While a huge number of factors go into boosting your recruiting game, one of the most undervalued is employee benefits — things like a healthcare plan, travel reimbursement, or a small business 401(k). Benefits account for close to one-third of an employee’s compensation, making them a crucial component for differentiating between job offers. If you’re hoping to get the best of the best, you need to ensure your benefits are in line with that goal. 

While employers often boast about their retirement or other financial plans, far less discussed is the importance of vesting. Choosing how long it takes an employee’s benefits to transfer entirely  into his or her hands is a tough balancing act, and the current labor market is encouraging more and more businesses to do away with long-term vesting altogether. 

If you’re thinking about altering your business’s current vesting strategy, make sure to keep the following in mind:

What is vesting?

Vesting is the process by which assets that are owned, either entirely by your company or jointly by your company and its employees, become fully owned by the employees alone. An employee’s 401(k), for example, might have a vesting schedule of 20% per year. If that employee left after four years, he would leave owning 80% of the matching component. And with current 401(k) law, a vesting schedule can’t require more than six years of service to be 100% vested. 

Most vesting schedules are graded, meaning employees gain a larger share of the investment incrementally over time. Cliff schedules, on the other hand, give employees 100% of the investment after a certain period of time — the federal government mandates that this period of time cannot exceed three years for retirement accounts. 

The most obvious benefit to long-term vesting is that it encourages employees to stay for longer periods of time to claim the whole of their benefit. Additionally, it protects employers from the high cost of an employee leaving. If a business gets to keep part of the 403(b) account of an employee who left early, that can help offset the cost of onboarding her replacement. 

What are the benefits of immediate vesting?

Currently, around half of retirement plans allow for immediate vesting of employer-contributed funds. If unemployment stays low, that number is almost guaranteed to increase — but does that mean you should hop on the bandwagon?

The upsides of throwing out long-term vesting schedules can be huge. Immediate vesting undoubtedly gives you leverage when it comes to recruiting and is an easy selling point in interviews. It can also demonstrate a level of trust between you and your employees, which can prove a valuable asset in boosting office morale.

Immediate vesting can also improve employees’ quality of life by giving them access to the complete funds in their 401(k) immediately. While the value of those accounts should ideally remain untouched until retirement age, employees who need cash quickly will find immediate vesting very helpful. 

What are the drawbacks? 

Immediate vesting isn’t without drawbacks. Most obviously, allowing employees immediate ownership of employer contributions lowers the repercussions of leaving their job quickly. Employee turnover has been shown to cost as much as $15,000 for the average worker, meaning businesses are incentivized to do everything they can to keep employees sticking around. 

With that being said, graded vesting schedules might not be the best strategy for keeping employees around in the long term. Some employees might think of stringent vesting schedules as a kind of captivity, and no one wants to feel forced into doing a job. It might sound counterintuitive, but more generous or relaxed vesting schedules may actually promote employee retention by increasing loyalty. People want to work for companies that treat them well, so employee-friendly vesting schedules will likely be looked upon as a reason to stick around — not pack up early. 

Figuring out what vesting strategy works best for your business might involve some trial and error, but the name of the game should always be balance. As an employer, you have a responsibility to promote the financial well-being of your business, as well as the satisfaction of your workers. By testing out different options or by talking to your employees directly, you can find the vesting schedule that keeps your workers happy while giving you a leg up in the recruiting process.