Chapter 11 Employee Benefits

Copyright © 2004 South-Western. All rights reserved.
PowerPoint Presentation by Charlie Cook

Copyright © 2004 South-
Western. All rights reserved. 11–2
Objectives
After studying this chapter, you should be able to:
1. Describe the characteristics of a sound benefits
program.
2. Indicate management concerns about the costs of
employee benefits and discuss ways to control
those costs.
3. Identify and explain the employee benefits required
by law.
4. Discuss suggested ways to control the costs of
healthcare programs.

Objectives (cont’d)
After studying this chapter, you should be able to:
5. Describe those benefits that involve payment for
time not worked.
6. Discuss the recent trends in retirement policies and
programs.
7. Indicate the major factors involved in the
management of pension plans.
8. Describe the types of work/ life benefits that
employers may provide.

The Chief Objectives of Benefits Programs
• Improve employee work satisfaction
• Meet employee health and security
requirements
• Attract and motivate employees
• Reduce turnover
• Maintain a favorable competitive position

Requirements for a Sound
Benefits Program
StrategicStrategic
BenefitsBenefits
PlanningPlanning
Allowing forAllowing for
EmployeeEmployee
InvolvementInvolvement
Benefits for aBenefits for a
DiverseDiverse
WorkforceWorkforce
ProvidingProviding
forfor
FlexibilityFlexibility
CommunicatingCommunicating
Employee BenefitsEmployee Benefits
InformationInformation
Presentation Slide 11–1

Providing for Flexibility
• Flexible Benefits Plans (Cafeteria Plans)
Benefit plans that enable individual employees to
choose the benefits that are best suited to their
particular needs.
 A basic or core benefits package of life and health
insurance, sick leave, and vacation ensures that
employees have a minimum level of coverage.
 Employees use “credits” to “buy” whatever other
benefits they need.

Flexible Benefits Plans: Advantages
• For employees:
Benefits are better matched their individual needs.
Benefits selections can be adapted to a changing
(diversified) workforce.
Employees gain a greater understanding of the
benefits offered to them and the costs incurred.
Figure 11.1a

Flexible Benefits Plans: Advantages
• Employers can:
Maximize the psychological value of their benefits
program by paying only for highly desired benefits.
Contain benefit costs by allowing employees to “buy”
benefits only up to a maximum (defined) amount.
Use benefits as a competitive advantage in the
recruiting and retention of employees.
Figure 11.1b

Flexible Benefits Plans: Disadvantages
• For employees:
Poor employee benefits selection results in unwanted
financial costs.
• For employers:
There are certain added costs to establishing and
maintaining the flexible plan.
Employees may choose benefits of high use to them
that increase employer premium costs.
Figure 11.1c

Communicating Benefits Information
• In-house publications (employee handbooks and
organizational newsletters)
• Group meeting and training classes
• Audiocassettes/videotapes
• Bulletin boards
• Payroll inserts/pay stub messages
• Specialty brochures
• Employee self-service systems (ESS)

Benefits Issues
Rising costs of providing benefitsRising costs of providing benefitsRising costs of providing benefitsRising costs of providing benefits
Benefits offered by other employeesBenefits offered by other employeesBenefits offered by other employeesBenefits offered by other employees
Management ConcernsManagement ConcernsManagement ConcernsManagement Concerns
Union demands for additional benefitsUnion demands for additional benefitsUnion demands for additional benefitsUnion demands for additional benefits
Tax consequences of benefitsTax consequences of benefitsTax consequences of benefitsTax consequences of benefits
Benefits coverage for domestic partnersBenefits coverage for domestic partnersBenefits coverage for domestic partnersBenefits coverage for domestic partners

A Personalized Statement Of Benefits Costs
HRM 2

How Benefit Dollars Were Spent in 2001
(as Percentages of Total Payroll)
Cash Payroll
62.7%
Time Not Worked
9.4%
Miscellaneous
Benefits
1.3%
Medical
10.5%
Retirement and
Savings
7.3%
Legally Required
8.7%
Life Insurance
and Death 0.3%
Source: Adapted from the U.S. Chamber of Commerce. The 2001 Employee Benefits Study,
prepared and published by the U.S. Chamber of Commerce. To order call 1-800-638-6582. Presentation Slide 11–2

Types of Employee Benefits
Required By LawRequired By LawRequired By LawRequired By Law DiscretionaryDiscretionaryDiscretionaryDiscretionary
Health careHealth careHealth careHealth care
Unemployment InsuranceUnemployment InsuranceUnemployment InsuranceUnemployment Insurance
Workers’ CompensationWorkers’ CompensationWorkers’ CompensationWorkers’ Compensation
Payment for time not workedPayment for time not workedPayment for time not workedPayment for time not worked
SupplementalSupplemental
Unemployment BenefitsUnemployment Benefits
SupplementalSupplemental
Unemployment BenefitsUnemployment Benefits
Social SecuritySocial SecuritySocial SecuritySocial Security
Unpaid leave (FMLA)Unpaid leave (FMLA)Unpaid leave (FMLA)Unpaid leave (FMLA)
Life and LT care insuranceLife and LT care insuranceLife and LT care insuranceLife and LT care insurance
Retirements and pensionsRetirements and pensionsRetirements and pensionsRetirements and pensions

