12-1

12-2

12
Employee Benefits and Services

McGraw-Hill/Irwin Human Resource Management, 10/e

© 2007 The McGraw-Hill Companies, Inc. All rights reserved.

12-3

Indirect Financial Compensation
Also

called benefits and services, indirect financial compensation includes all employer-provided rewards and services, other than wages or salaries Social insurance payments, private insurance, retirement plans Payment for time not worked Extra cash payments, other than bonuses Services, such as subsidized cafeterias of these are available as long as the worker is employed, regardless of seniority or performance

Most

12-4

Indirect Financial Compensation
There

is a lack of agreement on: What is included Purposes served Responsibility for programs Costs and value of the various elements Units in which costs and values are measured Criteria for decision making

Decisions

about indirect compensation are more complex than those related to wages and salaries

12-5

Indirect Financial Compensation
Employers

face rising benefit costs due to: Increased legislation Insurers’ insolvency The cost of medical technologies The aging workforce New immigration More women in the workforce Global competition

12-6

Why Offer Benefits and Services?
Programs

offered today are the product of 60 years of effort in this area Most benefit programs began during WWII, when wages were strictly regulated Unions pushed for non-wage compensation increases, and they got them 1929, benefits cost the employer 3% of total wages and salaries By 2004, benefits accounted for 20 to 60% of payroll

In

12-7

Why Offer Benefits and Services?
Some

employers provide these programs for labor market reasons Others want to keep a union out, or the union won them through negotiations Some feel that providing benefits and services increases employee performance of these reasons explains the degree to which benefits and services are provided

None

12-8

Who Makes Decisions About Benefits?
HR

executives often seek professional advice from specialists In large organizations, the compensation dept. may have a specialist in benefits authorities argue that all organizations should have benefits and services There is little evidence that they affect employee satisfaction or productivity

Many

12-9

Who Makes Decisions About Benefits?
In

the 1940s and 1950s, unions pushed for additional holidays Demands for such benefits as group automobile insurance, dental care, and prepaid legal fees followed The long-range goal is getting employers to perceive benefits as a social responsibility unions are trying to stop the erosion of such benefits as pensions and health care

Today,

12-10

The Effect of Public Policy on Benefits
government mandates some benefits: Old age and survivor’s insurance (Social Security) Disability insurance Medicare Unemployment insurance Workers’ compensation

The

Through

preferential tax treatment, the government encourages businesses to provide other benefits Firms can deduct benefit expenses Employees don’t claim benefits as current income

12-11

The Effect of Public Policy on Benefits
Welfare Fund Disclosure Act requires descriptions and reports of benefit plans There are stringent rules on: Eligibility for benefits An employer’s ability to change an established benefits plan and labor market conditions influence benefits In tight labor markets, organizations compete for employees by offering better benefits and services

The

Economic

12-12

The Effect of Public Policy on Benefits
women in the workforce has resulted in pressure for: Longer maternity leaves Family leave benefits Childcare services Elder care services aging workforce is increasingly demanding: Pre-retirement planning Health insurance Pensions

More

An

12-13

The Effect of Public Policy on Benefits
much an employer spends on benefits is related to the financial health of the company and industry Healthy, profitable companies tend to expand benefits When the economy weakens or profits fall, the cost of benefit programs intensifies financial problems required benefits average 8.6% of total employee compensation

How

Legally

12-14

Mandated Benefits Programs
benefit programs are mandated by federal and state governments Unemployment insurance Social security Workers’ compensation employer must offer mandated benefits programs and cannot change them in any way

Three

An

12-15

Unemployment Insurance
insurance (UI), set up under the Social Security Act of 1935, had these objectives: Provide income to workers during short periods of involuntary unemployment Help the unemployed find jobs Encourage employers to stabilize employment Stabilize the labor supply and allied systems cover 95% of the labor force The self-employed, firms with less than four employees, domestics, farm employees, government employees, and nonprofit employers are excluded

Unemployment

UI

12-16

Unemployment Insurance
be eligible for compensation, the employee must: Have worked a minimum number of weeks Be without a job Be willing to accept a suitable position offered through a state Unemployment Compensation Commission

