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 CHAPTER 11
Legally Required Benefits

Learning Objectives
1. In a historical context, discuss at least two main reasons why the U.S. government
required certain employee benefits.
2. Summarize three main components of legally required benefits.
3. Indicate the main benefits and costs of legally required benefits.
4. Summarize the five fundamental objectives of employee benefits program design.
Outline
I. An Overview of Legally Required Benefits
II. Components of Legally Required Benefits
A. SSA
B. Unemployment Insurance
C. OASDI
D. Medicare
E. State Compulsory Disability Laws (Workers’ Compensation)
F. FMLA
III. The Benefits and Costs of Legally Required Benefits
IV. Designing and Planning the Benefits Program
A. Overview
B. Determining Who Received Coverage
C. Financing
D. Employee Choice
E. Cost Containment
F. Communication
V. Discussion Questions and Suggested Answers
VI. End of Chapter Case; Instructor Notes, and Questions, and Questions and
Suggested Student Responses
VII. Additional Cases from the MyManagementLab Website; Instructor Notes,
and Questions and Suggested Student Responses

Lecture Outline

I. An Overview of Legally Required Benefits

1. Established to protect individuals from catastrophic events
a. Disability
b. Unemployment
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 2. Protection programs to:
a. Promote worker safety and health
b. Maintain family income streams
c. Assist families in crisis
d. Enable retirees to maintain subsistence income levels
3. Provided a form of social insurance
4. Reasons for implementation
a. Rapid growth of industrialization in early 1900s
b. Hardships caused by the Great Depression in the 1930s
5. Apply to virtually all U.S. companies
a. Does not factor directly into a competitive advantage
b. Can indirectly promote competitive advantage
i. Enables unemployed and disabled individuals and their families to
participate in economy as consumers
ii. Helps promote a vigorous economy
6. As of September 2012, U.S. companies spent an average of $4,950
annually to provide legally required benefits

II. Components of Legally Required Benefits

A. SSA
1. Historic background
a. Great Depression lead to chronic unemployment
b. Chronic unemployment caused further hardships on U.S. economy
c. Companies forced to shift focus from just profits to staying solvent
d. SSA allowed the unemployed and injured to contribute to the U.S.
economy by continuing to purchase goods
e. Chronic unemployment also prevented workers from being able to
save for retirement and medical insurance, but the SSA provided these
workers with subsistence levels of both
2. Programs
a. Unemployment Insurance
b. OASDI
c. Medicare
B. Unemployment Insurance
1. For those unemployed through no fault of their own
2. States administer within federal parameters
3. States pay into a (federal) central unemployment fund, federal government
invests, then disburse funds back to states
4. Does not cover most agricultural or domestic workers
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5. Criteria to qualify for benefits
a. Varies from state to state
b. In general, workers must have been employed for a minimum period
of time before filing a claim (base period)
c. Base period tends to be the first four of the last five completed
calendar quarters immediately prior to becoming unemployed
d. Workers’ have to make a minimal amount of income (around $1,000)
during the previous four calendar quarters
e. Must not have left job voluntarily
f. Must be able and available for work
g. Must be actively seeking work
h. Must not have refused an offer for work
i. Must not be unemployed because of a labor dispute
j. Must not be fired because of gross misconduct
6. Benefits
a. Based on a weekly schedule
b. States vary amounts
c. Amounts generally calculated as a fraction of the workers’ weekly
earnings during the highest quarter of the worker’s base period
d. Unemployed individuals usually collect unemployment insurance
benefits for several weeks
i. Since 1972, the average duration of benefits has ranged between
twelve and eighteen weeks
ii. The average duration refers to the mean number of weeks for
which unemployment insurance claimants collect benefits under
regular state programs
e. Legislation after deep economic recession beginning in late 2007
i. The Emergency Unemployment Insurance (EUC) Program of 2008
provided thirteen additional weeks of federally funded
unemployment insurance benefits to the unemployed who had
exhausted all state unemployment insurance benefits for which
they were eligible
ii. The Unemployment Compensation Act of 2008 expanded the EUC
benefits to twenty weeks nationwide (from thirteen weeks) and it
provided for thirteen more weeks of EUC (for a total of thirty-three
weeks) to individuals who reside in states (such as Michigan) with
high unemployment rates
iii. This temporary program was extended three times, most recently
in January 2013 under the American Taxpayers Relief Act of 2012
iv. Under the extension, unemployment insurance benefits are
available to individuals for weeks of unemployment ending on or

