chap 13.mcgraw hill

8/11/2019 chap 13.Mcgraw Hill

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13-1McGraw-H il l/I rwin Copyri ght 2011 by The McGraw-H il l Companies, I nc. Al l Rights Reserved.

fundamentals of

Human Resource Management 4theditionby R.A. Noe, J.R. Hollenbeck, B. Gerhart, and P.M. Wright

CHAPTER 13

Providing Employee Benefits


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What Do I Need to Know?

1. Discuss the importance of benefits as a part

of employee compensation.

2. Summarize the types of employee benefits

required by law.

3. Describe the most common forms of paid

leave.

4. Identify the kinds of insurance benefits

offered by employers.


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What Do I Need to Know? (continued)

5. Define the types of retirement plans offered

by employers.

6. Describe how organizations use other

benefits to match employees wants and

needs.

7. Explain how to choose the contents of an

employee benefits package.


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What Do I Need to Know? (continued)

8. Summarize the regulations affecting how

employers design and administer benefits

programs.

9. Discuss the importance of effectively

communicating the nature and value of

benefits to employees.


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Figure 13.1: Benefits as a Percentage of

Total Compensation


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The Role of Employee Benefits

Benefits contribute to attracting, retaining,

and motivating employees.

The variety of possible benefits helps

employers tailor their compensation to the

kinds of employees they need.

Employees have come to expect that benefits

will help them maintain economic security.

Benefits impose significant costs.


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The Role of Employee Benefits (continued)

Benefits packages are more complex than pay

structures, making them harder for employees

to understand and appreciate.

The important role of benefits is one reason

that benefits are subject to government

regulation.

Legally required benefits.

Tax laws can make benefits favorable.


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Table 13.1: Benefits Required by Law


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Benefits Required by Law:Social Security

The federal Old Age, Survivors, Disability, and

Health Insurance (OASDHI) program which

combines:

Old age (retirement) insurance

Survivors insurance

Disability insurance

Hospital insurance (Medicare Part A)

Supplementary medical insurance

(Medicare Part B)


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Benefits Required by Law:

Social Security(continued)

Employers and employees share the cost of

Social Security through a payroll tax. The

percentage is set by law.

In 2009, employers and employees each paid a

tax of 7.65% on the first $106,800 of the

employees earnings

6.2% of earnings goes to OASDHI 1.45% of earnings goes to Medicare (Part A)

For earnings above $106,800 only the 1.45% for

Medicare is assessed


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Unemployment Insurance

A federally mandated program administered

by the states.

Focuses on minimizing the hardships of

unemployment:

Payments to unemployed workers.

Help in finding new jobs.

Incentives to stabilize employment.

Most funding comes from federal and state

taxes on employers.


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Unemployment Insurance(continued)

To receive benefits, workers must meet four

conditions:

1.They meet requirements demonstrating they

had been employed.

2.They are available for work.

3.They are actively seeking work.

4.They were not discharged for cause, did not

quit voluntarily, and are not out of work

because of a labor dispute.


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Workers Compensation

State programs that provide benefits to

workers who suffer work-related injuries or

illnesses, or to their survivors.

They operate under a principle of no-fault

liability:

An employee does not need to show that the

employer was grossly negligent in order to receivecompensation.

The employer is protected from lawsuits.


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Workers Compensation(continued)

Major categories of benefits:

Disability income

Medical care

Death benefits Rehabilitative benefits

The amount of benefits income varies from

state to state. It is generally two-thirds of theworkers earnings before the disability.

The benefits are tax free.


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Workers Compensation(continued)

The cost of the workers compensation

insurance depend on the:

Kinds of occupations involved

State where the company is located

Employers experience rating

Unfavorable experience ratings lead to higher

insurance premiums.


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Unpaid Family and Medical Leave

Family and Medical Leave Act (FMLA) of 1993

Requires organizations with 50 or moreemployees to provide up to 12 weeks of unpaid

leave: After childbirth or adoption

To care for a seriously ill family member

For an employees own serious illness

Employers must also guarantee these employeesthe same or comparable job when they return towork.


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Benefits Required by Law:Unpaid Family and Medical Leave(continued)

When employees experience pregnancy andchildbirth, employers must also comply withthe Pregnancy Discrimination Act.

If an employee is temporarily unable toperform her job due to pregnancy, theemployer must treat her in the same way as

any other disabled employee. e.g., modified tasks, alternative assignments,

disability leave, or leave without pay


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Test Your Knowledge

XYZ company has determined that they will have to

reduce their benefits costs to stay competitive.

