Compensation And Benefits Study Guide

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A) Protection Programs B) Paid time-off C) Services to enhance work/life experience

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3 types of Discretionary Benefits

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-Promote health -Guard against income loss caused by catastrophic factors, like unemployment, disability

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Protection programs

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-Vacations & holidays

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Paid time-off

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-Tuition reimbursement -Day care assistant

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Services to enhance work/life experiences, such as

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-Originated during WWII -National Labor Relations Act of 1935

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History of Discretionary Benefits

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-U.S. Government would not let companies increase employe's core compensation -Companies could increase fringe compensation expenditures

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Benefits during WWII

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-Legitimized bargaining for employee benefits -Contributed to increase of employee welfare practices -Non-Union employers offered benefits to keep unions out.

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National Labor Relations Act of 1935

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A) Protection Programs B) Paid time-off C) Services to Enhance Work/Life Experience

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Components of Discretionary Benefits

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-Income Protection a) Disability Insurance b) Life Insurance c) Retirement Programs d) Health Protection Programs

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Protection Programs

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a) Replaces income when employee becomes hurt or ill b) 1 of 3 employees will experience a 90-day disability during lifetime c) Short-term disability insurance d) Long-term disability insurance

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Disability Insurance

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- Less than 6 months - Benefits amont generally 50% - 67% of pre-tax salary - Preexisting condition - Exclusions - Two waiting periods: Preeligibility period & Elimination period

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Short-term disability insurance

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Mental or physical disability for which medical advice or treatment was recieved during a period preceding beginning of disability insurance coverage

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Preexisting condition

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Disabilities from self-inflicted injuries, most mental illnesses or disabilities due to addicitions to alcohol or illegal drugs are excluded

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Exclusions

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Covers from initial date of hire to time of eligibility for coverage in a disability insurance program

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Preeligibility period

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Amount of time an employee must wait before disability payments begin

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Elimination

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- Benefits for 6 months to life - Unable to engage in any occupation employee is qualified for - Benefit amount generally 50%-70% of pre-tax salary - Usually a 6-12 month waiting period - Employees generally have to use up sick leave and short-term disability benefits first

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Long-term disability insurance

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a) Pays beneficiaries upon employee's death, a multiple of employee's salary b) Term coverage c) Whole life coverage d) Group life insurance

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Life Insurance- company offered

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Term coverage and Whole life coverage

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2 kinds of Life Insurance

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- Most common type offered - Provides income to employee's beneficiaries only if employee dies while employed - Usually cheapest form of coverage - Around age 65 (up until)

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Term coverage

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-Very expensive -Will cover during employee's retirement

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Whole Life Coverage

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-Offered through employers; more coverage at lower rates per employee -Employers assume burden of financing the plan either fully or partially

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Group Life Insurance

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-Often referred to as pension plans -Provide income to employees and beneficiaries during retirement -Employees can participate in pension plans sponsored by their companies as well as in pension plans that they establish themselves -In 2007, employers' contributions to pension plans for their employees averaged $1,809 per employee -Pension programs are quite complex because of laws that govern them, particularly the ERISA

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Retirement Programs

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-Total health care expenditures rose by more than 5,000% from $26.9 billion in 1960 -Health insurance coverage costs for employees is rising quickly; a substantial cost burden to employers -Offering health insurance protection helps recruit and retain best-qualified individuals -Employees are more productive when they take care of health problems that could interfere with job performance

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Health Protection Programs

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1) Compensation employees when not performing primary work duties 2) Some part of collective bargaining agreements in union setting 3) Advantages for Employer 4) Integrated time off policies 5) Sabbatical Leave 6) Volunteerism

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Paid time-off

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a) Reduced absenteeism b) Better productivity c) Positive emplyee attitudes and commitment

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Advantages for Employer

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a) Combine holiday, vacation, sick leave, and personal leave policies into a single paid time off policy b) Provide individuals freedom to schedule time off without justifying reasons c) Reduces unscheduled absences because these policies require advance notive unless sudden illness is the cause d) More effective in controlling unscheduled absenteeism than other types of absence control policies

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Integrated time off policies

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a) Employers have begun offering sabbatical leaves to employees to further professional development b) According to Society for HRMN, 11% of large companies offer paid sabbaticals to employees; 29% offer unpaid sabbaticals c) Sabbaticals can range from Traditional Sabbaticals--paid leaves; employees return to their same jobs to Voluntary Leaves--Unpaid leave; given during downsizing, reduced copmany productivity

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Sabbatical Leave

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a) Companies generally do not dictate causes for which employees receive paid time off; political campaign and political action groups excluded because of possible conflicts of interest b) Companies favor providing paid time off for volunteer work for three reasons: -Allow employees to balance work and life demands -Represents corporate social responsibility, enhancing the company's public image -Helps promote employee retention.