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 before January 3, 2012. The number of weeks for which an
individual is eligible to receive unemployment insurance benefits
depends upon the unemployment rate of the state in which
unemployed individual resides
v. Under the extension, unemployment insurance benefits are
available to individuals for spells of unemployment ending on or
before January 1, 2014
7. Financed by federal and state taxes levied on employers under the Federal
Unemployment Tax Act (FUTA)
a. Exempt from FUTA
i. State and local governments
ii. Not-for-profit companies
b. Employers contribute 6.2 percent of first $7,000 of each worker’s
wages
i. 5.4 percent is disbursed to states
ii. 0.8 percent covers administrative costs and to maintain a reserve to
bail out states with very low balances in their accounts
c. States set the taxable wage base according to the average wage level -
in 2013, states’ taxable wage base ranged from $7,000 to $39,800
d. The more a company lays-off workers, the more tax the company must
pay - experience rating system
i. A company that lays-off a large percentage of employees will have
a higher tax rate than a company that lays off relatively few or
none of its employees
C. OASDI
1. Amendments
a. Old age (retirement) was in the original bill
b. Survivor benefits added in 1939
c. Disability insurance in 1965
2. Three classes of workers exempt from Social Security Administration
a. Civilian employees working for federal government, and railroad
workers with over ten years of service
b. Workers for state or local governments covered by other retirement
plans
c. Children
i. Younger than age 21 who work for a parent
ii. Except those 18 years and older who work in parent’s business
3. Old age (retirement) benefits
a. Determined by how much credit each worker has earned
i. Based on “quarters of coverage”
ii. Through eligible payroll deductions
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 b. In 2013, a worker earns credit for one quarter of coverage for each
quarter in which she makes $1,160 of Social Security taxable income
c. Will be fully insured after earning credit for 40 quarters of coverage,
or 10 years of employment
d. Once eligible, individuals remain fully insured during their lifetime
e. To receive benefits, the retired worker must:
i. Be at least 62 years of age to receive reduced benefits
ii. Be at least 65 years of age to receive full benefits
iii. The U.S. Bureau of Census estimated that individuals age 65 in
1997 would live and additional 17.7 years and in 2007, this
estimate increased to 22.5 years
iv. Between 2000–2022 age will increase to 67 (to receive full-
benefits)
v. The average monthly benefit for all retired workers was $1,261 in
2013
vi. The Social Security Administration increases retirement benefits
by a designated percent of each month worked beyond full
retirement until age of 70 (subject to maximum percentage
increase)

Example:
• Let’s assume that an individual’s full retirement age is 66 years and his benefit at
that age is $1,000.
• His monthly benefit would be $750 if he were to take retirement at 62.
• His monthly benefit would be $1,320 if he were to delay his retirement until age
70.

4. Survivor benefits
a. Based on insured’s employment status and survivor’s relationship to
deceased
i. Spouse (at least age 60)
ii. Dependent, unmarried children
iii. Parent (at least age 62)
b. Deceased must be fully insured for dependents to receive full benefits
c. In 2013, the average monthly benefit was $1,214
5. Disability benefits
a. Worker must be fully insured when disabled
b. Two criteria for seriously disabled workers:
i. Worker must have accumulated at least 40 credits
ii. Worker must have earned at least 20 credits of the last 40 calendar
quarters in the last 10 years ending with the year of disablement
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 c. Worker must be disabled for at least a year, or the injury diagnosed as
terminal
d. In 2013, $1,132 average monthly disability
D. Medicare
1. For citizens at least 65 years of age
2. To provide them with insurance coverage for:
a. Hospitalization
b. Convalescent care
c. Major doctor bills
d. Prescription drug costs
3. Five Separate Plans
a. Medicare Part A—hospital insurance
b. Medicare Part B—medical insurance
c. Medigap—voluntary supplemental insurance to pay for services
not covered in Parts A and B
d. Medicare Part C: Medicare Advantage—choices in health care
providers, such as through HMOs and PPOs
e. Medicare Part D: Medicare Prescription Drug Benefit—
prescription drug coverage
4. Part A
a. Compulsory hospitalization insurance
b. Covers:
i. In/out patient hospital care and services
ii. Skilled nursing facility
iii. Some home health care
c. Those eligible include:
i. Social Security beneficiaries
ii. Retirees
iii. Voluntary enrollees
iv. Disabled individuals
d. Financed by both employer and employee contributions of 1.45
percent of all earnings
e. In 2013, the monthly Part A premium was $441

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Example: Medicare Part A Coverage
• Inpatient hospital care in a semiprivate room, meals, general nursing, and other
hospital supplies and services.
• Home health services limited to reasonable and essential part-time or intermittent
skilled nursing care and home health aide services, and physical therapy, occupational
therapy, and speech-language pathology ordered by a doctor.
• Skilled nursing facility care, including semiprivate room, meals, skilled nursing and
rehabilitative services, and supplies for up to 100 days per year. Examples of skilled
nursing care include physical therapy after a stroke or serious accident.

