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PART FOUR

C H A P T E R

COMPENSATION

T

Benefits
And
Services

Lecture Outline

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T h i r t e e n

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It is important that expert assistance be secured when formulating benefits and benefits policies. and 4) services. Know Your Employment Law: Benefits – There are a myriad of laws that affect benefits. Students might well be prodded to understand the dynamics driving this.Strategic Overview The Benefits Picture Today Pay for Time Not Worked Unemployment Insurance Vacations and Holidays Sick Leave Parental Leave and the Family and Medical Leave Act Severance Pay Supplemental Unemployment Benefits Insurance Benefits Workers’ Compensation Hospitalization. II. The Benefits Picture Today – Benefits can be classified by 1) pay for time not worked. which provide for weekly benefits if a person is unable to work through some fault other than his/her own. ANNOTATED OUTLINE I. retain employees. 214 . as well as the costs and benefits to the employer. 2) insurance benefits. 3) retirement benefits. Interesting Issues: More and more companies are moving to flexible benefits packages. Health. These benefits and services are offered to entice employees. and Disability Insurance Life Insurance Benefits for Part-Time and Contingent Workers Retirement Benefits Social Security Pension Plans Pension Planning Pensions and the Law Pension Alternatives Personal Services and Family-Friendly Benefits Personal Services Family-Friendly Benefits Executive Perquisites Flexible Benefits Programs The Cafeteria Approach Computers and Benefits Administration Flexible Work Arrangements In Brief: This chapter discusses the different benefits and services that companies might offer to employees. and to help make them more productive during their service. Pay for Time Not Worked A. Unemployment Insurance – All states have unemployment insurance or compensation acts (that follow federal guidelines).

and vacation-related policy issues. An employer’s unemployment tax rate reflects its rate of personnel terminations. spouse. and 4) employers must guarantee employees the right to return to their previous or equivalent position with no loss of benefits at the end of the leave.The benefits derive from an unemployment tax on employers that can range from 0. 1. C. and some run their own insurance programs. Firms have to address several holiday. and good public relations. reduced workweeks. Ø III. Most states require employers to carry worker’s compensation insurance. E. How Benefits are Determined – Workers’ Compensation can be monetary or medical. Neither the state nor the federal government contributes any funds for worker’s compensation. it therefore seems appropriate to provide at least one or two weeks’ severance if an employee is being dismissed. regardless of fault. however. They are becoming more prevalent in union agreements. or the care of a seriously ill child. B. Most sick leave policies grant full pay for a specified number of permissible sick days. F. 215 . and help the person maintain his/her standard of living for a time while he/she is out of work due to layoffs. and relocations. To minimize employees using their sick leave as extensions to their vacations. NOTES Educational Materials to Use Insurance Benefits A. Every state has its own worker’s compensation law and administrative commission. Severance Pay – a one-time payment when terminating an employee. Parental Leave and the Family Medical Leave Act –stipulates that: 1) private employers of 50 or more employees must provide eligible employees up to 12 weeks of unpaid leave for their own serious illness. 3) employees taking leave are entitled to receive health benefits while they are on unpaid leave. Supplemental Unemployment Benefits – supplement the employee’s unemployment compensation. 2) employers may require employees to take any unused paid sick leave as part of the 12-week leave provided in the law. Some disabilities or losses also receive monetary awards based on a schedule of those losses. D. Vacations and Holidays – The number of paid employee vacation days and holidays varies considerably from employer to employer. the birth or adoption of a child. or parent. Monetary awards are based on a formula regarding the disability involved and the worker’s average weekly wages. prompt income and medical benefits provided in work-related accidents to the victims or their dependents. some employers are repurchasing unused sick leave at the end of the year by paying their employees a daily equivalent sum for each sick leave day not used or creating a leave bank or paid time off (PTO). Most managers expect employees to give them at least one or two weeks’ notice if they plan to quit. Sick Leave – provides pay to employees when they’re out of work due to illness. Workers’ Compensation – refers to the sure. is a humanitarian gesture.1% to 5% of taxable payroll in most states. the law provides a limited exception from this provision.