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Volunteerism

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1) Employee Assistance Programs (EAPs) 2) Family Assistance Programs 3) Flexible Scheduling and Leave 4) Day Care 5) Tuition Reimbursement 6) Transportation Services 7) Outplacement Assistance 8) Wellness Programs 9) Stress Management Programs 10) Weight Contol and Nutrition Programs 11) Financial Education

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Services to Enhance Work/Life Experience

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a) Helps employees cope with personal problems, such as: Alcohol or drug abuse and domestic violence b) EAPs' costs are substantial c) Employers' gains outweigh out-of-pocket expenses for EAPs due to reduced costs such as: Turnover, Absenteeism, Medical costs

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Employee Assistance Programs (EAPs)

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a) Help employees provide elder and child care b) Growing number of single parents and dual-career households with children c) Various programs: Making referrals to on-site child or elder care centers; Company-sponsored day care programs

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Family Assistance Programs

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a) Allows employees to take time off during work hours b) Flexible Scheduling includes: Compressed work weeks, Flextime, job sharing c) Helps employees balance demands of work and family

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Flexible Scheduling and Leave

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Companies subsidize child or elder day care in community-based centers

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Day Care

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a) Employer reimburses employee for education expenses

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Tuition Reimbursement

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a) Help employees use energy-efficient transportation b) EMployers must offer transportation services to comply with the law c) Clean Air Act Amendments of 1990 require employers in metropolitan areas to comply with state and local commuter-trip reduction laws

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Transportation Services

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Provides support to employees being laid off or terminated through events such as mergers and acquisitions

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Outplacement Assistance

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Goal: to promote employees' physical and psychological health, e.g., weight loss, smoking cessation, and cardiovascular fitness

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Wellness Programs

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HElp employees cope with factors inside and outside work that contribute to stress

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Stress Management Programs

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a) educate employees about nutrition and weight loss b) Programs should result in improved productivity and lower health care costs

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Weight Control and Nutrition Programs

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Provide employees with the resource for managing personal budgets and long-term savings (e.g. for retirement)

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Financial Education

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1) Can attract quality employees by accommodating needs of a diverse workforce 2) Can distinguish a company from its competition 3) Can have tax advantages

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Implications of Discretionary Benefits for Strategic Compensation

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a) Flexible benefit plans: cafeteria plans b) Allows employees some control over meeting their own needs c) By meeting diverse employee needs, companies can minimize dysfunctional behaviors, like absenteeism and turnover

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Can attract quality employees by these needs of a diverse workforce

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a) Can translate into cost savings b) Companies pursuing differentiation strategies might invest more in research and development c) Companies pursuing lowest cost strategies might be able to lower prices

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Can have tax advantages

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a) Employer-sponsored retirement (401k) b) Social Security c) Individual retirement accounts (IRAs)

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Individuals may recieve retirement benefits from 3 sources:

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a) Defined Benefit Plan b) Defined Contribution Plan c) Hybrid Plan-Cash balance

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Companies establish one of 3 types of retirement plans

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1) Gives employers and employees substantial tax benefits 2) Employers and employees do not pay tax on retirement plan contributions 3) Investment earnings are tax exempt 4) Participants or beneficiaries do not pay taxes on retirement savings until withdrawal

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Qualified Plans (tax advantages)

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1) Participation requirements 2) Vesting rules 3) Plan distribution rules

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Minimum standards for qualified plans

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1) Participation requirements 2) Vesting rules 3) Plan distribution rules

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Minimum standards for qualified plans

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Age requirements- employees allowed to participate after reaching 21 and 1 year company tenure