5. Part B
a. A voluntary supplementary medical insurance
i. An annual deductible
ii. Covers 80 percent of physicians’ services and medical supplies
b. Pays for medical care such as doctors’ services, outpatient care,
clinical laboratory services (e.g., blood tests, urinalysis) and some
preventive health services (e.g., cardiovascular screenings, bone
mass measurement), and ambulatory services when alternate
transportation would endanger one’s health
c. Part A coverage automatically qualifies an individual to enroll in
Part B coverage for a monthly premium
d. Enrollees’ monthly premiums (in 2013, ranged from $104.90 to
$335.70)
6. Medigap insurance
a. Supplements Parts A and B
b. Available through private insurance companies
c. Federal and state laws limit plans to ten standardized choices
d. Medicare Select offers lower premiums in exchange for limiting
the choice of providers
e. Three states do not subscribe to this system for offering Medigap
insurance
i. Massachusetts
ii. Minnesota
iii. Wisconsin
7. Part C or Medicare + Choice
a. Established as part of the Balanced Budget Act of 1997
b. Also known as Medicare Advantage
c. An alternative to Parts A and B
d. Allows beneficiaries the opportunity to receive health care from a
variety of options

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 i. Private fee-for-service plans
ii. Managed care plans
iii. Medical savings accounts
e. Fee-for-service plans provide protection against health care
expenses in the form of cash benefits paid to:
i. The insured
ii. The health care provider
f. Managed care plans often pay a higher level of benefits if
approved providers are used
8. Part D or Medicare Prescription Drug Program
a. Instituted in 2003, with passage of the Medicare Prescription Drug,
Improvement and Modernization Act
b. Effective in 2006
c. Covers 75% of prescription drug costs after the enrollee pays the
$295 deductible, up to $2,930 in 2013
d. After that, expenditures up to $4,750 are not covered and all costs
are “out of pocket”
e. This gap is known as the “donut hole”
f. Pays 95 percent after enrollees total $4,750 of out-of-pocket
expenditures
g. The Patient Protection and Affordable Care Act of 2010:
i. many provisions to make health care more affordable
ii. this law will slowly eliminate the “donut hole” coverage gap
over several years
iii. In 2011, Medicare participants who reached the coverage gap
received a 50 percent discount on brand-name prescription
drugs
iv. Additional savings will be provided each year to eliminate
“donut hole” coverage gap
9. Financing OASDI and Medicare programs
a. Requires equal employer and employee contributions under the
Federal Insurance Contributions Act (FICA)
b. FICA requires that employers pay a tax based on their payroll
c. Employees contribute a tax based on earnings, which is withheld
from each pay check
d. Self-Employment Contributions Act (SECA) requires that self-
employed individuals contribute to the OASDI and Medicare
programs, but at a different tax rate
e. The tax rate is subject to an increase each year in order to fund
OASDI programs sufficiently