To

Neither

the Social Security Act nor the National Labor Relations Act forbids benefits for strikers Each state decides whether to permit or prohibit such payments

12-17

Unemployment Insurance
unemployment tax accounts for 0.8% of payroll Tax rates, eligibility requirements, weekly benefits, and duration of benefits vary from state to state benefits are paid, the reason for being unemployed must be assessed Applicants can be disqualified for quitting a job A negotiated quit is a legitimate reason for collecting unemployment benefits Discharge for work-related misconduct usually disqualifies applicants

Federal

Before

12-18

Unemployment Insurance
compensation is usually limited to 26 weeks maximum In most states, the weekly benefit is about 50 percent of earnings Minimum/maximum limits are set by the federal government

Unemployment

12-19

Unemployment Insurance
compensation in Canada and Europe differs from that in the U.S. In Europe, employees who receive reduced work schedules receive short-term compensation The U.S. practice of paying unemployment only to those working zero hours encourages temporary layoffs Canada, which provides wider eligibility and faster delivery of benefits, has a much higher unemployment rate than the U.S.

Unemployment

12-20

Social Security
1935, the pension portion of the Social Security system was established The goal was to provide income to retired people to supplement savings, private pensions, and part-time work the time it was created: The wealthy lived alone The average person moved in with relatives
The

In

At

poor went to a “poor house”

12-21

Social Security
concept was that: Both the employer and employee would pay taxes The taxes would cover the retirement payments each employee would later receive This was a self-funding insurance program two goals were sought: Adequate payments for all Individual equity

The

Initially,

12-22

Social Security

In

1950, there were about 16 workers paying taxes for each beneficiary Today, there are about 3.3 workers paying taxes for each beneficiary

12-23

Social Security
details: Employees born in 1937 or earlier become eligible for full benefits at age 65, or reduced benefits at age 62 Those born in 1960 or later will not receive full benefits until age 67 If an employee dies, a family with children under 18 receives survivor benefits Employees totally disabled before 65 become eligible Under the Medicare provision, eligible individuals receive payments for medical related services

Benefit

12-24

Social Security
1984, some retirement benefits became taxable For single people with provisional income of $34,000 or more, up to 85% of Social Security benefits are taxable Married couples filing jointly pay taxes with provisional income of $44,000 or more income means: Adjusted gross income, plus any tax-exempt interest from municipal bonds, plus half of Social Security

In

Provisional

12-25

Social Security
U.S. has agreements with other governments to coordinate Social Security benefits in order to: Ensure equity of treatment Prevent duplicate contributions or gaps Ensure that contributions are paid in the location where the worker is employed Guarantee benefits to the employee’s family when they have not accompanied the employee to the foreign assignment
Total benefits may not exceed the highest pension that would have been paid if a career had been spent in a single country

The

12-26

Social Security
security systems around the globe are in crisis Steps that may be taken to meet this challenge: Reduce the level of future benefits Increase Social Security taxes Allow private retirement accounts

Social

As

more workers reach retirement, the ratio of active workers to Social Security recipients will decline alarmingly The current 20 to 30 percent will reach 40 to 50 percent over the next 40 years

12-27

Social Security
trends threatening the long-term financial security of Americans: Longer life expectancy An increasing risk of long-term disability Evolving work patterns New family norms need more money than previous generations to maintain their standard of living Many retirees will rely solely on Social Security benefits

Demographic

Seniors

12-28

Social Security
social security retirement benefit is tax free in 24 states and is entirely free from federal tax However, beneficiaries under age 65 can earn no more than $9,120 per year Those between 65 and 69 can earn up to $14,500 Those 70+ are not penalized for earnings and employees pay a payroll tax to fund social security benefits Each pays a tax of 6.2% on the first $90,000 of the employee’s earnings (12.4% total)

The

Employers

12-29

Social Security
Security changes under consideration: Higher taxes on Social Security benefits Participation of all state, local, and federal civil servants Longer work and later retirement Dramatic changes in the Social Security, Medicare, and overall health care systems Reduction in benefits

