EMPLOYMENT

BENEFITS
Employee Benefit Programs

Part of Total Compensation

Some Government Mandated
Some Incentive Related
Part of Cost of Doing Business
Indirect Compensation
Factors Contributing to
Growth of Benefit

Discourage Unions
Benefits not Always Taxed
Easier to negotiate Than
Wages
Attitude of General Public
Objectives of Benefit Programs

To Improve Morale
To Meet Health and Safety Needs
To Attract Good Employees
To Reduce Turnover
To Reduce Unionism
To Maintain a Competitive
Position
To Enhance the Organization's
Image
 Basis for Employee Benefits
Organizational
Objectives

Human Resources
Objectives

Employee
Benefit Package

Government
Regulations

Collective Financial Recruiting

Bargaining Resources Competition
Employee Providing Individual
Participation Benefits

Employee Communicating
Needs Benefits
EMPLOYEES
Employee Benefits Required by Law
Types of Benefits

Time-off (vacation, sickness,

holidays, etc.)
Legal Social Security
Medical Payments
Retirement
Paid Rest Periods (breaks)
Life Insurance
Categories of Employee Benefits

BENEFITS REQUIRED BY LAW

Old age and survivors insurance (OASI)
Unemployment insurance
Workers’ compensation
Leaves without pay
Categories of Employee Benefits

PAYMENT FOR TIME NOT WORKED

Holidays
Vacations
Sick leave
Supplemental unemployment benefits
(SUB)
Jury duty, military service, and
bereavement leaves
Categories of Employee Benefits

INSURANCE
Group life insurance
Health care insurance
Legal insurance
Categories of Employee Benefits

RETIREMENT BENEFITS
Pension plans
Deferred compensation plans
Pre-retirement counseling
Categories of Employee Benefits
EMPLOYEE SERVICES
Employee assistance program
Counseling services
Educational assistance plans
Child care
Elder care
Food services
Health services
Legal services
Financial planning
Housing and moving expenses
Transportation pooling/parking
Purchasing assistance
Credit unions
Social and recreational services
Awards
Employee Benefit Costs

30-40% of the Annual

Wages
Fastest Growing Part of
Total Compensation
 Typical Cost of Benefits
TOTAL
PERCENTAGE, ALL
TYPES OF BENEFITS COMPANIES
Payments for vacations, sick leave, holidays, etc. 12.0%
Legally required payments 10.0 %
Medical and medically related benefit payments 10.0 %
Retirement and savings (employer’s share) 7.0 %
Paid rest periods, lunch periods, etc. 3.0 %
Miscellaneous benefits 1.0%
Life insurance .5%
Total employee benefits as percent of payroll 43.5%
Health Plan Costs Climb Higher Annually
Average Annual Health Plan Costs Per Employee

$4000
COST

$1500

YEAR
Flexible Benefits Plan
(Cafeteria Plans)

Benefit plan that enable individual

employees to choose the benefits that
are best suited to their particular
needs.
Flexible Benefit Plans

Employees Choose
Cafeteria Plans
Cost Attached
Some Government Requirements
Major Concerns

Rising Costs
Controlling Costs
Legal Concern
 Pension Plans:
Provide for Retirement Income

Federal Regulation - Not Total

Coverage
Reward for Long Service Originally
Now Based on Earnings Philosophy
Types of Pension Plans

Contributory (joint pay)

Non-Contributory
(employer pays)
Classified by Amount of
Benefits to be Paid
Noncontributory Plan

A pension plan where contributions

are made solely by the employer.
Defined Benefit Plan

Amount is Specifically Defined

Years of Service Required
Average Earnings During Certain
Years
Age at Retirement

“Example: Average Annual Salary

of Last 3-5 years x number of
years of service”
Defined Contribution Plan

Basis Upon Which the

Employer Pays
Paid to Thrift Plan, IRA, etc.
Benefits Depends Upon
Accumulation
Federal Regulation (ERISA)

Employee Retirement Income

Security Act
Informed About Facts
Benefits Defined
Complex Law
 Vesting

A guarantee or accrued benefits to

participants at retirement age,
regardless of their employment status
at that time.
Vesting

Guarantee of Benefits
Paid at Retirement
Regardless of Last
Employment
Non-revokable by Employer
Vested After XX Years
Complex Rules (ERISA)
Vesting Provisions (General Plans)

General Provisions*
1. 5-Year Vesting: An employee must
receive nonforfeitable rights after five
years of service to all accrued benefits
derived from employer contributions.
2. 3- to 7-Year Vesting: An employee must
receive nonforfeitable rights after three
years of service to 20 percent of accrued
benefits derived from employer
contributions. Nonforfeitable rights
increase 20 percent each year until the
employee is 100 percent vested in the
employer-derived accrued benefits after 7
years of service.
Social Security Insurance

Guarantee of Income
Retirement, Disability, Unemployment
Time Limits
Complex Rules
Dedicated Tax on Earnings
Pension Funds

Privately Managed
$3 Trillion in Assets
Invested in Stocks and
Bonds
Unemployment Insurance

Defined Period (26 weeks)

Register for Work
Requirement
Funded by Payroll Tax
Amount Based on Wages
Supplemental
Unemployment Benefits
(Private)
Worker’s Compensation Insurance

Federal-or-state-mandated
insurance provided to workers to
defray the loss of income and cost
of treatment due to work-related
injuries or illness.
Worker's Compensation

Work Related Accident

Compulsory
Complex Law
Based on Wages
Permanent or Partial Disability
Health Care Insurance

Partial Government
Funded
Mostly Private Insurance
 Why Are
Health Care Costs
Skyrocketing?

Federal Regulation
Changes in Pricing
Advances in Medicine
Malpractice Insurance
Labor Costs
Over Utilization of Facilities
Elder Care
Transplants/AIDS/Other
Health Maintenance Organizations
(HMOs)

Organizations of physicians and

health care professional that provide
a wide range of services to
subscribers and dependents on a
prepaid basis.
Cost Containment Vehicles

HMO (Health Maintenance

Organization)
Group of Professionals
Services for Fixed Amounts
PPO (Preferred Provide
Organization)
Group of Professionals
Guarantees Cost Efficiency for Groups
Employer Steers Employees to PPO
Retirement Planning Programs

Company Pension Plans

Social Security/Medicare
Health Care Insurance
Personal Financial Planning
Legal Concerns
Investments/Tax Planning
Volunteerism
Part-Time Employment
Housing Options
Relocation
Silver Handshake

An early-retirement incentive in the

form of increased pension benefits for
several years or a cash bonus.
Decisions Relating to Pensions

DECISIONS ALTERNATIVES

Philosophy Earned vs reward

Source of funds Contributory vs non-contributory

Amount of benefits Defined benefits vs defined contributions

Custody of pension funds Insured vs trusteed plans

Protections against loss of funds
Protection against loss of purchasing
Investment problems
Where and where not to invest
Tax consequences
Benefit Links

Hewitt Associates

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