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 f. FICA requires employers and employees to contribute 7.65 percent
each; self-employed individuals generally pay twice that amount,
or 15.3 percent in 2013
g. The largest share of the FICA tax funds OASDI programs
h. In 2013, 6.20 percent of the contributions of employers and
employees were set aside; self-employed individuals contributed
12.40 percent
i. OASDI taxes are subject to a taxable wage base
j. Taxable wage bases limit the amount of annual wages or payroll
cost per employee subject to taxation and may increase over time
to account for increases in the cost of living
k. In 2013, the taxable wage base was $113,700 for everyone
l. Annual wages, payroll costs per employee, and self-employed
earnings above this level were not taxed
m. Medicare tax, or hospital insurance tax, supports the Medicare Part
A program
n. Employers, employees, and self-employed individuals contribute
1.45 percent; self-employed individuals contribute double the
amount, or 2.9 percent
o. The Medicare tax is not subject to a taxable wage base—all payroll
amounts and wages are taxed
p. Beginning in 2013, an additional HI tax of 0.9 percent is assessed
an earned income
i. exceeding $200,000 for individuals
ii. $250,000 for married couples filing jointly
q. Under the new projections for the OASDI program, there should
be sufficient resources to pay full retirement benefits until through
2033
r From 2034 through 2086, the OASDI program will be able to pay
only 75 percent of recipients’ annual benefits
s. The disability insurance program trust fund is projected to be
exhausted in 2016
t. Medicare program’s financial status is stronger than the other
programs because the HI tax will increase for high-income
individuals beginning in 2013
u. It is expected that there will be sufficient funding to meet benefits
obligations through 2024
E. State Compulsory Disability Laws (Workers’ Compensation)
1. First law enacted in 1911
2. By 1920, all but six states had laws
3. Based on the principle of “liability without fault”
a. Employer is liable for providing benefits that result from occupational
disabilities or injuries regardless of fault
b. Employers should assume costs of occupational injuries and accidents
as a cost of production
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4. Program run by states
a. Compulsory in 49 states
b. Elective in Texas, where employers’ are not required to provide
workers’ compensation insurance
5. Maritime, federal civilian, agricultural, and small businesses (less than
twelve employees) are not covered
a. Maritime workers are covered by the Longshore and Harborworkers’
Compensation Act
b. Federal civilian workers are covered by the Federal Employees’
Compensation Act
6. Workers’ compensation objectives and obligations
a. Provide sure, prompt, and reasonable income and medical benefits to
work-accident victims, or income benefits to their dependents,
regardless of fault
b. Provide a single remedy and reduce court delays, costs, and workloads
arising out of personal injury litigation
c. Relieve public and private charities of financial drains
d. Eliminate payment of fees to lawyers and witnesses as well as time-
consuming trials and appeals
e. Encourage maximum employer interest in safety and rehabilitation
through appropriate experience-rating mechanisms
f. Promote frank study of causes of accidents (rather than concealment of
fault), reducing preventable accidents and human suffering
7. Financing the program
a. According to state guidelines
b. Options
i. Private carriers
ii. State funds
iii. Self-insurance
c. Self-insurance plans
i. Requires companies to deposit a surety bond
ii. Companies pay their own workers’ claims directly
iii. Gives employers greater discretion in administering their own risks
iv. Benefits must be similar to other plans
8. National Commission on State Workmens’ Compensation Laws
(NCSWCL) specifies six primary obligations of the program
a. Take initiative in administering the law
b. Continually review performance of the program and be willing to
change procedures and to request the state legislature to make needed
amendments
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 c. Advise workers of their rights and obligations and assure that they
receive the benefits to which they are entitled
d. Appraise employers and insurance carriers of their rights and
obligations; inform other parties in the delivery system (e.g., health
care providers) of their obligations and privileges
e. Assist in voluntary and informal resolution of disputes that are
consistent with the law
f. Adjudicate claims that cannot be resolved voluntarily

Workers’ Compensation versus Social Security Benefits:

Workers’ compensation pays for medical care for work-related injuries beginning
immediately after the injury occurs, and it pays temporary disability benefits after a
waiting period of three to seven days. Social Security, in contrast, pays benefits to
workers with long-term disabilities from any cause, but only when the disabilities
preclude work. Also, Social Security begins after a five-month waiting period and
Medicare begins twenty-nine months after the onset of a medically-verified inability to
work.

9. Recent trends in workers’ compensation

a. Number and amount have increased dramatically
b. The dramatic increase in repetitive strain injuries is a major cause of
increases
c. In 2012, workers’ compensation cost nearly 19 percent of all legally
required benefits for all civilian employees
10. Employers’ rights under workers’ compensation programs
a. Participation in workers’ compensation programs and compliance with
applicable regulations protects employers from torts initiated by
injured workers based on the no-fault principles of these programs
b. Four possible exceptions:
i. An employer’s intentional acts
ii. Lawsuits alleging employer retaliation for filing a workers’
compensation claim
iii. Lawsuits against non-complying employers
iv. Lawsuits relating to “dual capacity” relationships
11. An employer’s intentional acts
a. Most state courts consider intentional actions to harm employees as
reasonable cause for holding an employer liable
b. Two kinds of lawsuits:
i. Deliberate and knowing torts—entail an employer’s deliberate and
knowing intent to harm at least one employee

