strategic and resourceful. Below are a few practical tips for avoiding certain pitfalls when creating a compensation strategy and ensuring the package you offer has legs to grow.

The Tightrope (Millennial Workers vs. Gen-Y)

While it is tempting to dive in and hire experienced talent early, there are benefits (pun intended) to growing organically in the very early stages.

Figures differ greatly between markets, but it is safe to say a junior developer will, on average, command about $30,000 less per year than a senior.

As you are striving toward a product-market fit, the pace of change will be such that you may benefit from a nimble team without the large price tag.

As performance dictates, you can offer raises each year and eventually, your inexperienced junior will become a well-trained senior. These greener employees are often less entitled and more coachable than more experienced hires. Plus, the government also loves young tech hires.

Younger workers often prefer benefits like gym memberships and paramedical services (massages etc.) over traditional insurance, so you can still attract A talent even if the benefits plan is fairly simple.

Conversely, more senior people can be retained by a robust benefits package that addresses their family obligations. Leaving a larger company, they can expect a salary decrease, but a benefits package is a very tax-advantaged way to make up for it. That’s because the employer-paid portion of benefits are fully deductible for the company and not subject to payroll fees and taxes.

There are now more modern “flexible benefits” packages entering the market that allow you to offer the best of both worlds. Conversely, separating employees into general workers and management allows you to offer different packages to each (added perks with tenure). You want to customize thoughtfully for optimal outcome.

Moving Price Target

If you are stretching your budget to put your initial plan in place, just wait until you are served your first renewal price increase.

In short, your renewal price is tied to the company’s specific usage level, which is often higher than expected. Here are a few potential surprises, and how to prevent them:

1. Everyone starts off by overusing the plan: older people on the plan use lots of prescription and dental and the younger people go crazy on massages. You want to ensure you have stops in place that will prevent overuse. You want to cost-split the plan with employees, institute percentage coverage (as opposed to covering the full bill) and impose annual maximums. Once you have an idea of how your group will claim, then you enhance the coverage.

2. Your younger people are getting married: as employees hit that late twenties mark where they begin to go common law or even tie the knot, they will want to add a spouse to the plan which doubles the premium. This is unavoidable, but something to keep an eye on as the average age increases.

The Most Common “Introductory” Plan Design

This can be a hard answer to get from an insurance broker as it is an iterative process to arrive at the design you want.

However, in an effort to provide some value up front, this is what we most often see:

  • Extended Health Insurance: 80% covered for prescriptions and paramedical. Maximum of $300 per persona per paramedical practicioner (massage, physio, chiropractor etc.)
  • Dental Insurance: 80% covered for routine cleanings, checkups and basic procedures to a maximum of $1000 per employee per year
  • Life Insurance: Flat $50,000 and matching Accidental Death and Dismemberment
  • Vision Care: This depends whether it matters to your team, it is inexpensive to add later.
  • Disability Insurance: Most do not include this on an introductory plan, especially if the group is young. Disability is a bit more custom and requires information about occupations and salaries. We highly recommend adding it as soon as your budget allows.

OR

  • Health Spending Account/ Wellness Account: Great option for cost containment, but 100% employer paid. Although it works best as a supplement to traditional insurance, when the budget is an issue and the group is young, it can make sense to allocate a large portion of the funds to an HSA/Wellness Account.

Pitfalls to Avoid

DO communicate with the team about what you are putting in place and why. You need to achieve employee buy-in and cooperation on the plan, or else it will be a deduction from their paycheque that they resent right next to taxes.

DO monitor usage consistently. We check in every three, six and nine months to ensure claims are reasonable and offer changes to course correct.

DON’T rush into a top-of-the-line package. Start small and grow steadily to ensure you never have to “pull back” on benefits employees were counting on. I have delivered notice to teams that had their benefits cancelled; those are the days I want to forget.

An introductory plan is exciting for your start up because it unofficially signals that your team is growing into a cohesive unit. With some common sense maintenance, you can make sure you are attracting top talent for years to come.

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