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Qualified plan participation requirement

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a) Refers to employees' rights to pension benefits

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Vesting

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-Employees always vested in their contributions -Companies must grant vesting rights to employer contributions on one of the following two schedules (a) no more than 3 years or (b) 20% per year over 6 years

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Issues in vesting

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a) Payable in a variety of ways: -Lump sum distributions -Annuities--series of payments for the life of participant and beneficiary

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Plan distribution rules

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Guaranteed retirement benefits

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Defined Benefit Plans (only about 20% of companies)

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a) Flat benefit formulas- specific dollar amount or % of average pay b) Unit benefit formulas- recognizes length of service

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Two types of Benefit Formulas

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___________equires reporting to IRS which submits these data to Department of Labor, the ensure compliance with ________

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ERISA

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a) Employers and employees make annual contributions to separate accounts established for each participating employee b) Participants bear risk of investment gain or loss

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Defined Contribution Plans

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1) 401-K Plan 2) Profit-Sharing Plans 3) Stock Bonus Plans 4) Employee Stock Ownership Plans (ESOPs)

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Types of Defined Contribution Plans

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Employees contribute to a defined contribution plan

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401-K Plan

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Establish to a profit-sharing pool

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Profit-Sharing Plans

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Benefits are usually paid in shares of company stocks

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Stock Bonus Plans

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Uses borrowed money to invest in company stock, making them similar to profit-sharing plans and stock bonus plans

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Employee Stock Ownership Plans (ESOPs)

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a) Defined benefit plan with benefits for employees reflected in an employee's hypothetical account balance b) Participant is credited with a pay credit (e.g. 5%) each year and interest credit is earned on the account c) Companies have converted defined benefit plans to cash balance plans

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Hybrid Plans: Cash Balance Plans

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a) Cash balance plans less costly than defined benefit plans b) Increased portability of pension benefits

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2 reasons companies have changed to cash balance plans

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a) Age-related treatment- more favorable treatment to younger worker and those who switch employers b) Converting defined benefit plans to cash balance plans--older workers recieve smaller benefits

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2 issues surrounding cash balance plans

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-Fee-for-Service Plans -Managed Care Plans -Specialized Insurance Benefits -Consumer-Driven Health Care Plans

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Health Insurance Programs

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1) Provide a cash benefit paid to insured or health care provider 2) Employees may select any licensed physician, surgeon, or medical facility for treatment 3) 2 types of plans: Indemnity and Self-funded plans

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Fee-for-Service Plans

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Based on a contract between employer and insurance company which specifies expenses covered and rates

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Indemnity (fee-for-service plan)

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Companies pay benefits directly from their own assets

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Self-funded plans (fee-for-service)

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1) Deductibles 2) Coinsurance 3) Out-of-Pocket Maximum 4) Preexisting Condition CLauses 5) Preadmission Certification

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Features of Fee-for-Service Plans

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Payment employees make before insurance is active

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Deductibles

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Percentage of covered expenses paid by insurance

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Coinsurance

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Protects individuals from catastrophic medical expenses or expenses associated with recurring episodes of same illness

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Out-of-Pocket Maximum

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Condition for which medical advice/care was recieved during a designated period preceding beginning of coverage

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Preexisting Condition Clauses

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Physicians must recieve approval from insurance company before admitting patients to a hospital on a non-emergency basis

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Preadmission Certification

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1) Health Maintenance Organizations (HMOs) 2) Preferred Provider Organizations (PPOs) 3) Point-of-Service Plans

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3 Kinds of Managed Care Plans ( tend to be cheaper, fewer freedom)

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1) Prepaid medical services- fixed periodic fees cover services only if approved by HMO 2) HMOs differ from fee-for-service plans in 3 ways: -HMOs offer prepaid services - HMOs use primary care physicians as cost-control measure - HMO coinsurance rates are lower

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Health Maintenance Organizations (HMOs)

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1) Health care providers furnish services at higher level of reimbursement than under fee-for-service 2) Physicians must meet quality standards, follow cost-containment procedures, and accept PPo's reimbursement structure 3) Insurance company guarantee physicians' minimum patient load; gives employees financial incentives to use preferred providers

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Preferred Provider Organizations (PPOs)