as well as a small fee for administrative costs. with respect to all benefits. are groups of health care providers that contract to provide medical care services at a reduced fee. The Health Insurance Portability and Accountability Act. and Disability Insurance – is aimed at providing protection against hospitalization costs and loss of income arising from accidents or illness occurring from off-the-job causes. which usually accept all employees. thus minimizing such claims is important. C. regardless of health or physical condition. childbirth. Preferred provider organizations (PPOs). 3. Accidental death and dismemberment coverage provides a lump-sum benefit in addition to life insurance benefits when death is accidental. 216 . generally 18 months. Many firms institute rehabilitation programs to get injured employees back on the job as fast as possible. a cross between HMOs and the traditional doctor/patient arrangement. including sick leave and disability benefits. and health and medical insurance. The Pregnancy Discrimination Act – (PDA) prohibits sex discrimination based on pregnancy. 3) require medical contributions. childbirth. since worker compensation cost accumulate as long as the person is out of work. enacted in 1996. lets employers and employees deduct the cost of long-term care insurance premiums from their annual income taxes. or related medical conditions the same as any employee not able to work. 5) encourage preventive health care. 4. 2. Controlling Worker’s Compensation Costs – The costs of insurance premiums depend on the number and dollar amount of claims. The former employee must pay for the coverage. Employer health and hospitalization plans must comply with the Americans with Disabilities Act. and 7) manage the cost of aids. Long-Term Care – is a new benefit aimed at supporting people in their old age. New Trends in Health Care Cost Control – many employers are changing their medical plans by: 1) moving away from 100% medical cost payments and including a deductible.2. COBRA – (Comprehensive Omnibus Budget Reconciliation Act) requirements are that most private employers must make continued health benefits available to terminated or retired employees and their families for a period of time. 4) use gatekeepers. and institute effective safety and health programs. thus employers must treat women affected by pregnancy. Hospitalization. Disability insurance provides income protection for loss of salary due to illness or accident. There is an increase in the number of states requiring employers to offer a minimum package of mental health benefits. if desired. A health maintenance organization (HMO) is a medical organization consisting of several specialists operating out of a community-based health care center. reduce accident-causing conditions in your facilities. or related medical conditions. 5. 2) increase annual deductibles. B. The Mental Health Parity Act of 1996 sets minimum mental health care benefits at the national level. Life Insurance – Most employers provide group life insurance plans. and is offered by most employers because medical care and insurance are so expensive. Medical. Some ways to reduce such claims is to screen out accident-prone workers. 6) form health care coalitions. 1. Mental Health Benefits – The costs of mental health treatment are rising because of widespread drug and alcohol problems. and comply with government standards on these matters.

an employer can require that an employee complete a period of no more than 2 years’ service to the company before becoming eligible to participate in the plan. An employee stock ownership plan (ESOP) is a tax-deductible stock bonus plan. 2. The Social Security system also administers the Medicare program.D. Employers have to consider several policy issues in developing pension plans: membership requirement. which provides a wide range of health services to people 65 or older. vacation benefits. The employer usually matches this contribution in whole or in part. participants in pension plans must have a non-forfeitable right to 100% of their accrued benefits after 3. plan funding. benefit formula. and disability payments. C. employers must consider: membership requirements. Survivor (death) benefits provide monthly payments to your dependents regardless of your age at death if you were insured under the Social Security Act. Ø IV. 5. Retirement benefits provide an income if you retire at age 62 or thereafter and are insured under the Social Security Act. and some form of health care benefits for employees who work less than 35 hours a week. Pension Planning – The Employee Retirement Income Security Act Income Security Act (ERISA) restricts what companies can. and must do in regards to pension plans. survivor’s (death) benefits. and vesting. Under the Tax Reform Act of 1986. NOTES Educational Materials to Use Retirement Benefits A. Pension Plans – There are a variety of pension plans. In developing pension plans. and vesting. D. Many federal laws govern pensions. In deferred profit sharing plans. Other Types of Defined Contribution Plans – in a savings a thrift plan. 401(k) Plans – a popular defined contribution plan in which the employee can have money deducted from his or her paycheck and deposited in the account before payroll taxes. sick leave. cannot. benefit formula. B. plan-funding. If you require more than 1 year of service before eligibility. Disability payments provide monthly payments to employees who become totally disabled (and their dependents) if they work and meet certain specified work requirements. 1. Pensions and the Law – Under the Employee Retirement Income Security Act (ERISA). employers contribute a portion of their profits to the pension fund. Defined contribution plans specify what contributions the employer will make to the employee’s retirement or savings fund. the plan must grant employees full and immediate vesting rights at the end of that period. Pension Alternatives 217 . E. or 7 years of service. 401 (k) plans are where an employee authorizes the employer to deduct a certain amount of money from his/her paycheck before taxes and to invest in the 401(k) plan. Benefits for Part-time and Contingent Workers – Some firms provide holiday. employees contribute a portion of their earnings to a fund. Social Security – provides three types of benefits: retirement benefits.

