Learning About the Financial Risks of Employee Benefits

One of the things that is unique about me as an Employee Benefits Advisor is my background as a Chartered Professional Accountant (CPA). It uniquely positions me to guide clients on how their benefits programs can work in tandem with their financial and strategic business goals. I am also proud of my working relationship with the Chartered Professional Accountants of British Columbia (“CPABC”). A few years ago, I was asked to share my advice on the topic of “Understanding the Financial Risks of Employee Benefits” and I wrote an article that was published in CPABC’s In Focus magazine. That article shed light on why business costs related to employee benefits plans are growing and where they were going. 

I am also proud to have been working with CPABC for the past ten years around their Professional Development program, where I have developed and taught an in-depth 3-1/2 course on this same topic. This course helps participants better understand the current reality related to employee benefits program. In the course I emphasize the need to recognize that a “financial storm” is already here, outline the costs and risks related to these programs, and most importantly develop strategies that are best suited to their own unique business needs. This year’s edition of the course is being finalized and is part of CPABC’s Summer Professional Development program on July 9, 2025.  

More recently I have been asked by clients to address this issue around the financial risks for employee benefits programs in a different way, as there is a bit of a double-edge sword when it comes to managing them. Employee benefits plans still have some significant financial risks, but these plans are also needed, now more than ever, at a critical time for the majority of organizations.  

On the one hand, the business costs related to employee benefits plans are significant and they continue to grow, historically faster than broader market inflation. There is no relief in sight in the foreseeable future and organizations often have a very limited strategy built around these programs.  

Based on research from the Conference Board of Canada, the average annual cost for an employee benefits plan in Canada was approximately $4,400 per employee back in 2018, the last time they completed their full benchmarking survey. Their data showed that the average annual per capita cost for employee benefits had increased by approximately 6% per year between their last two surveys, which is consistent with broader market inflation data for the employee benefits industry for the past 25 years and is much higher than broader market inflation for business costs. Based on ZLC Employee Benefits Solutions’ benchmarking data over the past 6 years, we estimate that the average annual per capita cost in 2024 is now over $6,100. It is hard to believe that there once was a time when we referred to this area as “fringe benefits” whereas now it is often a top-5 corporate expenditure.

Unfortunately, there is no relief in sight as we expect there will be continuing financial pressures on employee benefits, as there is a perfect storm brewing that is driving these financial risks. Essentially, we have three major elements driving this perfect storm – more employees using these plans, using them more often and using them for more expensive items.

Based on our experience, more than 90% of employees are now using their benefits plans, which correlates to an aging workforce and an increasingly unhealthy population in Canada.  Employees are using their benefits plans more often and for a broader array of services. In particular, the use of paramedical services, particularly massage therapy and mental health care, has increased significantly. Employees are also using their benefits plans for higher cost services. For example, 20 years ago benefits plans benefited significantly from lower-priced generic drugs, but those savings have long since been exhausted and, going forward, there is little motivation for the pharmaceutical industry to develop more low-cost drugs. Instead, we are seeing many new specialty drugs that cost $15,000 to $50,000, or more, per year. 

The financial risks related to employee benefits programs are real but, on the other hand, these employee benefits programs are vital for attracting, retaining and engaging the key talent needed to run the businesses. Employees continue to place a high value on an employee benefits program when joining or staying with an organization. In fact, employees are now expecting more from these benefits plans and want their employers to address their broader and more diversified needs. As a result, organizations need to continue to provide employee benefits programs in order to be competitive in the market.

So that gives us this double-edged sword. While employee benefits programs are a large and growing financial cost and have significant financial risks, organizations have never needed them more to attract and retain the right people to run their businesses.  

Here are some considerations on how business leaders should think about their benefits plans:

• Organizations should take a longer-term view and develop a more formalized strategy to manage these plans. However, you cannot effectively manage something unless you truly understand how it works.  
• Organizations need to assess how employee benefits fit within their broader people and business strategies. They should determine whether they want to be reactive and simply keep pace with the rest of the market or be proactive and lead with an innovative plan design. 
• Organizations also need to assess the needs and desires of a multi-generational workforce with varying needs and desires. 
• Most importantly, organizations need to determine how the costs of employee benefits plans fit into their long-term business plans and/or whether there are specific financial targets or constraints they will need to achieve each year.

Where do you go from here? One possibility is to attend the upcoming CPABC Professional Development seminar, Understanding the Financial Risks of Employee Benefits, which is being held virtually on July 9, 2025. This seminar has been developed to help participants better understand the current reality related to employee benefits, recognize that a “financial storm” is already here around their costs and risks, and develop strategies that are best suited to their own unique needs. Through a combination of lecture and interactive surveys and discussions, this seminar will help participants better understand the area of employee benefits, the key cost drivers and future trends impacting benefits, and strategies to better manage them.

ZLC Employee Benefits Solutions is one of the fastest growing advisors for employee benefits and group retirement programs in Vancouver and we are fortunate to have the best people, resources, and clients. We provide value by leveraging one of the most skilled benefits teams – collectively over 450 years of experience within our team of 21 employee benefits specialists. We have been working with businesses ranging from 3 to over 75,000 plan members for the past 40 years.