Social Security Insurance
Benefits paid are determined by anBenefits paid are determined by an
individual’s life-time earningsindividual’s life-time earnings
Benefits paid are determined by anBenefits paid are determined by an
individual’s life-time earningsindividual’s life-time earnings
Provides long-term disability benefitsProvides long-term disability benefitsProvides long-term disability benefitsProvides long-term disability benefits
Social Security Act (1935)
Payroll tax on both employees and employers
Social Security Act (1935)
Payroll tax on both employees and employers
Old Age and Survivors Insurance (OASI)Old Age and Survivors Insurance (OASI)Old Age and Survivors Insurance (OASI)Old Age and Survivors Insurance (OASI)
Must work 40 quarters in an occupationMust work 40 quarters in an occupation
covered by Act to qualify for benefitscovered by Act to qualify for benefits
Must work 40 quarters in an occupationMust work 40 quarters in an occupation
covered by Act to qualify for benefitscovered by Act to qualify for benefits

Unemployment Insurance
• Federal payroll tax on employer and employee
Tax is refunded to states which individually administer
unemployment compensation programs.
• Unemployment benefits vary from state to state.
Benefit is based on an employee’s recent earnings.
• Involuntarily unemployed workers are eligible for
up to 26 weeks of unemployment benefits.
Unemployed workers are required to seek “suitable
employment.”

Workers’ Compensation Insurance
• Workers’ Compensation Insurance
Federal- or state-mandated insurance (funded by an
employer payroll tax) provided to workers to defray
the loss of income and cost of treatment due to work-
related injuries or illness.
Factors influencing the employer’s insurance rate:
 The risk of injury or illness for an occupation
 Each state’s level of benefits for injuries sustained by
employees varies.
 The company’s frequency and severity of employee
injuries (the company’s experience rating).

Workers’ Compensation Insurance
Covers EmployersCovers EmployersCovers EmployersCovers Employers Covers EmployeesCovers EmployeesCovers EmployeesCovers Employees
Cost of injuryCost of injuryCost of injuryCost of injury
Negligent co-workersNegligent co-workersNegligent co-workersNegligent co-workers
Contributory negligenceContributory negligenceContributory negligenceContributory negligence
Temporary, Permanent,Temporary, Permanent,
Partial or Total DisabilityPartial or Total Disability
Temporary, Permanent,Temporary, Permanent,
Partial or Total DisabilityPartial or Total Disability
Assumed employment riskAssumed employment riskAssumed employment riskAssumed employment risk
Survivor’s InsuranceSurvivor’s InsuranceSurvivor’s InsuranceSurvivor’s Insurance
Injury is a cost of doing businessInjury is a cost of doing businessInjury is a cost of doing businessInjury is a cost of doing business

Reducing Workers’ Compensation Costs
1. Perform an audit to assess high-risk areas within a workplace.
2. Prevent injuries by proper ergonomic design of the job and
effective assessment of job candidates.
3. Provide quality medical care to injured employees by
physicians with experience and preferably with training in
occupational health.
4. Reduce litigation by effective communication between the
employer and the injured worker.
5. Manage the care of an injured worker from the injury until
return to work. Keep a partially recovered employee at the
work site.
6. Provide extensive worker training in all related health and
safety areas.
Figure 11.2

The Family and Medical Leave Act (FMLA)
• An employer must grant an eligible employee up
to 12 workweeks of unpaid leave in a 12-month
period for the following reasons:
birth of and care for a newborn child.
adoption or foster care placement of a child.
care for an immediate family member (spouse, child,
or parent) with a serious medical condition.
serious health condition of the employee.
• Employees on leave retain their benefits and the
right to return to their job or an “equivalent job.”

“Your Rights”:
Another Federally
Required Poster
HRM 4

Health and Medical Costs Containment
• Health Maintenance Organizations (HMOs)
Organizations of physicians and health-care
professionals that provide a wide range of services to
subscribers and dependents on a prepaid basis.
• Preferred Provider Organization (PPO)
Physicians who establish an organization that
guarantees lower healthcare costs to the employer.
• Medical Savings Account (MSA)
A medical insurance plan financed by employer
contributions to an employee’s individual medical
savings account.

