Lesson 6

Managing
Employee Benefits

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 Benefits
• Benefit
• An indirect compensation given to an employee or
group of employees as a part of organizational
membership.
• Strategic Perspectives on Benefits
• Benefits absorb social costs for health care and
retirement.
• Benefits influence employee decisions about employers
(e.g., recruitment and retirement).
• Benefits are increasingly seen as entitlements.
• Benefit costs are about 40% of total payroll costs.

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 Benefit Needs Analysis
• Benefit Needs Analysis
• A comprehensive look at all aspects of benefits.
• How much total compensation?
• What part of total compensation should benefits
comprise?
• What expense levels are acceptable for each
benefit?
• Which employees should get which benefits?
• What are we getting in return for the benefit?
• How will offering benefits affect turnover, recruiting,
and retention of employees?
• How flexible should the benefits package be?

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 Types
Typesof
of Benefits
Benefits

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 Retirement Security Benefits
• Retirements and Age Discrimination
• Age Discrimination in Employment Act (ADEA) 1967
protects those 40 years old and older from workplace
discrimination.
• Social Security Act of 1935
• Established a system of old age, industrial accidents
survivor’s, disability, and retirement benefits.
• Federal payroll tax on both the employer and the
employee.
• Benefit payments are based on employee’s lifetime
earnings.

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 Pension Plans
• Pension Plans
• Type of retirement plan where employers promise to pay a
defined benefit to employees for life after they retire. Not all
employers offer pensions, but government organizations
usually do
• Traditional Benefit Plans
• Defined-benefit plans
• Employees are promised a definite pension amount based on age and
length of service.
• Defined-contribution plans
• Employer makes an annual payment to an employee’s account.
• Benefit payout is determined by the financial performance of the
employee’s retirement.

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 Pension Terms and Concepts
• Contributory Plan
• Both employer and employee pay money into the
retirement fund.
• Non-contributory Plan
• All pension benefits funding is paid by the employer.
• Vesting
• The right of employees to receive benefits from their
pension plans.
• Portability
• A pension plan feature that allows employees to move
their benefits from one employer to another.

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 Individual
Individual Retirement
Retirement

Individual
Individual 401(k)
401(k)and
and
Retirement
Retirement 403
403(b)
(b)Plans
Plans
Accounts
Accounts(IRAs)
(IRAs)

Individual
Individual
Retirement
Retirement
Options
Options

Keogh
Keogh
Plans
Plans

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 Individual Retirement
1) Individual Retirement Accounts (IRAs)
 type of tax-deferred or tax-free retirement account that
individuals can open at many financial institutions.

2) 401(k) and 403 (b) Plans

 A 401(k) is a retirement plan offered mostly by for-profit
companies to assist employees in saving for retirement.
nonprofits, including schools, hospitals, and religious groups,
offer their employees 403(b) retirement accounts

3) Keogh Plans - retirement plan that can be set up by self-

employed individuals and those who work for them.
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 Controlling Health-Care Benefits Costs
 Co-Payment
– Employees are required to pay a portion of the cost
of both insurance premiums and medical care.
 Defined Contribution Plans for Health Benefits
– Employer provides a set amount that the employee
may spend on health-care coverage benefits.

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 Controlling Health-Care Costs (cont’d
 Managed Care
– Approaches that monitor and reduce medical costs
using restrictions and market system alternatives.
– managing two major aspects of healthcare: cost
and quality.
 Preferred Provider Organization (PPO)
– A health-care provider that contract with an
employer group to provide health-care services to
employees at a competitive rate.
 Health Maintenance Organization (HMO)
– A managed care plan that provides services for a
fixed period on a prepaid basis.
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 Health-Care Legislation
 COBRA Provisions
– Former employees, their spouses, and eligible
dependents are covered for 18 to 36 months
– Up to 102% of group premium costs paid by the
former employee.
 HIPPA Provisions
– Allows employees to switch their health insurance
plan from one company to another, regardless of
pre-existing health conditions.
– Health plans must continue to cover sick
employees.

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 Other
Other Benefits
Benefits

Credit
CreditUnions
Unions
Purchase Discounts
Purchase Discounts
Stock
StockInvestment
Investment

Family-Care
Family-Care Relocation
Relocation
Benefits
Benefits Expenses
Expenses

Benefits
Benefits
Family-Oriented
Family-Oriented Life,
Life,Disability,
Disability,
Benefits
Benefits Legal Insurances
Legal Insurances

Social
Socialand
and Educational
Educational
Recreational
Recreational Assistance
Assistance

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 Family
Family Medical
Medical Leave
LeaveAct
Act (FMLA)
(FMLA)

 Coverage
– Employers with 50 or more employees
 Requirements
– Employers must allow eligible employees to take up
to a total of 12 weeks of unpaid leave to attend to
a family or serious medical condition.
– Employees have the right to continued health
benefits and the right to return to their job.

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 Benefits
BenefitsAdministration
Administration

 Benefits Communication
– Benefits Statements
• Annual “personal statement of benefits” that translates
the benefits into dollars to show their worth.
– HRIS and Benefits Communication
• HRIS information allows employees to obtain benefits
information on-line.

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 Typical
Typical Division
Division of
of HR
HRResponsibilities:
Responsibilities:
Benefits
BenefitsAdministration
Administration

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 Flexible
Flexible Benefits
Benefits
 Flexible Benefit Plan
– A plan (flex or cafeteria) that allows employees to
select the benefits they prefer from groups of
benefits established by the employer.
 Flexible Spending Accounts
– An account that allows employees to contribute
pre-tax dollars to buy additional benefits (e.g., life
insurance).
 Problems with Flexible Plans
– Inappropriate benefits package choices
– Adverse selection and use of specific benefits by
higher-risk employees
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Create Report
• Assume you are HR Manager. You need to prepare a
brief report on recommendation to improve
employee benefits.
• State and explain briefly on how to improve
employee benefits. You may provide at least 3 or 4
points.
• You may prepare the report by using the template
in this link <https://create.piktochart.com/>
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