garner favorable publicity. and employees earn interest on this amount. and lower turnover. Cash Balance Pension Plans – are defined benefit plans under which the employer contributes a percentage of employees’ current pay to the employees’ pension plans every year. 218 . 3. fitness and medical facilities. gambling. even insurance for the family pet are all part of the compensation package in the new workplace. Personal Services – are being provided by many companies. Effects on Performance – There is not a lot of evidence to suggest that family-friendly benefits improve productivity. with a financial incentive. 2. which is generally a combination of improved or liberalized pension benefits plus a cash payment. loan programs for home computers. Ø V. Portability – of pension plans refers to making it easier for employees to take their retirement income when they leave. and roll it over into a new employer’s savings plan by switching from defined benefit to defined contribution plans. 2. Many firms implement them as part of broader commitment-building programs. improve morale. flexible work scheduling. Family-Friendly Benefits – There are more families in which both adults work. or stress. NOTES Educational Materials to Use Personal Services and Family-Friendly Benefits A. 2. stock options. Early Retirement Windows – mean that the company opens up (for a limited time only) the opportunity for employees to retire earlier than usual. Improving Productivity Through HRIS: Benefits Management Systems – Benefits administration can be an enormously laborintensive and time consuming activity for an HR department. B. On-site child care. more women working. Employee Assistance Programs – (EAPs) provide employees with counseling and/or treatment for problems such as alcoholism. which tend to improve recruiting results. occasional sabbaticals. Credit Unions – are usually separate businesses established with the employer’s assistance to help employees with their borrowing and saving needs. lower absenteeism. 1. telecommuting. 1. more one-parent households. Subsidized Child Care – is an increasingly desirable benefit. One of the main ways HR managers are increasing the productivity of their benefits dollars is by increasing the utilization of technology.1. and more people over 55 working. concierge services.

salary guarantees. employees do prefer flexibility in their benefits plan. credit cards. Because IRS guidelines do not include such partners in the definition of “dependents. club memberships. legal services. company cars. Flexible Work Arrangements 1. Flextime – is an arrangement by which employees have flexibility in scheduling their workday around core hours. enable employees to update and manipulate their benefits packages. physical fitness programs. including PC-based systems and the Internet. Its centerpiece was a proposal for dramatically improved family-friendly benefits. security systems. The HR Scorecard. The Cafeteria Approach – (cafeteria benefits plan is generally synonymous with flexible benefits plan) is where each employee is given a benefits fund budget to spend on whichever benefits he/she wants once the employer limits the total cost for each benefits package and includes certain non-optional items. time off with pay. and 2) insurance became much more expensive to obtain. B. they set aside a room in each hotel for an on-site child-care facility. Flexible spending accounts let employees pay for certain benefits expenses with pretax dollars. food services. outplacement assistance. Ø VI. Computers and Benefits Administration – Computes. A. then the employees can choose from various benefits options. C.3. relocation benefits. financial counseling. tax assistance. 4. company planes and yachts. Executive Perquisites – (perks. The New Workplace: Domestic Partner Benefits – Many companies are extending benefits coverage to same sex domestic partners. Strategy and Results: The New Benefits Plan – The Hotel Paris implements a new family.friendly benefits plan. chauffeured limousines. protection for executives if their firms become targets of acquisitions or mergers. for short) include management loans. 5. C.” there is considerable doubt that these benefits will be tax free. executive dining rooms. 219 . Other Job-Related Benefits – employers provide include subsidized employee transportation. and educational subsides. NOTES Educational Materials to Use Flexible Benefits Programs – When given the opportunity to choose. and children’s education. liberal expense accounts. and because each hotel had to run 24 hours a day. Because so many of each hotel’s employees were single parents. September 11 – this terrorist attack had two effects: 1) many firms expanded their trauma counseling services. Core plus option plans establish a core set of benefits. which are usually mandatory for all employees. Elder Care – programs are being offered to employers to help employees who must care for elderly who can’t fully care for themselves. season tickets.