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 ii. Violations of an affirmative duty—take place when an employer
fails to reveal the exposure of one or more workers to harmful
substances, or the employer does not disclose a medical condition
typically caused by exposure; in particular, failure to notify
violates an employer’s affirmative duty when the illness is either
correctable at the point of discovery or its progress may be stopped
by removing employees from further exposure
12. Retaliation against workers who filed claims
a. In most states, employees possess the right to sue employers who
retaliate against them for either filing a workers’ compensation claim
or pursuing their rights established in workers’ compensation
programs
b. Retaliation usually entails an adverse effect upon a worker’s status
(e.g., a demotion or pay cut) or termination of a worker’s employment
c. Employees may initiate these lawsuits by claiming retaliatory action
d. Employers then possess the burden of proof to establish their actions
as a legally sanctioned business necessity
13. Employer noncompliance
a. Workers’ compensation laws oblige employers to comply with
applicable state laws
b. Employers begin to fulfill their obligations by purchasing insurance
from state funds, private insurance carriers, or through self-insurance
c. Failure to carry workers’ compensation insurance may lead to one or
more consequences such as monetary and criminal penalties
14. Dual capacity
a. Legal doctrine that applies to the relationship between employers and
employees
b. A company may specifically fulfill a role for an employee that is
completely different from its role as employer
c. Even though an employer meets its obligations under workers’
compensation laws, it may be susceptible to common-law actions
d. An employer’s immunity does not protect it from common-law actions
by employees when the company also serves a dual capacity that
confers duties unrelated to and independent of those imposed upon it
as an employer
15. Financing workers’ compensation programs
a. Employers generally subscribe to workers’ compensation insurance
through private carriers, or, in some instances, through state funds
b. A third funding option, self-insurance, requires companies to deposit a
surety bond, enabling them to pay their own workers’ claims directly
c. In most states, the insurance commissioner sets the maximum
allowable workers’ compensation insurance premium rates for private
insurance carriers; rates are based on each $100 of payroll
d. Increasingly, some states permit insurance carriers to set rates on a
competitive basis

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 e. Ratemaking service organizations collect data on workplace accidents
and put together rating manuals
f. Rating manuals specify insurance rates based on classifications of
businesses
g. A few states possess independent rating organizations; the remainder
consults with the National Council on Compensation Insurance, a for-
profit company located in Boca Raton, Florida; this organization
prepares three separate manuals for state insurance agencies
h. Independent rating bureaus used by a few states compile manuals that
correspond to the National Council’s manuals
i. Second-injury funds represent an important funding element of
workers’ compensation programs—these funds cover a portion or all
of the costs of a current workers’ compensation claim associated with
preexisting conditions from a work-related injury during prior
employment elsewhere
16. Employer and employee tax obligations
a. Employees do not pay any income taxes on the amount of workers’
compensation benefits
b. Survivors of deceased workers do not pay any taxes on death benefits
c. Three circumstances may require payment of taxes:
i. First, employees pay taxes on their workers’ compensation benefits
when they return to work for light duty
ii. Second, workers’ compensation benefits are taxable when they
offset (reduce) Social Security OASDI benefits
iii. Third, employees pay taxes on workers’ compensation benefits
when they do not directly result from work-related illness or injury
d. Employers typically do not pay taxes on workers’ compensation
benefits, with one main exception: workers’ compensation benefits for
nonwork-related illnesses or injuries
e. For this circumstance, the Federal Insurance Contributions Act (FICA)
and the Federal Unemployment Tax Act (FUTA) apply
f. FICA requires that an employer pay a tax based on its payroll;
employees contribute a tax based on earnings, which is withheld from
each paycheck
g. FUTA requires that employers contribute 6.2 percent of the taxable
wage base, currently $7,000

F. FMLA
1. To guarantee employees the right to return to either their same position or
a comparable one, if they are off work because of a family or medical
emergency
2. Provide fathers with the same protections mothers were guaranteed in the
Pregnancy Discrimination Act of 1978
a. Credit for previous service
b. Accrued retirement benefits
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 c. Accumulated seniority
3. Reason needed—more two-income families
4. Elderly living longer and needing care
5. Men taking on more child-rearing responsibilities
6. Title I eligibility rules allowed up to 12 weeks of unpaid leave in a 12
month period if:
a. Absence is due to the family size increasing due to a birth or a child
placement, and is applied for within 12 months of the addition
b. There is a family member suffering from a serious medical condition
c. The employee suffers from a serious medical problem
7. Covers both men and women
8. Eligibility rules
a. Must be a private employer with fifty or more employees, or
b. A civilian unit of the federal government
c. Must have put in at least 1,250 hours in a 12 month period prior to
application
9. Benefits
a. Twelve weeks of unpaid leave, but may be required to first use up all:
i. Sick leave
ii. Vacation time
iii. Personal days
b. Retention of all:
i. Earned seniority
ii. Health insurance coverage
iii. Credit for previous service
iv. Accrued retirement benefits
c. Employees cannot add any benefits while on leave
d. Employees may be entitled to receive health benefits if they do not
return from leave because of:
i. Serious health conditions
ii. Factors beyond their control
10. Major Revisions to FMLA instituted in January of 2009 include:
a. Relatives of seriously injured members of the military may take up to
26 weeks off to care for their injured military family members
b. Relatives of members of the National Guard or reserves who are called
to activity duty may receive up to 12 weeks of leave to attend military
programs (official send off of the family member’s troop), arrange
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 c. Nonmilitary workers who claim to have chronic health conditions (for
example, ongoing back pain) must see their doctor at least twice per
year for documentation
d. President Barack Obama may ask Congress to extend coverage by
including companies that employ at least twenty-five workers (as
opposed to fifty workers as the law currently stands)

