Taking Away Benefits from Employees: Things to Consider

Taking Away Benefits from Employees: Things to Consider

In tough economic times, most businesses start looking at cutting costs to survive. While employee benefits offer significant advantages, they’re also expensive and increasingly costly to maintain.

But before you start cutting employee perks, you should consider whether the drawbacks of taking away benefits from employees are worth the short-term savings.

Drawbacks of Taking Away Employee Perks

It May Be a Breach of Contract

The most persuasive argument against taking away employee benefits is that it may be illegal. While employers can make minor changes to an employee’s compensation, any larger, unilateral changes may constitute a breach of contract, resulting in legal action.

What Is A Constructive Dismissal?

Breaching an employee’s contract to such an extent that it fundamentally changes the nature of the terms of the employment constitutes a constructive dismissal. Examples of these unilateral changes include:

  •       Location of work
  •       Employee’s position, roles, and responsibilities
  •       Compensation
  •       Cutting or changing the scope of employee benefits

Employees may seek legal recourse against the employer due to a constructive dismissal. During this legal process, the employee may seek damages from the employer, often in the form of earnings that they lost after leaving their job.

What this means for employers is that while you save money by cutting benefits, you can expect to pay more in lawyers’ fees and damages as your employees seek legal recourse.

Damaging Company Culture

A less tangible but very impactful drawback of taking away benefits from employees is how it will affect morale. Removing employee benefits can be a massive blow to morale, which can have knock-on effects for the entire company.

Most employees trust that employers will keep their promises or negotiate compromises before any unilateral moves. Simply removing benefits breaks that trust and makes the company appear uncaring towards its employees and focused on its bottom line.

Losing Employees’ Trust Has Long-Term Effects

Even worse, cutting benefits is often a warning sign that the company is in financial trouble, which will increase turnover and further the downward spiral of low productivity. Since many Canadians are struggling to cope with life after COVID, it’s harder than ever to maintain morale and motivation, even in successful companies. Excellent health benefits can give employees peace of mind, reducing stress and improving productivity.

Since most employers rely on employee productivity, lowered morale can be financially devastating. Once employee morale drops low enough, it will result in a tangible effect on productivity, which will affect revenue and profits, making further cost-cutting measures necessary.

While cutting benefits by itself may not start a downward spiral that ends in complete business failure, it can add to the burdens already faced by employers in this difficult economic climate.

It’s important to note that fringe benefits also directly play a role in employee morale and productivity. Employees who receive fringe benefits tend to believe that their company values and respects them, which greatly impacts morale and motivation. These benefits also offer direct benefits, such as keeping workers healthy, resulting in fewer missed days and lower turnover due to ill health.

Makes Getting New Talent Harder

Recruitment is an essential component of a thriving company. Due to the COVID pandemic, many companies are struggling to hire and retain employees. And according to CPA Canada, this problem will persist well into the future.

Many prospective employees value benefits over a higher paycheck and often choose companies that offer better benefits. By cutting these benefits, employers struggle to secure high-quality employees. And in the current labour shortage, it may mean not getting any employees at all.

Alternative Solutions

It’s clear that simply removing employee perks is not the right solution to handle the rising costs of benefits. The drawbacks of such a move can be incredibly severe and may have lasting repercussions that are impossible to recover from.

The best way to avoid the legal implications of cutting benefits is to consult with employees before making any sweeping changes to their contracts. Employees may challenge constructive dismissals by asking their employer to maintain the agreed-upon terms of their employment contract.

An alternative is to provide additional pay so that the employee can pay for similar benefits out of their own income. However, you may have to increase employee pay by a much larger amount simply to compensate for the lost benefits, which isn’t much better for your bottom line.  

Most employers can benefit from group benefits that cost significantly less per person than individual plans due to a significant employee discount. Combining the solutions listed below can make your business’s benefits sustainable and cost-effective.


A Health Spending Account, or HSA, is an excellent supplement to any group health insurance you may have. It’s a tax-free savings account that employers pay into and employees use on claims whenever needed. Many companies with high-deductible healthcare plans benefit greatly from having a savings plan in place.

Employers have complete control over how to allocate funds. Some HSA providers can even increase employee spending limits per employee classification, allowing flexibility and adaptability.

Group Benefits Plans

Most group benefits plans offer significant savings over personal plans, which improves employee morale and increases productivity. Plan premiums are business expenses for tax purposes and are often less expensive than providing individual salary increases.

If you already have a group benefits plan, consider integrating it with your savings and retirement plan. Many providers offer discounts on combined products that can provide some much-needed financial relief without completely removing benefits.

Find the Right Provider

Many companies have group benefits plans that don’t fit the company’s goals or needs. You may be paying too much for benefits that nobody uses, or you may find your plan lacking in an area you desperately need.

Like any other insurance plan, it’s a good idea to regularly evaluate whether your plan aligns with your organizational goals. Some providers offer one-size-fits-all solutions, but while simple to manage, they may restrict your options and adaptability, leading to more problems than it solves.

Unfortunately, finding the right group benefits provider can be a challenging task. Not only do you have to research various providers, but you also have to contact them and request proposals from each one separately. Often, these proposals will differ slightly, making them more difficult to compare. And the more quotes you get, the trickier the situation becomes.

It’s also not a good idea to simply focus on price. Some providers may be slightly more expensive but offer a much more comprehensive service. Others may have hidden fees that impact the overall cost, which you’ll only discover once you start paying.

Some businesses may take weeks to find their next benefits provider, only to discover that they’re not satisfied with the service they receive within a year.

Group Benefits: All You Need to Know About Group Insurance

Learn more about group benefits in our group insurance article.

Find Insurance Solutions with Help from Group Enroll

One of the best ways to find the right provider is to use an insurance broker like Group Enroll. All you need to do is fill in an online form with your details. One of our agents will contact you to get more detail and identify your requirements. The agent then contacts multiple providers for proposals.

Once we receive all the proposals, we’ll evaluate them to see which one is the best fit. We then contact you and present the most competitive proposals and our reasons for choosing them. You then get the final say on which proposal to approve and get to enjoy the benefits of having the best plan for your needs.

Don’t let increasing benefit costs get you down. Whether you’re looking for group dental insurance or want to set up an HSA to avoid taking away benefits from employees, we’re here to help. Get in touch using our convenient online form, or email us at [email protected] or visit us in our office at 10 Great Gulf Drive, Unit 5, Vaughan, ON, L4K 0K7.

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