three 12-hour days. You could minimize your organization’s unemployment insurance tax by making sure that all your managers understand the unemployment insurance code. a 40-employee firm. 220 . Effectiveness of Flextime and Compressed Workweek Programs – reviews indicated that they increase employee satisfaction and productivity. Employee leasing firms are assisting smaller firms to handle their employee-related activities. These can be phrased in many ways. Explain how ERISA protects employees’ pension rights. What is unemployment insurance? Is an organization required to pay unemployment benefits to all dismissed employees? Explain how you would go about minimizing your organization's unemployment insurance tax. Some critics are concerned that fatigue and accidents may increase. Compressed Workweeks – may consist of four 10-hour days. 2. the PBGC also insures pensions should a plan terminate without sufficient funds to meet its vested obligations. conduct exit interviews. Unemployment insurance provides benefits to an individual who is unable to work through some fault other than his/her own. Also. pension rights must be vested under one of three formulas. HR for Line Managers and Entrepreneurs: Benefits and Employee Leasing – First Weigh Manufacturing. 3. ERISA established the Pension Benefits Guarantee Corporation to help ensure that pensions meet vesting obligations. You are applying for a job as a manager and are at the point of negotiating salary and benefits. You should ask sufficient questions about all aspects of the benefits package such that you will come away knowing exactly what benefits you will and will not have. Ø NOTES Educational Materials to Use DISCUSSION QUESTIONS 1. Telecommuters work at home and use phones and internet to conduct business. What questions would you ask your prospective employer concerning benefits? Describe the benefits package you would try to negotiate for yourself. For example. and audit the annual benefit charges statement. file the protest against a former employee's claim on a timely basis. Under ERISA. students will be far-sighted enough to understand the importance of benefits that might not appear to be critical at this stage of their lives. Other Flexible Work Arrangements – there are many other arrangements that employers may offer. they should realize the importance of a good family medical plan as well as a well-funded retirement plan. 4. Work sharing is when a whole group reduces its hours to prevent layoffs. know your local unemployment insurance official. verify employment claims. train managers and supervisors on discipline and discharge. but should cover all areas important to the potential employee.2. or other such combinations. if students are young and single. signed up with ADP Total Source to enable its employees to receive employee benefits and HR services as if they worked for a large firm. 3. An organization is not required to pay unemployment benefits to all dismissed employees. Hopefully. Job sharing is when two people share one full-time job. When You’re On Your Own.

You are the HR consultant to a small business with about 40 employees.com/dessler) on the Prentice Hall Web site for the best online business support available. Write a summary detailing your state’s unemployment laws. including new communication tools. INDIVIDUAL AND GROUP ACTIVITIES 1. Based on what they learned from the chapter and the results of their Internet search. If the plans are not portable. the birth or adoption of a child. Write a two-page summary explaining: (1) the various retirement savings programs available to small-business employers. an HRCI Exam Prep Guide.4. Today's college graduate may not think about it. Most college graduates can expect to change employers several times during their career.gov/elaws. visit the Web site www. the students should include at a minimum a 401(k) plan that can be assessed online. The specific ones to recommend would depend partly on the profile of the employees of the firm. In the absence of that information. 4) employers must guarantee employees the right to return to their previous or equivalent position with no loss of benefits at the end of the leave. 3. What is "portability"? Why do you think it is (or isn't) important to a recent college graduate? Portability is the ability of an employee to take his or her retirement income when they leave an organization and roll it over into a new employer's savings plan or IRA.prenhall. The next benefit that they might look to would be to add the availability of some kind of health plan that could include a contributory cost to the employee. under the same terms and conditions as when they were on the job. 5. 2. but it is important to consider the question of portability. and more. Working individually or in groups. and legally mandated benefits such as unemployment insurance payments. Working individually or in groups. 3) employees taking leaves are entitled to receive health benefits while they are on unpaid leave. and great resources. or parent. This site provides professors with a customized course Web site. 221 . find out the unemployment rate and laws of your state. 2) employers may require employees to take any unused paid sick leave or annual leaves as part of the 12-week leave provided in the law. and (2) which retirement savings program you would choose for your small business and why. Suggest that the students use the Internet to research the unemployment rate and laws for your state. however. along with your reasons for suggesting them. At the present time the firm offers only five days vacation. Assume you run a small business. or the care of a seriously ill child. the least costly addition of benefits would be to add some sick leave (or personal days) and consider additional vacation and/or holidays. it will take exceptional planning on the employee's part to ensure adequate retirement income. such as Internet Resources.dol. Having portable retirement plans can help ensure that they end up with a reasonable retirement income. Assuming Company X has a 30% rate of personnel terminations. This would be less expensive to the company and add real value to the employees because of group discounts. spouse. the law provides a limited exception from this provision to certain highly paid employees. Develop a list of other benefits you believe they should offer. What are the provisions of the FMLA? The FMLA provides the following: 1) private employers of 50 or more employees must provide eligible employees up to 12 weeks of unpaid leave for their own serious illness. five paid holidays. calculate Company X’s unemployment tax rate in your state. DESSLER COMPANION WEB SITE We invite you to visit the Dessler homepage (http://www. assessment exercises. one-click navigation of chapter content.