Social

12-30

Workers’ Compensation
with job-related illnesses or accidents receive some financial protection Workers’ compensation programs are administered by the states Employers pay the entire cost Premiums are tied directly to each employer’s past experience with job-related accidents and illnesses states plus the District of Columbia have workers’ compensation laws Only Texas makes participation voluntary

Workers

All

12-31

Workers’ Compensation
varies from state to state Benefits range from 60 to 75 percent of the average weekly wage are growing due to: Escalating fraudulent claims The expansion of “compensable injuries” Fewer restrictions to eligibility

Eligibility

Costs

A

growing number of states are providing workers’ compensation through alternative sources Some are also adding deductibles to their plans

12-32

Voluntary Benefits
Many

employers provide these kinds of benefits voluntarily: Pay for time not worked Insurance protection Retirement plans

12-33

Voluntary Benefits
employers now offer compensation for time not worked: Break time Get-ready time Wash-up time Clothes-changing time Lunch and rest periods Coffee breaks

Most

12-34

Voluntary Benefits
also pay employees when they are not actually at work: Holidays Vacations Sick leave Funeral leave Jury duty Personal leaves smaller the business, the fewer the provisions for time off with pay

Employers

The

12-35

Voluntary Benefits
are a highly preferred benefit Preferences for holidays vary Lower-paid and female employees have stronger preferences for sick leave have negotiated hard for added time off The number of paid holidays has been increasing The average is 10 or more for full-time employees

Vacations

Unions

Federal Monday-holiday law also provides multiple 3-day weekends

12-36

Paid Vacations
U.S. is the only major country that does not mandate paid vacations In China, workers receive three weeks European Union countries average six weeks vacations are an expensive benefit Most offer paid vacations after some length of service The theory is that rested workers are more effective

The

Paid

Government

and military employees traditionally receive 30 days of vacation per year

12-37

International Vacation Benefits
employees earn higher real wages and have greater personal wealth than many foreign workers However, they receive substantially less paid vacation were an important factor in achieving longer vacations If unions in the U.S. could be as politically active as they are in Europe, vacation schemes here would be comparable with the rest of the industrialized world

U.S.

Unions

12-38

International Vacation Benefits
Exhibit 12-5 here (Global Vacation Time)

Insert

12-39

Personal Time Off

Flextime

scheduling minimizes the need for time off 9 out of 10 medium and large firms provide paid leave for jury duty and funerals of close relatives 7 out of 10 provide paid leave for military duty

12-40

Sick Leave
employees of medium/large firms receive paid sick leave for short-term sickness or injury Most allow and pay for one sick day per month This benefit usually accrues over time Upon termination, few organizations pay for any sick leave not taken
State/federal

Most

employees get paid for the unused

balance
Sick

leave is always funded entirely by the employer Benefits may vary by length of service
More white- than blue-collar employees are covered by sick leave

12-41

Sick Leave
liberal sick-leave policy can cause excessive absenteeism A physician’s written excuse is often necessary to be eligible for pay and to return to work if the illness lasted longer than three days companies use sick-leave banks Employees deposit a portion of their earned sickleave days into a company pool If an employee uses all her/her sick leave, a withdrawal from the sick-leave bank can be made

A

Some

12-42

Family Leave
typical nuclear American family made up 40 percent of all households in the 1970s In 2004, this model fit less than 10% of all families The number of families headed by a single provider doubled between 1970 and 1983 Females heading families with children under the age of 18 doubled between 1980 and 1990 Approximately 8% of adults never marry More than 20 million adults moved back home because they could not afford to live on their own

The

12-43

Family Leave
U.S. passed the Family and Medical Leave Act (FMLA) in 1993 Employers with 50+ employees must provide up to 12 weeks of unpaid leave during any 12-month period This allows employees to balance the demands of the workplace with family needs events include: Birth of a child, adoption, placement of a foster child, and the serious illness, injury, or mental condition of a family member

The

Qualifying

12-44

Family Leave
stipulations: The employee must have been employed for a full 12 months to be eligible The employer must continue group health insurance during the leave The employee must be allowed to return to the same (or equivalent) job

Other

12-45

Maternity and Parental Leave
Pregnancy Discrimination Act of 1978 requires that pregnancy be treated as any other temporary disability Parental leave policies are already established in Western Europe leave policies offer lessons: Limited leave entitlements have a positive effect on productivity and create few problems for employers Basic coverage should be established by law Parental leave should offer some financial payment