III. The Benefits and Costs of Legally Required Benefits

1. Benefits tend to emphasize social adequacy—benefits are designed to
provide subsistence income to all beneficiaries regardless of their
performance in the workplace
2. Legally required benefits may be a hindrance to companies in the short
term because these offerings require substantial employee expenditures
(e.g., contributions mandated by the SSA and various state workers’
compensation laws)
3. Companies could choose to invest these funds in direct compensation
programs designed to boost productivity and product or service quality
4. HR managers and other business professionals minimize the cost burden
associated with legally required benefits:
a. Reducing the likelihood of workers’ compensation claims
i. Implementation of workplace safety programs is one strategy for
reducing workers’ compensation claims
ii. Health promotion programs that include inspections of the
workplace to identify health risks (e.g., high levels of exposure to
toxic substances), and then to eliminate of those risks
b. Integrating workers’ compensation benefits into the rest of the benefits
program
5. Employers can contain costs for unemployment insurance—systematically
monitor the reasons they terminate workers’ employment and avoiding
terminations that lead to unemployment insurance claims

IV. Designing and Planning the Benefits Program

A. Overview
1. Employee input is key to developing a “successful” program
2. Helps companies target the limited resources they have available for
employee benefits to those areas that best meet employees’ needs
3. Involving employees in program development will lead them most likely
to accept and appreciate the benefits they receive
4. Companies can involve employees in the benefits determination process in
such ways as surveys, interviews, and focus groups
5. Fundamental issues to be addressed by HR professionals:
a. Who receives coverage
b. Whether to include retirees in the plan

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 c. Whether to deny benefits to employees during their probationary
period
d. Financing benefits
e. Degree of employee choice in determining benefits
f. Cost containment
g. Communication

B. Determining who receives coverage

1. Companies decide whether to extend benefits coverage to:
a. Full-time and part-time employees
b. Only full-time employees
2. Trend is toward not offering benefits to part-time employees
3. Deciding whether to include retirees in the program
a. Depends on whether to extend medical insurance coverage to
employees beyond the COBRA-mandated coverage period
b. Employers usually finance these benefits either wholly or partly,
enabling many retirees on limited earnings to receive adequate medical
protection
c. Starting in 1997, employers’ contributions to extend medical coverage
to retirees are no longer tax deductible, which means that such
expenses will reduce company earnings in the short-term—as a result,
fewer employers are expected to finance medical insurance coverage
for retirees in the future
d. Rapidly rising cost of retiree health care benefits have created a
tremendous financial strain on companies that choose to offer them
e. The various sources of economic uncertainty since 2001 have made it
more difficult for companies to support full workforces, as evidenced
by sluggish pay increases, reductions in benefits offerings, and layoffs
4. Deciding whether to include employees in the probationary period
a. Employees’ initial term of employment (usually shorter than six
months) is deemed a probationary period, and companies view such
periods as an opportunity to ensure that they have made sound hiring
decisions
b. Many companies choose to withhold discretionary employee benefits
for all probationary employees
c. Companies benefit directly through lower administration-of-benefits
costs for these employees during the probationary period; however,
probationary employees may experience financial hardships if they
require medical attention
C. Financing
1. HR decisions based on:
a. Available resources
b. Financial goals
2. Types of programs managers can decide on:
a. Noncontributory
b. Contributory
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 c. Employee-financed
d. Some combination
3. Noncontributory financing implies that the company assumes the total cost
for each discretionary benefit
4. Contributory financing implies that the company and its employees share
the costs
5. Employee-financed benefits implies that employers do not contribute to
the financing of discretionary benefits
6. The majority of benefit plans today are contributory, largely because the
costs of benefits have risen so dramatically
D. Employee Choice
1. Human resource professionals must decide on the degree of choice
employees should have in determining the set of benefits they will receive
2. If employees within a company can choose from among a set of benefits,
as opposed to all employees receiving the same set of benefits, the
company is using a flexible benefits plan or cafeteria plan
3. Companies implement cafeteria plans to meet the challenges of diversity
4. Benefit satisfaction, overall job satisfaction, pay satisfaction, and
understanding of benefits increased after the implementation of a flexible
benefits plan
5. FSAs permit employees to pay for certain benefits expenses (e.g., child
care) with pretax dollars
6. Core plus option plans extend a pre-established set of such benefits as
medical insurance as a program core, which is usually mandatory for all
employees
7. Beyond the core, employees may choose from an array of benefits options
that suit their personal needs
E. Cost Containment
1. HR managers today try to contain costs
2. In 2011, employee benefits accounted for nearly 30.4 percent
3. The current amount has risen dramatically over the past few decades
4. This increase would not necessarily raise concerns if total compensation
budgets were increasing commensurably
5. Growth in funds available to support all compensation programs has
stagnated
6. As a consequence, employers face difficult trade-offs between employee
benefits offerings and increases to core compensation
F. Communication
1. Employees often either are not aware of or undervalue the employee
benefits they receive
2. Given the significant costs associated with offering employee benefits,
companies should try to convey to employees the value they are likely to
derive from having such benefits
3. An effective communication program should have three primary
objectives:

