Chapter 12

Employee Benefits

Employee Benefits - Introduction

have grown in importance and variety

are typically membership-based rewards offered to attract and keep employees

do not directly affect a workers performance, but inadequate benefits lead to employee dissatisfaction benefit and service offerings add about 30% to an organizations payroll cost

benefits become the focus of negotiations with employees when large wage and salary increases are not feasible
legislation, unions, and a changing workforce have expanded benefit offerings
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Reward management

Contemporary Benefits Offerings

benefits today reflect a diverse workforce challenge designing a benefits package that is lawful and attractive

Types Of Benefits

Legally Required Benefits

Social Security
financed by equal employee and employer contributions, based on a percentage of earnings provides income for retirees, disabled workers and surviving dependents provides some health insurance coverage through Medicare
SS was never intended to be sole source of retirement income.
Watch: http://www.youtube.com/watch?v=aVZijG4WSOw

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Legally Required Benefits

Workers Compensation
paid for by the organization rates based on likelihood of accidents, past history, and the type of industry benefits pay expenses and/or compensate for losses resulting from work-related accidents or illness, regardless of fault

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Legally Required Benefits

Family and Medical Leave Act
requires employers with 50 or more employees to allow up to 12 weeks of unpaid leave for family or medical reasons specifies record-keeping and communication requirements

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Employee Preferences for Noncash Incentives

*The survey polled a random nationwide sample of 1,004 American adults. Among those polled, 851 were working or retired Americans, whose responses represent the percentage cited in this release. The survey was conducted June 47, 1999, by Wirthlin Worldwide. The margin of error is 3.1%. Responses total less than 100 because 4% responded something else. Figure 121
Source: Darryl Hutson, Shopping for Incentives, Compensation and Benefits Review, March/April 2002, p. 76.

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Voluntary Benefits
Health Insurance increases in healthcare costs have made health insurance a critical benefit healthcare costs are growing faster than wages purpose is to protect employee from catastrophic loss should a serious illness typically has the fewest coverage limitations for the employee usually the most expensive

Health Maintenance Organizations (HMOs) broad comprehensive care provided by physicians who are in network employee incurs small co - pay health care choices significantly limited
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Voluntary Benefits
Preferred Provider Organizations (PPOs)
member health care providers agree to provide services at a fixed fee employees are encouraged by lower rates to use member or preferred providers combine best of HMOs and traditional insurance

Point-of-Service Plans (POS)

require primary care physicians employee can go out of network, but pays up front and seeks reimbursement herself

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Retirement Benefits
Employee Retirement Income Security Act (ERISA) of 1974 vesting rights right to pension benefits even if one leaves the company sets up Pension Benefit Guaranty Corporation (PBGC) claims corporate assets to cover inadequately funded pension plans
Defined Benefit Plans plan specifies the dollar benefit workers receive at retirement usually based on some formula of years of service and average final compensation used more in government and unionized industries
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Retirement Benefits
Defined Contribution Plans
employee and employer may contribute to account based on rules established for contributions amount of benefits depends on success of account investments

Regular pension plans

profit-sharing plans

IRAs

401Ks

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Retirement Benefits
Regular Pension Plan
type of defined contribution plan organization commits to depositing fixed amount of money or percentage of employees pay annually

Profit-Sharing Plans
variation of defined contribution plan company amount contributed depends on profit level in the organization contribution is optional, not required

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Retirement Benefits
Individual Retirement Accounts (IRAs)
1. employer makes contributions 2. can defer taxes on amount deposited and interest earned in retirement account 3. two types exist for small businesses and selfemployed

401(k)s:
1. permit workers to set aside specified amount of income on tax-deferred basis 2. employers may match employee contribution

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Paid Time Off

Vacation and Holiday Leave
vacation time is usually related to the length of time on the job some companies also allow personal days that can be used for any reason

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Paid Time Off - Leave Entitlements

In addition to the 14 days of annual leave with pay, the Factories Act, 1934 provides that every worker is entitled to 10 days casual leave with full pay and further 16 days sick or medical leave on half pay. Casual leave is granted upon contingent situations such as sudden illness or any other urgent purpose. It should be obtained on prior application unless the urgency prevents the making of such application. As a customary practice, causal leave is approved in most cases. Sick leave, on the other hand, may be availed of on support of a medical certificate. Management should not refuse the leave asked for if it is supported by a medical certificate.
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Paid Time Off - Leave Entitlements

In addition to the leave entitlements, workers enjoy festival holidays as declared by the Federal Government. The Provincial Government under section 49 of the Factories Act, 1934, states all festival holidays, approximately 13 or as further declared, in the Official Gazette. Additionally, every worker is entitled to enjoy all such holidays with pay on all days declared and notified by the Provincial Government. If however, a worker is required to work on any festival holiday, one day's additional compensatory holiday with full pay and a substitute holiday shall be awarded.

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Paid Time Off

Disability Insurance Programs
provides salary continuation for:
short-term disabilities (sick leave) long-term disabilities (coverage usually effective after 6 months)

some companies provide financial incentives to employees to not use their sick leave
long-term disability plans usually replace a portion of the employees salary, often 60%

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Survivor Benefits
Group Term Life Insurance
benefit is usually based on ones annual rate of pay supplemental insurance increases coverage to two to five-times the employees salary

Travel Insurance
life insurance for business travel-related deaths (not including normal commuting)

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Survivor Benefits
The Service Side of Benefits
1. 2. 3. 4. 5. 6. 7. 8. Social and recreational events employee assistance programs credit unions housing tuition reimbursement uniforms company-paid transportation parking

employers often can provide services at no cost or at a significant reduction from the usual cost

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An Integrative Perspective on Employee Benefits Flexible Benefits

These programs allow employees to choose which benefits they want and help to keep costs down.
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An Integrative Perspective on Employee Benefits Flexible Spending Accounts

Employees can set aside a designated dollar amount before taxes for specified services such as 1. 2. 3. 4. health-care premiums medical expenses dependent child or elder care group legal services

IRS (UK) requires that accounts for different purposes be separate and that all money be spent during the year or forfeited not subject to federal, state, and social security taxes

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An Integrative Perspective on Employee Benefits Modular Plans employees choose a pre-designed package of benefits from several options Core-Plus Options Plans employees given core coverage (e.g. medical, life, disability) with option to select other benefits

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Instructor: Usman Ali Asif Chap 11 - 24