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1) Employees pay nominal copayment for each visit to designated network of physicians 2) Employees can recieve care from health care providers outside designated network but they pay more

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Point-of-Service Plans

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Carve-out plans set up to cover dental care, vision care, prescription drugs, mental health and substance abuse, and maternity care

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Specialized Insurance Benefits

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Prescription Drug Plans Mental Health and Substance Abuse Plans

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Specialized Insurance Benefits

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- Psychiatric drugs - Psychological testing - Inpatient hospital care - Outpatient care

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Mental Health and Substance Abuse Plans

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a) Flexible Spending Accounts (FSAs) b) Health Reimbursement Accounts (HRAs)

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Consumer-Driven Health Care Plans

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a) Flexible Spending Accounts (FSAs) b) Health Reimbursement Accounts (HRAs)

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Consumer-Driven Health Care Plans

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1) Permits employees to pay health costs not covered by insurance plan 2) Employees elect amount of pay to allocate to plan 3) Employers reimburse employees for expenses that qualify 4) Disadvantage is "use it or lose it" provision of FSAs

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Flexible Spending Accounts (FSAs)

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a) Employers make contributions to each employee's HRA b) HRAs permit employees to carry unused account balances from year to year

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Health Reimbursement Accounts (HRAs)

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1) Established to protect individuals from catastrophic events 2) Protection Programs 3) In 2007, US companies spent an average of $4,597 on each employee a year

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Legally Required Benefits

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Protects against Disability and unemployement

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Legally required benefits

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a) Promote worker safety and health b) Maintain family income streams c) Assist families in crisis d) Enable retirees to maintain subsistence income levels

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Protection Programs

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a) Social Security Act of 1935 (SSA) b) UNemployment Insurance c) OASDI d) Medicare e) State Compulsory Disability Laws (Workers Compensation) f) Family and Medical Leave Act of 1993 (FMLA)

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Components of Legally-Required Benefits

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1) Unemployment prevented workers from being able to save for retirement and medical care 2) Programs a) Unemployment Insurance b) Old Age, Survivor, And Disability Insurance c) Medicare

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Social Security Act of 1935

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1) for those unemployed through no fault of their own; must have earned $1,000 during the last 4 quarters 2) Majority of states provide benefits for 26 weeks; extension available for additional 13 weeks 3) Criteria for benefits:- Varies from state to state, -In general, workers must have been employed for a minimum period of time before filing a claim (base period),-More a company lays-off workers, the more tax it must pay

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Unemployement Insurance

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1) Old Age (retirement) benefits 2) Survivor Benefits 3) Disability Benefits

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OASDI

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a) Fully insured after 40 quarters of coverage, or 10 years of employment b) To recieve benefits, retired worker must: -Be at least 62 years old to receive reduced benefits -Be at least 66 years of age to receive full benefits -Born 1960 or later, age 67 to receive full benefits

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Old Age Benefits

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a) Based on employment status and survivor's relationship -Spouse (at least age 60); dependent children/parent

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Survivor Benefits

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a) Worker must has worked minimum amount of hours in a specified time period -determined by age of worker -type of disability b) Worker expected to be disabled for at least 1 year; disability benefits have a waiting period of up to 6 months

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Disability Benefits

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1) US citizens at least 65 years of age 2) To provide insurance coverage for: -Hospitalization -Convalescent care(home health care) -Major doctor bills - Prescription drug costs 3) 5 separate plans

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Medicare

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-Paid for by taxes from employers and employees -COmpulsory fee-for-service hospitilization insurance -Covers:-In/out patient care - SKilled nursing facility - some home insurance

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Medicare Part A

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a) Voluntary supplementary medical insurance b) Pays for physicians' services and some medical services and supplies not covered under Part A

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Medicare Part B- medical

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a) Supplements Parts A & B through private insurance companies

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Medigap Insurance

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a) Alternative to Parts A & B b)Allows chance to recieve care from a variety of options

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Part C or Medicare Advantage established by Balance Budget Act

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a) Covers 75% of drug costs after $250 deductible up to $2,250 b) $2,250 to $5,100 not covered c) Pays 95% over $5,100

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Part D- Prescription Drug Program

