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Employee Insurance and Benefit Packages: Current Trends and Ways to Save

Every business owner faces the same decisions regarding employee benefits—determining which benefits employees need and how those benefits can be provided at the lowest cost. Currently, many dealers are exploring ways to lessen costs while still offering competitive benefits.

In order to obtain and retain the best employees, dealers must have competitive benefits. “The largest employers in the private sector essentially set the ground rules for the role that benefits will play in the ‘total rewards’ packages (salary and benefits) of all employers in the nation,” wrote Dallas L. Salisbury, the president and CEO of the Employee Benefit Research Institute (EBRI), in a Wall Street Journal article entitled, “Benefit Trends: Change is Now Constant.”

When considering the automotive retail sales business, some of the larger franchise dealer groups employ hundreds of people; therefore, their benefits packages often set the bar for the rest of industry.

Controlling Healthcare Costs
All sizes and types of dealerships are experiencing the pressure of rising costs of benefits, particularly health insurance—one of the most expensive benefits. The cost of health insurance per hour worked per employee was $1.79 in 2006 (or $3,723.20 for one 40-hour-a-week employee), up from $1.04 per hour in 1996.*

Norman Raymer, financial- and estate-planning specialist, investment advisor and president of The Dealer Guys, said he’s seeing dealers opting for high-deductible health plans, or HDHPs, “strictly because of the cost factor for the dealerships.”

As a stand-alone health program, HDHPs lower employers’ premiums, but the high deductibles are often a financial burden for employees. Some business owners have opted to implement health savings accounts, or HSAs, to ease the financial burden HDHPs leave on employees. Raymer added, “The health savings accounts have actually allowed [dealers to offer HDHPs] more realistically without putting too much of a burden on the employees.”

An HSA, as defined by the IRS, is “a tax-exempt trust or custodial account that you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur.” In order to qualify for an HSA, according to the IRS, one must have an HDHP, have no other unpermitted health coverage, not be enrolled in Medicare and cannot be claimed as a dependent on someone else’s tax return.

Currently, for a health plan to be considered an HDHP by the IRS, the minimum deductible is $1,100 for an individual and $2,200 for an individual and family, while the maximum deductible/out-of-pocket expense is approximately $5,600 for an individual and $11,200 for an individual and family. These parameters, set by the IRS, are reviewed annually to determine if they need to be updated due to inflation.

While employers incur no premiums or start-up costs with HSAs, some employers contribute to employees’ HSAs as an added benefit. However, HSA/HDHP programs aren’t commonplace yet. As of March 2007, only eight percent of workers had HSAs available to them.*

The continually increasing cost of health insurance has resulted in an ongoing decrease in employer-funded health plans and an increase in plans that are partially funded by employees. Of all employees with medical care in 2006, 75 percent of them were required to contribute toward the cost of individual coverage, an eight percent increase since 1999.*

Naturally, finding avenues to lower health insurance costs (while maintaining quality coverage for employees) has been a difficult task for business owners, both small and large. Tony Del Real, owner of Del Real Auto Sales, an independent dealership in Lafayette, Ind., currently has an 80/20 HDHP with a $2,000 deductible in place. Three of his eight full-time employees participate in the plan, and he’s not looking to toss it by the wayside.

He said, “It’s obviously been getting tight and tough, but we’re still trying to have that [medical coverage] available.” That coverage, which also includes some prescription coverage, costs him an estimated $15,000 a year. “I went to a seminar on [health savings accounts] … we’re not doing it, but we’re open to the idea. We’re trying to get some more information on it,” said Del Real.

Anthony Underwood Automotive, a two-store operation in Bessemer, Ala., has a health savings plan in conjunction with a hospitalization program, which is partially funded by the dealership. Dealer Anthony Underwood recently altered this health program. Previously, the plan covered 75 percent of employees’ hospitalization expenses, but when the plan became too expensive, Underwood was forced to modify it. Now the program pays 50 percent of any hospitalization expenses. His employees can use their HSAs to pay for minor medical expenses and prescriptions.

Of the 38 full-time employees at Anthony Underwood Automotive, fewer than 10 people carry the offered coverage. Underwood estimated he spends about $5,000 a month on employee benefits, which doesn’t include prescription coverage for employees.

Underwood’s dealership also offers Aflac insurance policies, like accident, cancer, dental and vision coverage, but the employees pay 100 percent of the premiums. Underwood also encourages his employees to live a healthier lifestyle to lower the cost of healthcare for both parties. He will pay for his employees who smoke to attend smoking cessation classes; however, if an employee fails to quit, they have to repay Underwood.

While switching health plans may be a way for some dealerships to save, other dealers aren’t willing to switch their plans. In an industry where turnover is all-too-often an issue, one California dealer is going to keep his plan intact. Dan Roseland, dealer principal of Sonoma Chevrolet in Sonoma, Calif., said that although the cost of his employee health plan keeps going up, he intends to stick with his current plan.

