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Topic 7
Compensation and Benefits

By: Nurul Ezaili Alias

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Learning Outcomes
 Detect strategies companies use to develop benefits
plans that are cost effective
 Identify and explain the employee benefits required by
law
 Describe the types of work/life benefits that employers
may provide
 Describe the different types of retirement programs
and pension plans and the regulations related to them

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Selecting Benefits
 When designing benefit programs, company can:
 Purchase detailed compensation data
 Hire outside firms to aid in the designing process
 Involve employees’ participation
 Conduct opinion survey
 Establish committees to over look the program

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Flexible Benefits
 Flexible benefits plans
 Enable individual employees to choose benefits best
suited to their particular needs
 Prevent certain benefits from being wasted on
employees who have no need for them
 Employees are offered core benefits package of life and
health insurance, sick leave, and vacation
 Give certain amount of funds to purchase other benefits
needed through the plan

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Designing Benefits Information
 Avoid complex language when describing benefits
 Explain purpose of a benefit, its value for employees,
and pros and cons of different benefit plans
 Use graphics to make information understandable at a
glance
 Provide numerous examples illustrating how a benefit
choice might affect different types of employees

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Social Security Insurance
 Protect workers against the loss of earnings resulting
from old age and unemployment
 Amended to include disability or dependents, incase
of death of the worker supporting them
 Together known as Old Age, Survivors, and Disability
Insurance (OASDI)

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Social Security Insurance
 Supported by tax levied against an employee’s earnings
 Matched by employer in each pay period
 Tax revenues are used to pay major benefits
 Retirement
 Disability
 Survivors’
 Medicare

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Unemployment Insurance
 Protects workers who lose their jobs through no fault
of their own
 Eligible workers:
 Submit an application for unemployment compensation
with state employment agencies
 Register for available work
 Willing to accept any suitable employment that may be
offered to them

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Workers’ Compensation Insurance
 State-mandated insurance provided to workers to
defray the loss of income and cost of treatment due to
work-related injuries or illness
 Covers
 Injuries on the job
 Work-related illnesses

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Work-Life Discretionary Benefits
 Organizations seek to create a work/life organizational
climate that allows employees to balance work with
personal needs
 Organization are adapting work-life programs to
accommodate the entrance of Generation Y employees
into the workplace

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Child and Elder Care
 Child care - Provided to a child by an employee who
remains actively at work
 Elder care: Provided to an elderly relative by an
employee who remains actively at work
 Backup care program: Employer provides or
subsidizes temporary care for its employee’s elders or
children when their regular arrangements fall through

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Payment for Time Not Worked
 Vacations with pay
 Paid holidays
 Sick leave
 Sabbaticals
 Severance pay
 Supplemental unemployment benefits (SUBs)

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Retirement Programs
 No law mandating retirement age in United States
 Factors that influences an employee to retire
 Personal/financial condition
 Health
 Family obligations
 Satisfaction from work
 Ability to meet changing job demands

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Preretirement and Phased Retirement
Programs
 Requires major financial lifestyle adjustment
 Seminars are conducted to create awareness of kinds
of adjustments required when employees retire
 Phased retirement: Program that allows its
employees to gradually cut their hours before retiring

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Pension Plans
 Reward employees for their years of service by
providing them with income when they retire
 Categorized based on
 Contributions made by employer
 Amount of pension benefits to be paid

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Types of Pension Plans
Contributory plan

• Contributions are made jointly by employees and employers

Noncontributory plan

• Contributions are made solely by the employer

Defined benefit plan

• Amount an employee is to receive on retirement is specifically set forth

Defined contribution plan

• Establishes basis on which an employer will contribute to the pension


fund

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1617
Pension Protection Act
 Allows employers to automatically enroll employees in
defined contribution plans
 Permits higher contribution limits for 401(k) plans
 Enables workers to build larger retirement holdings
 Gives workers greater control over how their accounts
are invested

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Cash Balance Pension Plans
 Allows employer to make yearly contribution into
employee’s retirement savings account
 Based on percentage of employee’s pay, typically four
percent
 Benefits depend on employee’s age and years of service
with the company

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Federal Regulation of Pension Plans
 Private pension plans are subject to federal regulation
under Employee Retirement Income Security Act
(ERISA)
 Vesting: Guarantee of accrued pension benefits to
participants at retirement age, regardless of their
employment status at that time
 Prevents companies from laying off employees before
they retire, so they are unable to collect their pensions

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Federal Regulation of Pension Plans
 According to ERISA
 Pension plans must provide employees with vested
rights to their accrued benefits after they meet a certain
minimum years of service
 Minimum funding standards should be followed to
ensure availability of pension benefits to employees
upon retiring
 Pension Benefit Guaranty Corporation (PBGC) was
created
 Ensures that if a plan is terminated, guaranteed
minimum benefits are paid to participants
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part. 21

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