Employee Benefits and Services

2. chapter 12 Employee Benefits and Services

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

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

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

6. Then Nuclear 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 Now Double-income families with and with-out 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 employer’s ability to pay Promotion of wellness Cafeteria and customized benefits programs Changes in Benefits Programs

7. The Role of Operating and HR Managers in Benefits and Services

8. Benefits and Services Programs Voluntary Benefits Income in Retirement Mandated Benefits Flexible Benefits Employee Services

9. Mandated Benefits Programs Unemployment Insurance Social Security Workers’ Compensation

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

11. Social Security Retirement income Disability benefits Death benefits Survivor’s benefits 6.2% of eligible earnings up to $84,900 (2002) $87,000 (2003) Employee and employer funded Medicare Hospital insurance (Medicare, Part A) Medical Insurance (Medicare, Part B) 1.45% of eligible earnings (unlimited) Employee and employer funded Social Security

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

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

14. Voluntary Benefits Programs Insurance Protection Retirement Plans Compensation for Time Not Worked

15. Paid Holidays Personal Time Off Paid Vacations Maternity and Parental Leave Family Leave Sick Leave Compensation for Time Not Worked

16. Family Leave Policies Around the World

17. Employer-Purchased Insurance Health Insurance Life Insurance Disability Income Replacement

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

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

20. Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 • 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 employee’s expense

21. Individual Retirement Accounts (IRAs) Retirement Income from Savings & Work Private Pensions 401 (k) Plans Simplified Employee Pension IRAs Income in Retirement Programs

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

23. Pension Benefits • Defined benefit pension plan • Specifies the benefit employees will receive at retirement • Defined contribution pension plan • Specifies the employer’s contribution • Cannot predetermine the employee’s actual pension benefit

24. Stock Ownership Plans Education Programs Pre-retirement Programs Employee Services Childcare Social and Recreational Programs Eldercare Financial Services

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

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

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

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

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

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