The

European

12-46

Employer-Purchased Insurance
risks can be offset by buying insurance Midsize and large employers can buy insurance more cheaply than can individuals This makes employer-sponsored insurance a preferred benefit

Many

Historically,

insurance premiums were paid in full by the employer In the 2000s, employees are being forced to pay an increasing share of the expense

12-47

Health Insurance
82% of full-time employees of midsize/large firms had employer-provided health care in 1993 This is down from 90 percent in 1990 The decline is due to the increasing number of plans that require employee contributions one-tenth of part-time employees receive medical benefits In 2004, almost 40 million Americans had no health insurance at all

About

Only

12-48

Health Insurance
than 10 years ago, 6% of payroll went to health care benefits In 2004, the figure exceeded 19% factors: Increasing health care labor costs More sophisticated technology and costly tests Rising malpractice insurance premiums Oversupply of hospital beds Over utilization of fee-for-service medicine Belief that health coverage is an entitlement

Less

Contributing

12-49

Health Insurance
insurance is a preferred benefit Most employees get basic coverage Salaried employees typically receive major medical coverage with “last-dollar coverage”

Health

Unionized

workers usually have expanded coverage with specific benefits Unions favor this approach because: Individual benefits are clearly labeled and impress union members These benefits can be obtained with no deductibles

12-50

Health Insurance
of health care coverage vary from organization to organization Traditional programs pay for both physician and hospital expenses, as the costs are incurred This approach is reactive, not preventive Health Maintenance Act of 1973 forced businesses to provide alternative health care plans Health maintenance organizations (HMOs) Preferred provider organizations (PPOs)
These and similar plans are known as managed care

Types

The

12-51

Health Maintenance Organizations
HMO consists of medical specialists offering outpatient/hospital coverage for a fixed monthly fee HMOs promote preventive, healthy lifestyles popular with employers, some employees resist the plan An enrollee may have to leave his/her family doctor for one who works with the plan

An

Increasingly

12-52

Preferred Provider Organization
PPO is a health care plan that provides services for a fixed fee It is based on agreements between doctors, hospitals, related medical facilities, and an employer or insurance company PPOs include: A select panel of providers An emphasis on cost efficiency Marketing to purchasers rather than users Some flexibility in choice of providers Financial incentives to use selected providers

A

Most

12-53

Preferred Provider Organization
compete, PPOs must also: Provide cost-efficient health care Emphasize cost containment controls include: Obtaining discounts from providers Passing some risk back to providers Utilization controls

To

Cost

12-54

COBRA
162(k) of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA): Applies to employers with more than 20 employees Requires the offer of continued health care coverage for up to 36 months after termination of an employee coverage premiums are paid by employees Employees disabled or working reduced hours when they leave can extend coverage to 29 months Spouses/children can continue their coverage, even if the employee dies or becomes eligible for Medicare

Section

Extended

12-55

COBRA
coverage is not a free ride: Qualified beneficiaries can be charged up to 150 percent of the plan’s premiums

Extended

Penalty

for failing to comply with COBRA and OBRA regulations: Employers are not allowed to deduct contributions to that or any other health plan

12-56

Long-Term-Care Legislation
number of Americans older than 65 will double over the next 25 to 30 years Many private firms already provide long-term-care insurance care insurance used to cover nursing home stays only More flexible benefits now include home care by professionals or family members plans are funded by employee contributions

The

Long-term

Long-term

12-57

Life Insurance
life insurance is one of the oldest and most widely available employee benefits Most full-time employees of medium/large private firms are covered Almost two-thirds of full-time employees of small firms also receive coverage insurance usually provides a lump-sum benefit to the designated beneficiary

Group

This

12-58

Life Insurance
plans include coverage for retirees and dependents of employees Many also allow employees to increase the value of the policy at attractive group rates most cases, the employer pays the whole premium The amount of insurance is typically twice the employee’s salary