Which of the following solutions is not a choice for

XYZ?a) Eliminate health coverage

b) Reduce the percentage of employees Social Security

insurance they pay.

c) Reduce their unemployment insurance costs bymanaging their workforce to avoid layoffs.

d) Institute a safety program to minimize workers

compensation costs.


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Optional Benefits Programs

Paid Leave

Group

Insurance

Retirement

Plans

Family-

FriendlyBenefits

Other Quality

of Work-LifeBenefits


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Figure 13.2: Percentage of Full-Time Workers withAccess to Selected Benefit Programs


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Optional Benefits Programs:

Paid Time Off

Vacation

Holidays

Sick Leave

Personal Days

Floating Holidays

Jury Duty

Funerals

Military Duty

Time Off to Vote

Paid Time Off (PTO)

Bank

Most flexible approach

Employer pools poolspersonal days, sick days,

and vacation days for

employees to use as the

need arises


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U.S. and Japanese Workers TakeShort Vacations

On average, workers in

the United States take

11 of their 13 vacation

days. Japanese workers , on

average, receive 15

vacation days but only

take 7.


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Group Insurance

Medical Insurance

Life Insurance

Disability Insurance

Long-Term Care Insurance


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Medical Insurance

70% of all full-time

employees in the U.S.

receive medical benefits

Policies typically cover: Hospital expenses

Surgical expenses

Visits to physicians

Additional coverage

may include:

Dental care

Vision care Birthing centers

Prescription drug

programs

Mental Health ParityAct (1996)


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Medical Insurance (continued)

Consolidated Omnibus Budget Reconciliation

Act (COBRA) of 1985

Federal law that requires employers to permit

employees or their dependents to extend theirhealth insurance coverage at group rates for up to

36 months following a qualifying event:

Layoff

Reduction in hours

Employees death


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Medical Insurance (continued)

Employer approaches to controlling health

care benefits costs:

1.Managed Care

2.Health Maintenance Organizations (HMO)

3.Preferred Provider Organizations (PPO)

4.Flexible Spending Accounts5.Consumer-Driven Health Plans (CDHP)

6.Employee Wellness Programs (EWP)


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Figure 13.3:

Health Care Costs in Various Countries


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Life Insurance

Employers may provide life insurance toemployees or offer the opportunity to buycoverage at low group rates.

Term life insurance

if the employee diesduring the term of the policy, the employeesbeneficiaries receive a death benefit payment.

Usually twice the employees yearly pay.

Additional benefits may include accidentaldeath and dismemberment.


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Disability Insurance

Short-Term Disability Insurance

Insurance that pays a

percentage of a disabled

employees salary asbenefits to the employee

for six months or less.

Long-Term Disability Insurance

Insurance that pays a

percentage of a disabled

employees salary after aninitial period and

potentially for the rest of

the employees life.


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Retirement Plans

About half of employees working in the

private business sector have employer-

sponsored retirement plans.

Contributory plan -retirement plan funded by

contributions from the employer and

employee.

Noncontributory plan -retirement planfunded entirely by contributions from the

employer.


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Figure 13.4: Sources of Income for Persons

65 and Older


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Retirement Plans(continued)

Defined benefit planpension plan that guarantees

a specified level of retirement income.

The employer sets up a pension fund to invest the

contributions. Such plans must meet the funding requirements of

the Employee Retirement Income Security Act

(ERISA)of 1974.

The employer must contribute enough for the plan to

cover all the benefits to be paid out to retirees.


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Employee Retirement

Income Security Act

(ERISA): federal law that

increased the responsibility

of pension plan trustees toprotect retirees, established

certain rights related to

vestingandportability, and

created the Pension BenefitGuarantee Corporation.

Pension Benefit Guarantee

Corporation (PBGC):

federal agency that insures

retirement benefits and

guarantees retirees a basicbenefit if the employer

experiences financial

difficulties.


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Defined contribution plan

retirement plan in whichthe employer sets up an individual account for eachemployee and specifies the size of the investmentinto that account.

Money purchase plans

Profit-sharing and employee stock ownership plans

Section 401(k) plans

These plans free employers from the risks thatinvestments will not perform as well as expected.

The responsibility for wise investing is with eachemployee.


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Figure 13.5: Value of Retirement Savings

Invested at Different Ages


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Test Your Knowledge

Jakar does not know a lot about investing and wants

to ensure he has some retirement income when he is

old enough to retire. Agnes plans on changing

employers every few years and is interested ininvesting her own money. Which plan would be best

for Jakar and Agnes, respectively?

a) Defined contribution; defined benefit

b) Contributory; defined benefitc) Defined benefit; defined contribution

d) Defined contribution; non-contributory


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Cash balance planretirement plan in which the

employer sets up an individual account for each

employee and contributes a percentage of the

employees salary. The account earns interest at a predefined rate.