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a) Requires employer and employee contributions under Federal Insurance Contributions Act (FICA) b) Employees tax based on earnings withheld from paycheck c) Social Security (SS) now taking in more money than it pays out d) In 2017, SS payments made will exceed money from FICA taxes e) By 2040, SS funds will be depleted

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Financing OASDI and Medicare

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Objective: Provide income and medical benefits to work-accident victims or dependents regardless of fault

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State Compulsory Disability Laws (Workers' Compensation)

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a) Employer pays benefits due to occupational injuries regardless of fault b) Employers assume costs of occupational injuries and accidents c) Covers most businesses; does not apply with fewer than 12 employees

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Based on the principle of "liability without fault"

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Most common disability pay: for those injured on the job and ability to perform job affected, disability income=

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2/3rds of average weekly pay

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a) Injury-lifting b) Occupational diseases-asbestosis c) Death Claims

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Claims under workers compensation

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a) Medical service b) Disability income c) Death d) Rehabilitative services- claims filed within 6 months to 2 years

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Benefits to workers comp

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a) Number and amount have increased b) Increase in repetitive strain injuries

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Recent trends in workers' compensation

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a) Participation in workers' compensation programs protects employers from torts lawsuits b) 4 exceptions

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Employers' rights under workers' compensation

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A)Employer's intentional acts: -Deliberate and knowing torts- employer's deliberate intent to harm at least one employee -Violations of an affirmative duty- when an employer fails to reveal exposure of workers to harmful substances B) Employer retaliation for filing workers' compensation claim C) Non-complying employers D) Lawsuits relating to "dual capacity" relationships

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4 Exceptions to Employers' rights under workers comp

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1) Guarantees employees right to return to same position or comparable one, if off work because of family or medical emergency 2) Provides fathers protections mothers got in Pregnancy Discrimination Act of 1978 3)Allows up to 12 weeks of unpaid leave in a 12 month period if: -Absence due to a birth or a child placement -Family member suffering medical condition -Employee suffers from a serious medical problem

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Family and Medical Leave Act of 1993 (FMLA)

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a) Private employer with 50 or more employees b) Must have worked at least 1,250 hours in 12 month period prior to application

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Eligibility for FMLA

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12 weeks of unpaid leave after sick leave, vacation time used

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Benefits of FMLA

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1) HR managers minimize legally required benefits costs by: a) Reduce likelihood of workers' compensation claims -Workplace safety programs -Health promotion programs including workplace inspection to identify health risks b) Reduce costs for unemployement insurance- monitor reasons co. terminates workers': avoid terminations leading to unemployment insurance claims 2) Some States have integrated workers' compensation and employer-sponsored medical insurance to create "24-hour" coverage

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Implications of Legally-Required Benefits

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a) Who should recieve coverage? b) Paying for benefits? c) Employees' role in choosing benefits? d) Limiting benefit costs? e) Communicating benefits to employees?

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Designing and Planning Benefits Program

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1) Trend is not offering benefits to part-time/ probationary employees 2) Decide whether to include retirees in the program: a) employers' contributions for medical coverage to retirees are not tax deductible b) apidly rising costs of retiree health care will reduce future benefits

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Who should recieve coverage from benefits programs

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Noncontributory- Company pays for ALL discretionary benefits Contributory- company and employee SHARE costs Employee-financed- employee pays all costs

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Types of programs to pay for benefits

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1) If employee can choose benefits, company has a flexible benefits or cafeteria plan 2) Benefit satisfaction, job satisfaction, pay satisfaction, and benefits understanding increases in flexible benefits plan

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Employees' role in choosing benefits

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1) Give employee benefit offerings or pay increases

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Limiting benefit costs

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1) Employees unaware or undervalue employee benefits recieved 2) Need to communicate to employees value of such benefits 3) Effective communication should: -Create awareness of how benefits improve security and well being - Provide understanding about available benefits -Encourage wise use of benefits 4) Communicating benefits information: -Brochures convey "big picture" of benefits to recruits -Small group meetings with new employees -Individual meetings with benefit counselors to select benefit options -Personal benefits statements detail coverage and value benefits selected - Updates of changes to benefits with newsletters 5) Intranet and Web: -Useful in communicating benefits information

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Communicating benefits to employees