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 a. Create an awareness of and appreciation for the way current benefits
improve the financial security and the physical and mental well-being
of employees
b. Provide a high level of understanding about available benefits
c. Encourage the wise use of benefits
4. Use a variety of media to communication benefits information
a. Printed brochures to convey the “big picture” of the key benefits to
potential employees
b. Small group meetings, using audio-visual presentations, for new
employees
c. Individual meetings, with benefits administrators (counselors), to
select benefits options
d. Personal benefits statements that detail the scope of coverage and the
value of each component selected
e. Written updates of changes to benefits with newsletters
5. Intranet
a. Useful in communicating benefits information to employees on an
ongoing basis beyond the legally-required written documents
b. Each paragraph contains a hyperlink that leads to more detailed
information

Final Thoughts: The inevitably of Social Security running out in its current state is of
huge concern to those administering it, and will certainly impact the majority of students
reading this textbook. In the coming years, employees, employers, unions, and the
government will pay greater attention to the adequacy of Social Security benefits for the
succeeding generations. How effective the new additions to FMLA are will also be of
great concern to a multitude of interests in the years ahead.

V. Discussion Questions and Suggested Answers

11-1. Except for the Family and Medical Leave Act, the remaining legally required
benefits were conceived decades ago. What changes in the business
environment and society might affect the relevance or perhaps the viability
of any of these benefits? Discuss your ideas.

Social Security is going to be experiencing a large shift on an economic standpoint as

begins to give out more money than it’s taking in, which will cause numerous cuts in
Social Security benefits for the future. Other changes or rather lack of changes could
affect benefits, such as the FUTA not raising or lowering the taxable wage base as the
economy shifts. This potential change or lack of change could cause an unfair advantage
for certain wage earners and begin to skew the potential income of employees to a new
level.

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11-2. Provide your reaction to the statement, “Employee benefits are seen by
employees as an entitlement for their membership in companies.” Explain
the rationale for your reaction.

Employees do indeed often see benefits as entitlements for their membership in

companies because they often believe that by working for a company they should get the
benefits of employment that they deserve. It is the employer’s job to make sure that the
employees are doing what they ought to do according to the companies’ expectations as
well as to provide them with the promised benefits.

11-3. Conduct some research on the future of the Social Security program. Based
on your research, prepare a statement not to exceed 250 words that describes
your view of the Social Security program. Refer to the information obtained
from your research efforts, indicating how it influenced your views.

The future of the Social Security program is in jeopardy, for although currently Social
Security’s intake exceeds the amount it is giving out, soon that will change and the Social
Security program will have to be changed in order to meet the shifting economic budget.
As a result Social Security could potentially be done away with, or completely rewritten
under a new premise.

VI. End of Chapter Case; Instructor Notes, and Questions and Suggested
Student Responses

Case Name: Benefits for Part-time Workers

Instructor Notes
While the trend in the workplace is toward not offering benefits to part-time workers, as
more companies discover the benefits of engaging part-time workers, companies must
consider the their benefit policies for part-time workers. Extending part-time workers
benefits could be costly for companies. However, the need to attract and retain talented
part-time workers may influence companies to extend their benefits to part-timers. In
doing so, companies should carefully consider which benefits to offer based on the nature
of the position, the costs to the company and employee preferences. Further, if a
company offers benefits to part-time workers, it is important that they clearly
communicate the value of such benefits in order to ensure that part-time workers
understand the value of the benefits in their total compensation.