This arrangement helps employers plan their contributions

and helps employees predict their retirement benefits.

If employees change jobs, they generally can roll over thebalance into an individual retirement account (IRA).


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Vesting Rights

Guarantee that when

employees become

participants in a pensionplan and work a specified

number of years, they will

receive a pension at

retirement age, regardless

of whether they remainedwith the employer.

Summary Plan Description

Report that describes a

pension plans funding,

eligibility requirements,risks, and other details.

Employers also provide an

individual benefit

statementwhich describes

the employees vested and

unvested benefits.


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Family-Friendly Benefits

Family Leave

Child Care Benefits

College Savings Plans

Elder Care

f l h


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Figure 13.6: Percentage of Employees withVarious Levels of Child Care Benefits


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Other Quality of Work-Life Benefits

Subsidized cafeterias

On-site health care

services

Moving and relocationexpenses

Employee discounts on

products

Employee buying

service

Tuition reimbursement

On-site fitness center

On-site dry cleaning

services Dues for professional

organizations

Off-site companyrecreation area

Pet services


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Selecting Employee Benefits

Decisions about which benefits to offer should

take into account:

The organizations goals and objectives

The organizations budget The expectations of the organizations current

employees and those it wishes to recruit in the future.

An organization that does not offer expected

benefits will have difficulty attracting and keeping

employees.


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Table 13.2:

An Organizations Benefits Objectives


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Employees Expectations and Values

Employees expect to receive benefits that are

legally required and widely available.

They value benefits they are likely to use.

The value employees place on various benefits

is likely to differ from one employee to

another.


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Employee Expectations and Values(continued)

Organizations can

address differences in

employees needs and

empower theiremployees by offering

flexible benefits plans in

place of a single

benefits package for allemployees.

Cafeteria-style plan: a

benefits plan that offers

employees a set of

alternatives from whichthey can choose the

types and amounts of

benefits they want.


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Suggested Ways Employers Can Control the

Cost of Health Benefits

1. Shop for bargains. Every year, the company should

research available plans and compare quotes from

different providers.

2. Know what employees care about. Would they bewilling to accept a higher deductible if it means the

company can also afford prescription drug

coverage?

3. If employees are willing to take responsibility fortheir own health care spending, offer a health-

savings account or consumer-driven plan.

S d W E l C C l h


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Suggested Ways Employers Can Control theCost of Health Benefits (continued)

4. Review your claims history. You might be able to

identify correctable problems.

5. Encourage healthy behavior with incentives like

discounts for health club memberships, free healthscreenings, and lower premiums for employees who

participate in a wellness program.

6. Promote a workplace culture that values healthy

habits.

7. Measure the results of any initiative you try.


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Legal Requirements for Employee Benefits

Benefits required by law

Tax treatment of benefits

Antidiscrimination laws

Accounting requirements


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Summary

Like pay, benefits help employers attract, retain, andmotivate employees. The variety of possible benefitsalso helps employers tailor their compensationpackages to attract the right kinds of employees.

Employees expect at least a minimum level ofbenefits, and providing more than the minimumhelps an organization compete in the labor market.

Benefits are also a significant expense, but employersprovide benefits because employees value them andmany benefits are required by law.


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Summary (continued)

Employers must contribute to the Old Age, Survivors,

Disability, and Health Insurance program known as

Social Security through a payroll tax shared by

employers and employees. Employers must also pay federal and state taxes for

unemployment insurance.

State laws require that employers purchase workers

compensation insurance.

The major categories of paid leave are vacations,

holidays, and sick leave.


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Summary (continued)

Medical insurance is one of the most valued

employee benefits.

To manage the costs of health insurance, many

organizations offer coverage through a healthmaintenance organization or preferred provider

organization, or they may offer flexible spending

accounts.

Retirement plans may be contributory ornoncontributory. These plans may be defined benefit

plans or defined contribution plans.


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Summary (continued)

Employers have responded to work-family role

conflicts by offering family-friendly benefits.

In deciding the contents of a benefits package,

organizations need to establish objectives and selectbenefits that support those objectives.

Organizations should also consider employees

expectations and values.

Employers must comply with the numerous laws and

regulations affecting how they design and administer

benefits programs.


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Summary (continued)

Communicating information about benefits is

important so that employees will appreciate the

value of their benefits.

Communicating their value is the main way benefitsattract, motivate, and retain employees.

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