pensions and the law. The students are likely to create different policy statements. Multiple choice questions should reflect material in this chapter and should have answer choices which could appear plausible. benefits for part-time workers. and Human Resource Development). do four things: (1) review that appendix now. Students are to devise a benefits package “in keeping with the size and requirements for this firm. what is the downside of having two classes of employees. 2. pension plans. Anytime there are two classes. from the point of view of the union. executive perquisites. It is suggested that you consider giving this exercise as a group assignment. etc. Continuing Case: Carter Cleaning Company The New Benefits Plan 1.com might allow for flexibility in their pay for time not worked. pension planning. Assume you are mediating this dispute. 3. Discuss five creative solutions you would suggest for how the grocers could reduce the health insurance benefits and the cost of their total benefits package without making any employees pay more. what are the downsides of having to represent two classes of employees. (2) identify the material in this chapter that relates to the required knowledge the appendix lists. In groups of four to five students. Similarly. jealousy and resentment increase and morale decreases. (3) write four multiple choice exam questions on this material that you believe would be suitable for inclusion in the HRCI exam. hospitalization. Some of the suggestions in question #1 might avoid the two classes. workers’ compensation. Workforce Planning. EXPERIENTIAL EXERCISES & CASES Experiential Exercise: Revising the Benefits Package Students are given a scenario of a small business and its benefits package. and paid days off for Carter Cleaning Centers. sick leave. supplemental unemployment benefits. You should get the students to discuss how LearnInMotion. The material in this chapter that relates to the HRCI certification exam includes: unemployment insurance. but things that should be considered include: altering deductibles but providing grandfathered employees extra pay to compensate. severance pay. social security. but new employees not getting that pay increase. From the grocery chains’ point of view. Also.” This means that they need to carefully balance the costs and the administration requirements with the resources that the small firm has. Finding five creative solutions will be challenging. parental leave and FMLA. so the students in other teams can take each others’ exam questions. one of which has superior health insurance benefits? How would you suggest they handle the problem? Morale is a critical problem. Application Case: Striking for Benefits 1. Draw up a policy statement regarding vacations. 222 . but eventually that will change. pension trends.4. and (4) if time permits. have someone from your team post your team’s questions in front of the class. health. sick leave. and disability insurance. and how would you suggest handling the situation? The “lower class” employees will feel that they were “sold out” by the union and may loose faith in the value of the union. vacations and holidays. which will reflect their different preferences for benefits. Initially the union will be safe because of the larger number of employees in the “better” group. altering the pay schedule by increasing the pay for existing employees to compensate for additional health care costs passed on to them. The HRCI “Test Specifications” appendix at the end of this book (pages 685-692) lists the knowledge someone studying for the HRCI certification exam needs to have in each area of human resource management (such as in Strategic Management. and flexible benefits programs. administration costs increase. life insurance.

