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chapter

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12

Employee Benefits and

Services

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12 - 3

Indirect Financial Compensation - Benefits

All

employer-provided rewards and services

(other than wages and salaries) arising from:
legally

required social insurance payments

private insurance and retirement plans
payment for time not worked
extra cash payments other than bonuses based
on performance
employee services

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12 - 4

Background (1 of 2)
Most

benefits and services are available to

workers as long as they are employed by an
organization regardless of seniority or
performance
Decisions about indirect compensation are
more complex than those concerned with
wages and salaries

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12 - 5

Background (2 of 2)
Employers

face rising benefits costs resulting

from:
increased

legislation
insurers insolvency
cost of advanced medical technologies
aging workforce
new immigration
more women in the workforce
global competition
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12 - 6

Changes in Benefits Programs

Then
Nuclear

Now

families of working male with

female and 2.3 children at home
Employment for large part of career
White male-dominated workforce
Cradle-to-grave expectations
Paternalistic employer
Entitlement perception of benefits
Low cost of benefits
Protection

for illness
Single set of benefits
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Double-income

families with and without children, and single-head families

Multiple career industry, & job moves
Multicultural workforce
Portability issues
Shared responsibility
Benefits as part of total compensation
Benefits costs escalating faster than
CPI and employers ability to pay
Promotion of wellness
Cafeteria and customized benefits
programs

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12 - 7

The Role of Operating and HR Managers in

Benefits and Services
Benefits & Services
Function
Benefits & services budget

Operating Manager (OM)

HR Manager (HRM)

Preliminary budget approved Preliminary budget

or adjusted by top
developed by HRM
management

Voluntary benefits & services Programs approved by OM

(top management)

Programs recommended by
HRM

Communication of benefits & OM cooperates with HRM

services

Primary duty of HRM

Evaluation of benefits &

services

Done by HRM

Administration of benefits &

services programs

Done by HRM

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Benefits and Services Programs

Voluntary
Benefits

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Income in
Retirement

Mandated Benefits

Flexible Benefits

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Employee
Services

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12 - 9

Mandated Benefits Programs

Unemployment
Insurance
Social Security

Workers
Compensation
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12 - 10

Unemployment Insurance
Unemployment

tax paid by employer

Unemployment

tax rates, eligibility requirements,

weekly benefits, and duration of regular benefits
vary from state to state

Employee

receives compensation for a limited

time typically a maximum of 26 weeks

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12 - 11

Social Security
Social Security
Retirement income
Disability benefits
Death benefits
Survivors benefits
6.2% of eligible earnings
up to
$84,900 (2002)
$87,000 (2003)

Employee

funded

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Medicare
Hospital insurance
(Medicare, Part A)
Medical Insurance
(Medicare, Part B)
1.45% of eligible
earnings (unlimited)
Employee and
employer funded

and employer
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12 - 12

Workers Compensation (1 of 2)
Based

on the principle of liability without fault

Employer absolutely liable for providing
benefits to employees that result from
occupational disabilities or injuries regardless
of fault
Employers assume costs of occupational
injuries and accidents

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12 - 13

Workers Compensation (2 of 2)
Employers

pay premium to insurance

company or state fund
experience-rated

(5-10 year period)

Disability

must be work related

Benefits include:
medical

care
disability income
rehabilitation
death benefits
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12 - 14

Voluntary Benefits Programs

Insurance Protection

Retirement Plans

Compensation for
Time Not Worked
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Compensation for Time Not Worked

12 - 15

Paid
Holidays

Paid
Vacations

Sick
Leave
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Personal
Time Off

Family
Leave

Maternity
and Parental
Leave

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12 - 16

Family Leave Policies Around the World

Country

Duration of Leave
(Weeks)

Number of Paid
Weeks

Percent of Normal
Pay

Canada

17 - 41

15 weeks

60%

France

18

16 weeks

90%

Germany

14 - 26

14 19 weeks

100%

Japan

12

12 weeks

60%

Sweden

12 - 52

38 weeks

90%

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12 - 17

Employer-Purchased Insurance
Health Insurance

Life Insurance

Disability Income
Replacement
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12 - 18

Health Insurance (1 of 2)
Traditional

membership programs

Pay

for both physician and hospital expenses as

these costs are incurred
Approach is not preventive
Health

maintenance organizations (HMO)

Outpatient

and hospital coverage offered for a

fixed monthly fee
Prepayment for comprehensive health care that
promotes preventive care
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12 - 19

Health Insurance (2 of 2)
Preferred

provider organizations (PPO)

Health

care plan based on agreements between

doctors, hospitals, and other related medical
service facilities with an employer or an insurance
company
Services provided for a fixed fee
Incentives to use selected providers
Emphasis on cost control

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Consolidated Omnibus Budget

Reconciliation Act (COBRA) of 1985

12 - 20

Section

162 (k) stipulates that employers with

more than 20 employees are required to offer
continuation of health coverage for 18 to 36
months after termination of an employee
At

the employees expense

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12 - 21

Income in Retirement Programs

Retirement
Income from
Savings &
Work
Simplified
Employee
Pension
IRAs
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Individual
Retirement
Accounts
(IRAs)

401 (k)
Plans

Private
Pensions

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12 - 22

Government Regulation of Private Pensions

Employment

Retirement Income Security Act

(ERISA) of 1974 (as subsequently amended)
Eligibility

requirements
Benefits formula
Vesting
Portability
Fiduciaries
Reporting/disclosure
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12 - 23

Pension Benefits
Defined

benefit pension plan

Specifies

the benefit employees will receive at

retirement

Defined

contribution pension plan

Specifies

the employers contribution

Cannot predetermine the employees actual
pension benefit

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12 - 24

Stock Ownership
Plans

Employee
Services

Education
Programs
Pre-retirement
Programs
Childcare

Social and
Recreational
Programs
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Eldercare
Financial Services
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12 - 25

Flexible Benefits (Cafeteria) Plans

Allow

employees to choose between two or

more types of benefits
Common choices include:
health

care
life insurance
disability insurance
option of receiving cash to spend on coverage in
the open market
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12 - 26

Reimbursement Accounts
Also

known as flexible spending accounts

Provide funds from which employees pay for
expenses not covered by the regular benefits
package
Usually pretax deductions
Funds can be allocated for:
unreimbursed

health care

childcare
care

for elderly or disabled relatives

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12 - 27

Managing an Effective Benefits Program

Step

1: Set Objectives and Strategy for

Benefits
Pacesetter

strategy
Comparable benefits strategy
Minimum benefits strategy
Step

2: Involve Participants and Unions

Step 3: Communicate Benefits
Step 4: Monitor Costs Closely
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12 - 28

Cost Analysis of Benefits

1. Total cost of benefits annually for all
employees
2. Cost per employee per year
basis

1 divided by number of employee hours worked

3. Percentage of payroll
basis

1 divided by annual payroll

4. Cost per employee per hour

basis

2 divided by employee hours worked

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12 - 29

Summary (1 of 2)
Top

managers must consider the following

when making decisions about benefits:
Mandated

programs must be funded

There is little evidence that benefits and services
really motivate performance
Benefits do not necessarily increase satisfaction
Most employees view benefits and services as
entitlements

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12 - 30

Summary (2 of 2)
Unions,

competitors, and industry trends continue

to pressure employers to provide or increase
voluntary benefits
Costs of benefits and services continue to
escalate dramatically
To avoid

administrative nightmares,
employers should concentrate on fewer
benefits plans
If

possible, implement those preferred by most

employees

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2004 The McGraw-Hill Companies, Inc. All rights reserved.