Suggested Student Responses:

11-4. What are some factors that Alan should consider when determining whether
or not to offer benefits to part-time workers?

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 Alan should consider the costs associated with extending part-time workers benefits.
In doing so, he should estimate the number of part-time workers the firm is likely to
hire. He must also look at the type of workers that will be part-time (i.e.
administrative or CPA) and whether or not offering benefits is important to attract
and retain these workers.

11-5. Do you think the firm should offer benefits to part-time workers? If yes,
should they offer paid time-off, the 401(k) plan and health insurance? Or
only one or two of the benefits? Explain your recommendation.

Students should provide a response and support for their position. If in support of
offering benefits, students should cite the need to attract and retain talent, particularly
CPA’s. Those opposing most likely will examine the cost issue. Some students may
recommend offering partial benefits, particularly paid time-off and the 401(k) as the
costs are more in line with the expected return from offering these benefits. If a
company is considering only offering partial benefits, getting feedback from the part-
time workers may be useful to understand which benefits they value.

MYLAB QUESTIONS

11-6. How does a state determine if an individual is eligible for unemployment

insurance benefits?

Answer: Being unemployed does not necessarily entitle one to qualify for unemployment
insurance benefits. Several criteria have been developed for individuals to qualify for
these benefits. To be eligible, an individual must: 1) not have left a job voluntarily, 2) be
able and available to work, 3) be actively seeking work, 4) not have refused an offer of
suitable employment, 5) not be unemployed because of a labor dispute (except in a few
states), and 6) not have had employment terminated because of gross violations of
conduct established within the workplace. In addition, all states require sufficient
previous earnings, typically $1,000 during the last four quarter periods combined.

11-7. Explain disability benefits under OASDI. Compare it with the workers'
compensation.

Answer: The SSA pays benefits to seriously disabled workers and family members.
Social Security pays only for total disability. The disability must last for at least 1 year or
it should result in death. Workers' compensation insurance programs are designed to
cover expenses due to work-related accidents. For work-related injuries, workers'
compensation pays medical care immediately. It pays temporary disability benefits after
3-7 days of waiting period. Workers' compensation pays permanent, partial, and total
disability benefits to employees. It also pays benefits to survivors of workers who die due
to work-related issues. On the contrary, in Social Security workers receive pay benefits
for long-term disabilities when the disabilities preclude work. Social Security begins after
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a 5-month waiting period.

VII. Additional Cases from the MyManagementLab Website; Instructor Notes,

and Suggested Student Responses

Case Name: Cutting Costs at Elite Financial Services

Instructor Notes
The rising cost of healthcare insurance is prompting many employers to take proactive
steps to lower their costs. In addition to seeking better premiums through seeking
alternate providers and looking at different coverage options, many employers are
examining opportunities to improve the overall health of their workforce. Educating the
workforce on wise usage of healthcare benefits can help keep experience ratings in check.
Taking proactive steps to keep employees healthy and help them make wise decisions on
healthcare can help keep costs under control.

Suggested Student Responses:

11-9. What can Elite do to lower their healthcare insurance costs?

There are many opportunities for Elite to lower their healthcare insurance costs.
First, they may want to consider examining alternate healthcare insurance options
such as managed care plans, preferred provider organizations or point-of-service
plans. These options will likely be less costly. Elite should also consider
changing plan deductibles and coinsurance rates to help control costs. The
company could also have employees contribute more toward premiums. Finally,
Elite should consider opportunities to educate employees about their health so
they make wiser choices on using healthcare. If the employees are contributing
more to the cost, they may also make wiser choices as well. Wellness programs
to improve the overall health of their employees may also improve healthcare
usage rates.

11-10. Will making changes to the company’s healthcare insurance benefit affect
the company’s ability to recruit and retain employees?

The company should be cautious about making drastic changes to healthcare

insurance all at one time. If the employees believe the company is taking away a
significant part of their benefit, they may become frustrated and consider leaving
the company. The company may want to consider offering the employees options
in their healthcare insurance so that the employees feel as if they have more
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control. For example, they could keep the fee-for-service indemnity plan as an
option, with a higher employee contribution. Then, they could offer an option
such as a preferred provider organization and require a much lower employee
contribution, encouraging the employee to take the less costly option.

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