Benefits

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Benefits

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Benefitsare the indirect form of the total compensation: insurance, pensions,vacations, etc.

Benefits are approximately 35-40% of an employer's total wagebill. Benefitsare typically designed to accomplish four objectives: external competitiveness,2) cost effectiveness, 3) tailored to individual employee needs andpreferences, if feasible, 4) comply with legal regulations. Employers need to communicate effectively sothat employees are motivated by the benefits program.

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MandatedBenefit Programs:

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a) unemploymentcompensation/insurance

b) worker's compensation -

c) social security

d) The Familyand Medical Leave Act

e) COBRA

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a) unemployment compensation/insurance

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; it is subsistence payment for employees betweenjobs; they may receive this payment for up to 26 weeks; the employer pays intothe unemployment compensation (UC) fund at a rate based on the average numberof former employees who have drawn benefits from the fund

To be eligible for unemployment compensation, theemployee must have worked a minimum number of weeks, be without a job, and bewilling to accept a suitable position offered through the state

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b) worker'scompensation

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an employer-paid insurance program designed tocompensate an employee for the expenses sustained from a work-related injury;diseases that result from occupations are also compensable; payments are madein the event of disability or death; medical expenses and rehabilitativeservices are also covered;

Coverage is provided regardless of who caused theinjury or illness but the employee can not sue – no fault liability.

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c) socialsecurity

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, it provides income protection to those who haveretired, died, or are disabled; payments are based on past earnings and yearsof work

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d) The Familyand Medical Leave Act

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he act requires that employers with more than 50workers provide eligible employees (women or men) with up to 12 weeks of unpaid, job-protected leave each year1) to care for a newborn or a newly placed adopted or foster child, 2) aseriously ill family member (child, spouse, or parent), and 3) the seriouscondition of the employee

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e) COBRA

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requiresemployers to continue coverage up to 18 months or three years (depending on theevent) – at the same rate the employer would pay - for employees, theirspouses, and their dependents on termination of employment, death, or divorce. Former employees and their families benefitby paying a lower premium than is available to individual policyholders.

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Compensation for time not worked

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most employers compensate employees for rest periods,coffee breaks, and time when they are not actually at work - holidays,vacations, or sick leave; vacations with pay usually begins after a minimumperiod of employment.

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Employer purchased insurance:

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purchasedinsurance, employers can usually buy insurance cheaper because the rate isbased on group risk, rather than individual risk; insurance may be free to theemployee (noncontributory) or the employee may pay a share of the premium(contributory)

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health insurance

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is costly but very popular; coverage may includedental services; costs have escalated at a high rate over the last severaldecades; thus, there are several approaches used to contain the growth orhealth care costs

. Employees select providers or doctors. Another alternative is the health maintenanceorganization (HMO), which provides services from its doctors and medical stafffor a fixed period on a prepaid basis. Some firms are now asking employees to pay for poor health – they arelinking health factors to what employees pay for health insurance.

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The Health Insurance Portability and AccountabilityAct (HIPAA) of 1996

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allowsemployees to switch their health insurance plan from one company to another toget new health coverage, regardless or preexisting health conditions. This act also prohibits group insurance plansfrom dropping coverage for a sick employee and requires them to make individualcoverage available to people who leave group plans.

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life insurance

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oldest andone of the most available, but it is not particularly popular; the amount ofinsurance provided typically increases as salary increases.

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both short-and long-term sickness and disabilityinsurance

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protectsemployees who have accidents at work and leave them unable to work, temporarilyor permanently; supplements benefits from worker's compensation

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Employee Services:

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voluntarybenefits and includes all other benefits provided by employers such ascafeterias, gyms, free parking lots, discounts on company products, financialcounseling, and child care assistance

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educational programs

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provide foroff-the-job general educational support for their employees, and companies usethese plans as part of their employee development programs

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socialand recreational programs

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generallythe least preferred of all benefit and services offered

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child care

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- severalapproaches: flexible spending account, which lets employees put aside pretaxwages for certain expenses - saves the employee taxes; corporation as the caregiver near or at the office; community care providers using vouchers

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RetirementIncome/ Pension Plans:

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Privatepensions - many employers provide pension funds to retired employees, and thereare two major ways to categorize pension plans: (1) according to contributionsmade by the employer and (2) according to the amount of pension benefits to bepaid. In a contributory plan, both the employerand the employee contribute to the plan while in a noncontributory plan, the contributions are made solely by theemployer.

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. Defined benefits plans

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the amount an employee is to receive on retirement isspecifically set forth. This amount is based on employee’s years of service,average earnings during a specified period of time, and age of time ofretirement

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definedcontribution plans -

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establishes the basis on which an employer willcontribute to the pension fund. It specifiesthe amount of money paid in. Contributionsmay be made through profit sharing, thrift plans, matches of employeecontributions, IRAs, and 401(k) plans. These plans fix a rate for employercontributions to the fund.

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401 (k) Savings Plans

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these plans has had tremendous growth in the last twodecades; employee contributions to 401 (k) plans represent tax-free investing;they are less costly to employers than defined-benefit programs;

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Employee Retirement Income Security Act (ERISA),the 1984 Retirement Equity Act and the 1986 Tax Reform Act

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all regulate private pension plans - they do notrequire employers to provide pension plans, but if one is offered they mustconform to ERISA regulations. 1) Eligibility - all employee earnings from age21 on must be included, and only 1000 hours of work is required during a yearto be eligible. 2) Vesting and portability - full vesting meansemployees own the pension benefits even if they leave the employer prior toretirement. Prior to ERISA, employeescould lose their pension rights if they left prior to retirement

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Flexible Benefits or Cafeteria-Style Benefits:

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although there are varying parts, the core cafeteria plan is the most common -employees have identical minimum levels of benefits (e.g., health and life,pensions, etc), then they are given a choice among additional insurance,vacation time, better health coverage, dental, child care, and so on

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flexible spending accounts

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employees specify the dollar amount they want deducted fromeach paycheck for their flexible account – this allows employees to contributepretax dollars to buy additional benefits; any amount left at the end of yeargoes to employer

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Advantages of flexible benefits

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designed tomeet employee preferences, and this might result in higher satisfaction; maylower the costs of introducing new forms of benefits; permit a wider variety ofbenefits and a greater degree of employee choice (e.g., child care) thanotherwise might be affordable

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Disadvantages of flex benefits

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significantadministrative effort, extensive communication policies, employee counselingservices regarding available choices, sophisticated record-keeping andaccounting systems; adverse selection - this results in erratic cost patternsfor the company as premiums increase according to the use or overuse of theprovision.