Why Provide a Total Compensation Statement? It’s All in the W-2.

Posted on January 10, 2012

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This is a question I anticipate hearing from many employers in the coming months. Beginning with the 2012 tax year, the Affordable Care Act will require most employers to “provide useful and comparable consumer information to employees on the cost of their health care coverage” on W-2 forms, according to recent IRS guidance on the matter.

Since for most employers the cost of health coverage is by far the biggest employee benefit cost, just put the numbers on the W-2 forms, send them out, and be done with it. Who needs to bother with total compensation statements?

I’d argue (and, admittedly, I may be a bit biased on the subject) that it’s not quite that simple. Here are three reasons why W-2 forms aren’t going to cut it for employers committed to getting across the total rewards message to their employees:

  • Costs reported on W-2 forms include both employer and employee costs – The dollar amount to be included on employees’ W-2 forms “generally includes both the portion of the cost paid by the employer and the portion paid by the employee,” according to an analysis of the regulations published in the Journal of Accountancy. So while the dollar amount that shows up will no doubt make employees more sensitive to the total dollars being spent to provide health coverage, it will not immediately be apparent how much is paid by the employer as opposed to the employee.
  • Desire to provide context – A total compensation statement gives an employer the opportunity to provide context, giving employees information that goes beyond the dollars and cents. Does your coverage stack up especially well against other employers in your industry or your region? Has your company managed to hold down increases to employees’ premiums? If you have a unique angle to share on your organization’s health care coverage it will be far easier to communicate it through a total compensation statement.
  • Benefits in addition to healthcare – Other benefits an employer provides – retirement, disability insurance, life insurance, work/life balance, etc – are not covered by the new W-2 reporting requirements. So if your organization has a strong story to share when it comes to total rewards, it won’t be able to do so through a W-2.

Ultimately, telling your total rewards story is really what a total compensation statement is all about. A total compensation statement shows employees that their full package of wages and employee benefits is far richer than they realize when they simply look at a paystub. Or their W-2.