Employee health costs increased last year but employers are still keen to offer healthcare benefits to their staff, new research has revealed.

According to a survey by the consulting firm Mercer, over half of companies across Europe reported increased costs of around five per cent per employee in 2007.

As a result, around 5.3 per cent of the average firm’s total payroll budget is spent on staff health benefits, the research showed.

However, despite the extra costs, employers remain eager to provide health benefits because they believe it aids staff recruitment and retention efforts.

Mercer principal Steve Clements said: "Over two-thirds of respondents said they would struggle to retain top-performing employees if they did not offer good health benefits."

A recent survey carried out by Bupa revealed that private medical insurance is catching up to pensions as the most desired workplace benefit.

Free gym membership and health assessments were also named as an important consideration among the employees questioned.