MGT 430 – Spring 2015Class 15 - Chapter 13

EMPLOYEE BENEFITS

History of Employee Benefits in the US

• Employer-sponsored health insurance plans dramatically expanded as a direct result of wage controls imposed by the federal government during WWII

• The labor market was tight because of the increased demand for goods and decreased supply of workers during the war.

• Federally imposed wage and price controls prohibited manufacturers and other employers from raising wages enough to attract workers.

• When the War Labor Board declared that fringe benefits, such as sick leave and health insurance, did not count as wages for the purpose of wage controls, employers responded with significantly increased offers of fringe benefits, especially health care coverage, to attract workers.

Why Do Companies Offer Employee Benefits

• Required by law

• Recruit and retain quality employees

• Protect employees from risks that could jeopardize their health and/or financial security

• Corporate Social Responsibility

• So that employees can focus on their jobs

• Other???

ALWAYS KEEP IN MIND

Whether employee benefits are required by law or optionally provided,

There are always significant $$$$$$ factors to consider

Dirty Secret: The money has to come from somewhere!!!

Employees’Expectations and Values

• Employees expect to receive benefits that are legally required and widely available.

• Employees value benefits they are likely to use.

• The value employees place on various benefits is likely to differ from one employee to another, e.g.

Baby Boomers may prefer improvements to pension plansGen Y prefer child care & gym memberships

An Overview of Benefits

Employee benefits: Indirect compensation Based on group membership Provide a degree of security for employees and family

12-6

Costly and becoming costlier• 1929: 3% of payroll• 2010: 30.3%• 35-40% of payroll is typical;

The Cost of Benefits in the U.S.

Federal tax policy Employers: cost may be deductible Employees: many free of taxes—others tax deferred

12-7

Cost of benefits impacted by Federal & state legislation Union influence Cost saving of group plans Difficulty in getting employees to manage their benefits effectively.

The HRM Benefits Strategy

Three parts to Benefits Strategy:

12-8

Benefits Mix—total package Compensation strategy Organization’s objectives Characteristics of workforce

Mandated Employee Benefits

Social Security

Worker’s Compensation

Unemployment Insurance

Patient Protection and Affordable Care Act (ObamaCare)

Family Medical Leave Act

Mandated Employee Benefits Social Security Act of 1935 (FDR)

• Old Age, Survivors, and Disability Insurance federal program (OASDI)

• Employer/employee funded 50/50 (7.65%/7.65) = 15.30% of payroll

• 6.20% funds = retirement + 1.45% funds = Medicare

• Maximum employment taxable income for 2015 = $119,100

• Raising the Social Security eligibility age

Social Security

Retirement age for full benefitsBorn 1943 - 1960 = 66 years Early retirement at 62 years = 75%Born 1960 and later = 67 years Early retirement at 62 = 70%

Social Security benefits are not subject to New York’s state or local taxes and generally are not taxable at the federal level. Additional Social Security benefit entitlements:Widow(er) Children Disability

Maximum Social Security benefit

Early age = 62 $1,992/mo or $23,904/yr

Normal age = 66 $2,642/mo or $31,704/yr

Max age = 70 $3,425/mo or $41,100/yr

Social Security Debate

Long term funding challenges, e.g. • Aging Baby Boomers (ca. 78 million)• Continuing low birth rate• Increasing life expectancy• Unfunded obligations = $8.6 trillion over 75 years• Considering a combination of government funded accounts and

private accounts• # workers paying into S.S. vs. number of citizens receiving

benefits

Mandatory BenefitsUnemployment Insurance

• State run – with federal assistance – through payroll taxes• HRM incentives to keep employment stable• Typically authorized for up to 6 months• Based upon salary/wages prior to termination

Maximum UI rates by states (2015)NY = $420 CT = $590 NJ = $624 ME: $372CT = $590 VT = $425 RI = $566 NH: $427

Highest = MA - $674 (674 x 26 = $17,524) or (674 x 52 = $35,048)Lowest = AZ - $240 (240 x 26 = $6,240) or (240 x 52 = $12,480)

Benefits Required by Law:Unemployment Insurance

Size of unemployment tax imposed on each employer depends on the employer’s experience rating:

•Number of employees a company has laid off in the past and cost of providing them with unemployment benefits.

•Careful HR planning can minimize layoffs and keep their experience rating favorable.

Benefits Required by Law:Unemployment Insurance

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.

Benefits Required by Law:Workers Compensation

• State programs that provide benefits to workers who suffer work-related injuries or illnesses, or to their survivors.

• Operate under a principle of no-fault liability:–Employee does not need to show that the

employer was grossly negligent in order to receive compensation.–Employer is protected from lawsuits.

Benefits Required by Law:Workers’ Compensation

Four major categories of benefits:1. Disability income2. Medical care3. Death benefits4. Rehabilitative benefits

About 9 out of 10 U.S. workers are covered by state workers’ compensation laws; amount of benefits income varies among states.Pay is generally two-thirds of the worker’s earnings before the disability.Benefits are tax free.

Benefits Required by Law:Workers Compensation

Cost of Workers Compensation insurance depends on:• Kinds of occupations involved• State where company is located• Employer’s experience rating

Unfavorable experience ratings lead to higher insurance premiums.

Workers Compensation

12-20

Claims and premiums steadily rising Employers “fighting back” with smarter HRM practices Run by state WC boards Funded by payroll tax based upon experience 49 out of 50 states (except TX) Typically 2-4% per $100 of payroll – Higher in certain industries, e.g.

construction; Premiums based upon experience

Workers CompensationRole of HRM

Workers Compensation rates are based upon a company’s experience. Thus, HRM stresses safety by:

• Auditing workers compensation claims• Coordinating workers compensation and health insurance benefits• Encouraging those partially disabled to return under a modified duty

plan• Conducting training classes on safe procedures• Making safety a performance appraisal metric

FLMA – Family and Medical Leave Act of 1993(Clinton)

12-22

Up to 12 weeks unpaid leave during one year For following reasons:

Birth of a child Adoption of a child Care for sick spouse, child or parent Employee’s own serious health needs

Amended to give up to 26 weeks leave to family of injured military personnel

Employers must guarantee these employees same or comparable job when they return to work.

Problems with FMLA

• Cost of doing business (passed along to consumers?)

• Can you go 12 weeks without a paycheck?

• Do you want your boss to know that he/she can get along without you for 12 weeks?

• Potential for sex discrimination

• Pressures on partner or tenure-track employees.

TEACHER STUMPER

Should the FMLA program be a paid entitlement or remain an unpaid entitlement

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 coverageb) Reduce the percentage of employees’Social Security

insurance they pay.c) Reduce their unemployment insurance costs by

managing their workforce to avoid layoffs.d) Institute a safety program to minimize workers

compensation costs.