Would you advise establishing some type of day care center for the Carter cleaning employees? Why or why not? A better approach for a small company such as Carter would be to locate a licensed day care provider that would be willing to give a discount to Carter employees. is dissatisfied with his incentive plan. For full video case and discussion questions. PART-ENDING VIDEO CASE Compensation Angelo Hernandez.2. unemployment insurance Provides benefits if a person is unable to work through some fault other than his or her own. and holiday pay and sick pay. she could then consider whether to subsidize childcare. From that starting point. sick leave Provides pay to an employee when he or she is out of work because of illness. and life insurance programs? The student should refer to the hospitalization. etc. does not fairly reward him for his efforts. severance pay A one-time payment some employers provide when terminating an employee. and disability insurance section of the chapter to develop their lists of advantages and disadvantages. 3. What would you tell Jennifer are the advantages and disadvantages to Carter Cleaning Centers of providing its employees with health. vacation. please visit the Faculty Resource section of the Dessler Companion Web Site at: http://www. as well as alternative methods of compensation: benefits. which is based on the quantity of recruits he brings to the company. supplemental unemployment benefits Provide for a guaranteed annual income in certain industries where employers must shut down to change machinery or due to reduced work.com/dessler KEY TERMS benefits Indirect financial and nonfinancial payments employees receive for continuing their employment with the company. hospitalization. supplemental pay benefits Benefits for time not worked such as unemployment insurance. rewards. These benefits are paid by the company and supplement unemployment benefits. services. medical. This segment discusses how and when incentive plans are best used. and exploring other forms of compensation. worker's compensation Provides income and medical benefits to work-related accident victims or their dependents regardless of fault. He feels his current plan. a recruiter for Focus Pointe.prenhall. health maintenance A prepaid health care system that generally provides routine round-the- 223 . Angelo speaks with Chona Castillo in the HR department about reevaluating his incentive plan.

pension plans Plans that provide a fixed sum when employees reach a predetermined retirement age or when they can no longer work due to disability. regardless of health or physical condition. payable at retirement. Pension Benefits Guarantee Corporation (PBGC) Established under ERISA to ensure that pensions meet vesting obligations. Employee Retirement Income Security Act (ERISA) Signed into law by President Ford in 1974 to require that pension rights be vested. employee stock ownership plan (ESOP) A qualified. group life insurance Provides lower rates for the employer or employee and includes all employees. These benefits are payable only if the employee is insured under the Social Security Act. early retirement window A type of offering by which employees are encouraged to retire early. vesting Provision that money placed in a pension fund cannot be forfeited for any reason. the incentive being liberal pension benefits plus perhaps a cash payment. tax-deductible stock bonus plan in which employers contribute stock to a trust for eventual use by employees. survivor's or death benefits payable to the employee's dependents regardless of age at time of death. deferred profit-sharing plan A plan in which a certain amount of profits is credited to each employee’s account. also insures pensions should a plan terminate without sufficient funds to meet its vested obligations. Social Security Federal program that provides three types of benefits: retirement income at age 62 and thereafter. who pay a nominal fee in addition to the fixed annual fee the employer pays. termination. and disability benefits payable to disabled employees and their dependents. defined benefit pension plan A plan that contains a formula for determining retirement benefits. the PBGC.organization (HMO) clock medical services as well as preventative medicine in a clinic-type arrangement for employees. preferred provider organization (PPO) Groups of health care providers that contract with employers insurance companies. including new employees. defined contribution plan A plan in which the employer's contribution to employee's retirement or savings funds is specified. 401(k) plan A defined contribution plan based on section 401(k) of the Internal Revenue Code. the employer usually matches this contribution in whole or in part. or death. and protected by a government agency. or third-party payers to provide medical care services at a reduced fee. cash balance plans Defined benefits plans under which the employer contributes a 224 . savings and thrift plan Plan where employees contribute a portion of their earnings to a fund.

225 . gambling. and use phones.of employees’ current pay to the employees’ pension plans every year. flexible benefits plan / cafeteria benefits plan Individualized plans allowed by employers to accommodate employee preferences for benefits. job sharing Allows two or more people to share a full-time job. data and completed work to the home office. or stress. usually with computers. and employees earn interest on this amount. and the internet to transmit letters. telecommuting Where employees work at home. employee assistance program (EAP) A formal employer program for providing employees with counseling and/ or treatment programs for problems such as alcoholism. work sharing A temporary reduction in work hours by a group of employees during economic downturns as a way to prevent layoffs.