Of the 20 full-time employees on staff at Sonoma, 19 take advantage of the Blue Cross of California PPO (preferred provider organization) he has in place, which has an annual deductible of $500 and a $40 co-pay for doctor’s visits. All other expenses are covered under the employer-paid premium policy. While Sonoma Chevrolet employees have a low-deductible health plan with prescription coverage, they don’t have access to dental, vision or life insurance through the dealership.

The Spradley Barr group, based in Colorado, includes three rooftops and six franchises and employs about 340 people full-time, many of which participate in the dealership’s healthcare program. Spradley Barr employees can choose from two different PPO plans. The deductible for the premium plan is $2,500, and the deductible for the economy plan is $5,000. Bib Silcox, the VP of fixed operations at Spradley Barr, said the economy plan is cheaper for employees and used more by young individuals without children, while employees with families tend to opt for the more expensive premium plan. Also available, after 90 days of full-time employment at Spradley Barr, are dental and vision benefits.

With such high costs to dealers, it’s understandable that some dealers are evaluating their plans, weighing their options and even modifying coverages in the current economic climate. Jerry Stanford, director of sales of business products specialty markets for Sentry Insurance, said, “[Dealers are] looking heavily at their medical insurance programs and looking at the deductibles and evaluating going to qualified high-deductible medical plans.”

Benefits Beyond Health Coverage
While healthcare coverage is important, another important and widely-offered benefit is the retirement plan. As of March 2007, 61 percent of employees had access to retirement plans.* Raymer said he’s seeing more dealers offering 401K plans. Additionally, he said, “Some of the larger groups are offering deferred compensation plans for their highly-compensated employees.”

Essentially, a deferred compensation plan is an account set aside that the employer deposits a defined dollar amount into that is promised to the employee at a certain point—say, 10 years, for example. Raymer said these accounts are designed to retain employees, because if the employee quits before the predetermined time period is up, the company keeps all sums deposited in the deferred compensation plan. Raymer said, “These hadn’t trickled down into the dealer sector until recently.”

Other widely-available benefits include: life insurance, short-term and long-term disability, paid holidays and vacations, and other forms of paid leave (sick, personal, funeral, etc.). The “National Compensation Survey: Employee Benefits in Private Industry in the United States,” published in August of 2007,* states: “Paid leave was the most commonly provided employee benefit in the private sector: paid holidays and vacations were available to 77 percent of employees. Paid jury duty and paid funeral leave benefits were also common, available to 71 and 69 percent of workers, respectively. Additionally, 49 percent of the workers had paid military leave benefits.”

While healthcare is typically the most expensive benefit to an employer, 401K costs add up quickly, too. Stanford, who works with dealers to setup employee benefits packages, said he sees dealers contributing, on average, one to three percent of an employee’s salary to the individual’s 401K. One thing he said dealers have been evaluating is the qualifications of their benefits programs. He said many dealers require employees to be on staff for a minimum of three or four months before they qualify, some as long as a year.

For example, Spradley Barr employees become eligible for the dealership’s 401K program after a year, and the dealership will match a percentage of the employee’s contributions. However, the employees become eligible for other benefits after only 90 days.

Anthony Underwood just launched a new 401K program in May 2008, in which he expected 100-percent participation. He will match employee contributions up to four percent of the employee’s pay. Underwood also offers his employees paid vacations and holidays. “We have to be competitive with the franchise dealers,” he added.

On retirement plans, Stanford added, “More and more employers want to provide at least something for their employees.” He also said, if dealers want higher participation, “employees need to be educated and they need to have investment options they can understand.” He said that, while there’s a “set it and forget it” mentality amongst employees with retirement plans, “participation [in retirement plans] makes a huge amount of difference” when it comes to the employer’s costs.

While Del Real Automotive employees currently don’t have access to a 401K or other retirement plan, they do receive one week of paid vacation each year, which is one thing Del Real is currently looking to amend. As a small independent dealer, he acknowledged the need for competitive benefits to retain employees. He said, “We’ve got a couple employees that have been here with us for over five years now, and we’re trying to revamp and give them a little more incentive to [stay here].”

Sonoma Chevrolet, like most employers across the country, offers employees paid vacations and holidays. The company has three different tiers of paid vacation time. After one year of employment, employees are eligible for one week of paid vacation. After three years, they receive two weeks paid vacation, and after five years of employment, they get three weeks of paid vacation.

As a business owner, it’s difficult to wade through the various healthcare options and other benefits packages available, but every dealer should evaluate their benefits annually to ensure that they are competitive in both coverage and cost if they want to retain the best employees.

* Based on the most recent data available from the U.S. Department of Labor, Bureau of Labor Statistics

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