Most

In

12-59

Income Replacement Insurance
compensation was designed primarily to take care of short-term disability Long-term disability insurance, funded by employers, kicks in after six months Social Security and other benefits also kick in 1/3 of the plans provide survivors’ benefits equal to the employee’s monthly benefit The duration of benefits averages 26 weeks goal is to provide employees with at least half pay until pension time

Workers’

About

The

12-60

Income Replacement Insurance
employees covered by income replacement insurance: Are blue-collar workers Receive lump-sum payments other employees, coverage is tied to salary level

Most

For

12-61

Income in Retirement
in later years rests on a three-legged stool: Social security Savings Private pensions

Security

By

2010, Social Security and pensions combined will provide no more than 40% of retirement income More retirees will return to work or work longer Increasing longevity and inflation will make it harder for retirees of the 2000s to maintain their lifestyle

12-62

Income in Retirement

All

the legs of the stool are wobbling Personal savings are no longer a secure nest egg Real estate investments no longer guarantee a payoff Social Security is at risk because of deficit spending Many private pensions have been defunded

12-63

Retirement Income from Savings & Work
savings are an increasingly important source of retirement income People save more if their incomes are high Employees covered by private pensions are more likely to save for retirement than those without them the mid-1970s, as Social Security taxes increased, personal savings started to decline More retirees may have to return to work to supplement Social Security payments Social Security does not allow much work after retirement, so the law conflicts with retiree needs

Personal

Around

12-64

Individual Retirement Accounts (IRAs)
employee can make annual contributions of up to $3,000 to an individual retirement account Being enrolled in a company pension plan does not disqualify you funds are tax-deferred until retirement This shifts the tax burden to later years when lower personal income should mean lower taxable income

Any

The

12-65

Simplified Employee Pension IRAs
companies can implement simplified employee pension IRAs (SEP-IRAs) for their employees Maximum annual contribution is $40,000, or up to 25% of compensation, whichever is less Business contributions to the accounts are taxdeductible and not subject to Social Security or unemployment taxes Funds are taxable when withdrawn

Small

12-66

401(k) Plans
Code Section 401(k) allows employees to save on a tax-deferred basis through salary deferral In 2005, the limit a person can defer is $14,000 Deferrals to a 401(k) must be coordinated with deferrals to other plans Some employers match employees’ contributions employees prefer 401(k) plans to IRAs The number of firms offering such plans has risen dramatically in the last 10 years

IRS

Most

12-67

Private Pensions
pensions are a relatively new benefit Virtually no other country has private pensions By 1960, about 15 million U.S. workers were covered After the mergers of the 1980s, many private pension plans were defunded

Private

In

the U.S., private pension participation is at an alltime low of only 43 percent of the labor force Only 21% of self-employed workers are covered

12-68

Regulation of Private Pensions
Employment Retirement Income Security Act (ERISA) of 1974 regulates private pensions The legislation was developed to ensure that employees receive promised pension benefits The law set minimum standards, which all private pension plans are required to meet does not require an employer to have a private pension plan Many existing pension plans were terminated so they would not have to meet ERISA requirements

The

ERISA

12-69

Regulation of Private Pensions
defined benefit pension plan specifies the benefit workers will get at retirement The amount is typically a fixed monthly income for life, or a variation of the lump-sum cash payment The employer annually contributes an amount into a trust fund in order to pay the promised benefit Contributions are calculated actuarially Pension payout formulas vary widely

A

12-70

Regulation of Private Pensions
defined contribution pension plan: Usually specifies the employer’s contribution Cannot predetermine the employee’s benefit amount Establishes rules for contributions money is invested Projections are made as to probable retirement income levels

A

The

12-71

Regulation of Private Pensions
contribution plans include: Savings and thrift accounts Profit-sharing plans Money purchase pensions Stock ownership plans

Defined

Both

types of plans specify age, length of service, or both, needed to receive full retirement benefits

12-72

Employee Services
services is something of a catchall category of voluntary benefits, such as: Cafeterias Saunas and gyms Free parking Commuter vans Infirmaries Ability to purchase company products at a discount Death, personal, and financial counseling

