Employers here say spiraling health-insurance premiums and other benefit-related labor costs are forcing them to trim pay raises and bonuses for their workers.


Benefit-cost increases are outpacing wage increases by a wide margin, with health-insurance premiums alone jumping 15 percent to 20 percent or more this year, and average wages usually increasing less than 5 percent, if at all, due partly to the soft economy.


Nonwage costs made up about 28 percent of overall labor costs for private employers in the U.S. last year, according to the U.S. Department of Labor, and benefit costs are decreasing the amount employers have available to give raises.


Increases, no matter how you look at it, will affect our ability to give pay raises, even if were doing well, says Dick Welk, vice president of Cheney-based XN Technologies Inc. In the end, it comes off the bottom line, and the bottom lines got to pay the bills and pay the investors and keep our banker happy.


XN Technologies, which employs about 150 people, hasnt given its employees significant pay increases in the last three years, Welk says. The companys health-insurance costs rose 16.3 percent and dental insurance rose 12.1 percent this year, representing only a portion of its total nonwage-cost increases.


Nonwage costs include benefits such as life, health, and disability insurance, retirement program-related expenses, and legally-required benefits such as Social Security, Medicare, unemployment insurance, and workers compensation. Employee perks, such as paid vacation and sick leave, also are among those costs.


Nationally, benefit-cost increases far outpaced wage-cost gains last year, according to the U.S. Department of Labor. Wages for private-industry workers increased by 3 percent, while benefits rose 6.4 percent. In 2002, wages increased 2.7 percent and benefits jumped 4.7 percent.


At XN Technologies, an employee who earns about $30,000 a year would cost the company another nearly 40 percent in benefit-related expenses excluding vacation pay, adding about $11,600 in labor cost, Welk says. He says the company has been able to maintain its health-insurance benefits, but has tightened its budget in other areas.


Our business has done well under the circumstances, but not well enough to where we can be really generous in giving bonuses and raises, he says.


The increases have forced XN Technologies to hire fewer people and keep entry-level pay substantially below the national average for the industry, Welk says.


Frank Neeri, firm administrator for Lukins & Annis PS, of Spokane, says that the law firm is trying to maintain competitive salaries, but might not be able to do so five years from now because of increasing benefit costs.


If you want to get the best young attorneys, theres a certain price you have to pay, he says. But theres a point where you physically just cant absorb 20 percent increases every year in something thats such a big part of your companys expense.


Lukins & Annis has saved money in other areas to be able to increase salaries this year about 3.5 percent, Neeri says. The firm, which employs more than 120 people, has maintained its level of health benefits but has reduced annual bonuses for the last five years, he says.


Neeri says benefits account for 13 percent to 20 percent of the firms total compensation costs this year, and its health-care insurance has risen 14.5 percent. This year the firm paid more for medical insurance than for rent, he says.


If the benefit costs continue to skyrocket, Lukins & Annis will have to drop other employee perks such as paying for company Christmas parties and doughnuts on Friday mornings, Neeri says. It cuts down on a lot of discretionary nice things youre able to do for your staff, he says.


Lukins & Annis has implemented a cafeteria plan that allows employees to withhold a certain amount of pre-tax income to cover health-related needs, such as paying for prescription medications. Also, the firm encourages employees to keep themselves healthy by covering costs for flu shots, Weight Watchers dues, and a portion of health-club membership dues.


The firms current health plan offers a $100 deductible, which it may change to a $500 deductible to defray costs, Neeri says. Lukins & Annis is strongly considering the option of self-insuring next year, he says.


Hollister-Stier Laboratories LLC, of Spokane, has restructured its health-care plan, lowering its premiums by raising deductibles, and has shifted the percentage of health-care costs it covers. Kirk Wood-Gaines, Hollister-Stiers director of human resources, says the company now pays 80 percent of employees health-care insurance, about 5 percent less than it covered a few years ago.


Hollister-Stier, which employs about 275 people, also has implemented health-care initiatives that encourage employees to stay healthy, Wood-Gaines says.


Since Hollister-Stier is going through a growth period, rising health-care insurance and other labor costs havent affected its ability to give employees raises, Wood-Gaines says. If benefits costs continue to jump, the company will explore every option before adjusting salaries, pay raises, and the quality of health-care insurance, he says.


We have to have competitive benefits, but how we fund those will be a true challenge, he says.


Smaller businesses here also want to offer employees high-quality health insurance and other benefits, but sometimes dont have enough profits to cover the additional costs.


Bill Ritter, owner of Spokane-based Ritters Florist & Nursery Inc., at 10120 N. Division, says Ritters employees last year elected to keep health insurance, even though it ate up their annual pay raises.


The store, which now employs about 12 people, might reduce benefits somewhat this year so it can give partial pay increases, since some of its employees havent received raises in three years, Ritter says. He says the amount the store pays now to cover health insurance for one employee with a family is about the same as what it paid 10 years ago to cover its entire staff.


The burden of rising benefit costs can be harder on small businesses because larger companies might have better insurance rates because they have more employees, Ritter asserts.


Dianna Eickhoff, vice president of human resources at Sacred Heart Medical Center, echoes that.


A lot of employers are operating on a profit margin that doesnt have much flexibility, she says. When theyre hit by huge premium increases, they just have less ability to bounce back than larger employers.


Smaller employers often dont have sufficient resources to self-insure, which can help companies manage health-insurance expenses more efficiently, but doesnt necessarily decrease those costs, Eickhoff says. Most of Sacred Hearts 4,000 employees are covered by the medical centers self-insured health plan, though it also offers a separate plan, she says.


Sacred Heart usually budgets about 5 percent increases annually for employee salaries and the same percentage for benefit increases, which together take up about 55 percent of the medical centers total budget, Eickhoff says. Rising health-insurance costs have raised concerns, but havent affected pay raises, she says.


The medical center currently pays all of its employees health-insurance premiums and a portion of their dependents premiums. It now is discussing plans to change employee co-payments or deductibles, and is planning to open an in-house employee pharmacy, Eickhoff says. Benefits for an average employee at Sacred Heart equal 28 percent of salary, excluding vacation and sick pay, Eickhoff says. Benefits in particular are very important to people out there seeking employment, not just because of obvious reasons, but because they recognize the monetary value of insurance benefits.


Welk says XN Technologies will make further adjustments if increasing health insurance and other benefit costs affect the companys ability to stay competitive. It hasnt had a major layoff in four years, and will reduce other costs before it cuts employees, though it may need to adjust pay raises, he says.


We have to have a profit or else we cease to exist, Welk says.