Employee

12-73

Stock Ownership Plans
companies encourage employees to purchase company stock, often at discount prices Purchase plans often allow for payroll deductions or company financing of the stock The company may buy back the stock at a guaranteed price if selling it would result in a loss use these plans for the same reasons as they do profit-sharing: When employees become partners in the business, they work harder

Many

Companies

12-74

Education Programs
organizations support off-the-job education Employees can receive up to $5,250 annually in tax-free educational assistance Reimbursements for graduate-level courses are taxable The tax status of other reimbursement plans is unsure most likely to participate: Salaried full-time Nonunion hourly of those eligible to participate do so

Many

Employees

85%

12-75

Pre-retirement Programs
are increasingly offering preretirement planning programs on: Health Money management Legal issues Housing

Companies

12-76

Childcare Programs
least 5,000 parents a day miss work or fail to find a job because they can’t find childcare An increasing number of employers are responding with company-sponsored childcare programs
Alternatives

At

include flexible working hours,

telecommuting, lists of child care facilities, providing on-site programs
Offering

these programs causes absenteeism and turnover to fall Job satisfaction, productivity and loyalty soar

12-77

Elder Care
65 or older will make up 23 percent of the population of the U.S. by 2050 At least 20 percent of employees already provide assistance to elderly relatives or friends They spend between 6 and 35 hours per week providing this care At least half also have children at home The burden falls more heavily on working women

People

12-78

Elder Care
employee/caregiver experiences these problems: Missed work (58 percent) Loss of pay (47 percent) Less energy to work (15 percent) employer experiences these problems: Extensive phone calls Tardiness Elder care is an emerging Excessive absenteeism employee benefit Unscheduled time off Loss of concentration

The

The

12-79

Financial Services
help and encourage their employees to save through: Employee savings plans Credit unions Thrift plans planning services are also offered, especially to executives and professional personnel

Organizations

Financial

12-80

Social and Recreational Programs
than 50,000 organizations provide recreation facilities for employees Experts foresee a growing trend to release employees from work to participate in sports activities These activities are intended to keep employees physically fit and tie them to their employer

More

No

studies show the value to the employer Recreational services are the least preferred of all
benefits and services

12-81

Flexible (Cafeteria) Benefits Plan
benefit costs and diversity have caused two new benefits to surface: A flexible (cafeteria) plan allows employees to choose between multiple types of benefits, such as: Health care Life insurance Disability insurance Cash to spend on coverage in the open market

Escalating

12-82

Flexible (Cafeteria) Benefits Plan
Flexible

spending (reimbursement) accounts provide funds from which employees pay for expenses not covered by the regular benefits package These funds are usually a pretax deduction that can be allocated for such things as: Unreimbursed health care Childcare Care for elderly or disabled relatives

12-83

Flexible (Cafeteria) Benefits Plan
benefits and reimbursement accounts can: Increase employee satisfaction Save employers from purchasing coverage that employees don’t want

Flexible

Regardless

of employee choices, sufficient coverage must be provided in key areas, such as: Health care Life insurance Disability insurance

12-84

Managing an Effective Benefits Program
making decisions about benefits and services, managers must consider that: Mandated programs must be funded There is little evidence that benefits and services motivate performance or increase satisfaction Most employees see benefits/services as entitlements Unions, competitors, and industry trends pressure managers to provide or increase voluntary benefits Costs of benefits and services continue to escalate dramatically

When

12-85

Managing an Effective Benefits Program
manage a benefits program effectively: Step 1: Set Objectives and Strategy for Benefits
Step Step Step

To

2: Involve Participants and Unions 3: Communicate Benefits 4: Monitor Costs Closely

12-86

Cost-Benefit Analysis
benefit costs increase, the price of products and services increases This makes companies less competitive benefits can reduce permanent employment It is cheaper to pay overtime or hire part-time employees than pay full-time wages plus benefits

When

Higher

Most

evidence shows that benefits do not affect turnover at all

12-87

Cost-Benefit Analysis
is rational for employees to want additional benefits because they constitute tax-free income Many companies cannot afford to pay benefits plus high wages There has been little research on the effect of benefits on productivity

It

Sign up to vote on this title
UsefulNot useful

Master Your Semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master Your Semester with a Special Offer from Scribd & The New York Times

Cancel anytime.