Payment for Time Not Worked
Sick leaveSick leaveSick leaveSick leave
Severance paySeverance paySeverance paySeverance pay Paid holidaysPaid holidaysPaid holidaysPaid holidays
Vacations with payVacations with payVacations with payVacations with pay
Time NotTime Not
WorkedWorked

Other Discretionary Benefits
• Supplemental Unemployment Benefits (SUBs)
A plan that enables an employee who is laid off to
draw, in addition to unemployment compensation,
weekly benefits from the employer that are paid from
a fund created for this purpose.
SUB benefits are considered deferred compensation
and not current earnings.
The fund is derived from employer contributions
based on the total hours of work performed by
employees.

Trends Affecting Retirement
• The number of people age 65 and older tripled to about 34 million between
1940 and 1995.
• According to U.S. census projections, people age 65 and older are expected
to number 80 million by 2050.
• In 1960, 45.4 percent of male workers over age 65 were still in the labor
force; in 1990, only 27.4 percent were still working. While the labor force
participation rates of women between ages 55 and 64 have been rising,
further increases are not expected.
• Eight baby boomers turn 50 every ten minutes.
• The U.S. net national savings rate was relatively stable at about 7 percent of
GDP from 1951 to 1980. It has collapsed since 1980, most recently
dropping to less than 1 percent of GDP.
• In 1940, a 65-year-old had a normal life expectancy of 12.7 more years.
Currently, it is about 17 more years.
Figure 11.3

Retirement Programs
• Silver Handshake
An early-retirement incentive in the form of increased
pension benefits for several years or a cash bonus.
• Preretirement Programs
Counseling
Seminars
Workshops
Retirement tryouts

Types of Pension Plans
• Contributory plan
Contributions to a plan
are made jointly by
employees and
employers.
• Noncontributory plan
Contributions to a plan
are made solely by the
employer.
• Defined-benefit plan
The amount an
employee is to receive
upon retirement is
specifically set forth.
• Defined-contribution
plan
The basis (amount) an
employer contributes
to the pension fund is
specified.

Contemporary Pension Plan Options
• 401(k) Savings
Plans
A tax-deferred
savings plan.
Employees save
through payroll
deductions.
Employers may
match a portion of
employee savings.
• Cash-Balance Savings
Plans
Employer contributes a
percentage of employee’s
pay each year.
Account balance earns
interest each year.
Experts predict it will
replace traditional pension
plans.

Federal Regulation of Pension Plans
• Employee Retirement Income Security Act
(ERISA).
Private pension plans are subject to ERISA
regulations that provides standards and controls for
pension plans:
 Plans must comply IRS tax standards to qualify.
 Plans must meet actuarial standards to qualify for
Pension Benefit Guarantee (PBGC) insurance.
 Plans must meet Department of Labor standards for
treatment of plan participants.

Important Features Of A 401(k) Savings Plan
HRM 5a

HRM 5b

HRM 5c
Source: Eileen P. Gunn, “Sorting Out the Savings Plans,” Fortune 38, no. 4
(August 17, 1998): 121. © 1998 Time Inc. Reprinted by permission.

Federal Regulation of Pension Plans
• Vesting
A guarantee of accrued benefits to participants at
retirement age, regardless of their employment status
at that time.
ERISA requires that plans must provide that
employees will have vested rights in their accrued
benefits after certain minimum-years-of-service
requirements have been met.

Employee Services: Creating a Work/Life
Setting
• Employee Assistance Programs (EAPs)
Services provided by employers to help workers cope
with a wide variety of problems that interfere with the
way they perform their jobs.
 Typically provide diagnosis, counseling, and referral for
advice or treatment for problems related to alcohol or
drug abuse, emotional difficulties, and financial or family
difficulties.
• Child and Elder Care
Care provided to a child or an elderly relative by an
employee who remains actively at work.

Work/Life Benefits: Balancing Work and
Home Needs
• Child care/elder care referral
services
• Time off for children’s school
activities
• Employer-paid onsite or
near-site child care facilities
• Employee-accumulated leave
days for dependent care
• Subsidized temporary or
emergency dependent-care
costs
• Partial funding of child care
costs
• Extended leave policies for
child/elder care
• Sick-child programs
(caregiver on call)
• Work-at-home arrangements/
telecommuting
• Flexible work hours
scheduling
• Customized training
programs
• Customized career paths
Figure 11.4

AwardsAwardsAwardsAwards
Other Employee Benefits and Services
Recreational andRecreational and
SocialSocial
Recreational andRecreational and
SocialSocial
Credit UnionsCredit UnionsCredit UnionsCredit Unions
Food ServicesFood ServicesFood ServicesFood Services
PurchasingPurchasing
AssistanceAssistance
PurchasingPurchasing
AssistanceAssistance
TransportationTransportation
PoolingPooling
TransportationTransportation
PoolingPooling
On-Site HealthOn-Site Health
ServicesServices
On-Site HealthOn-Site Health
ServicesServices
Legal ServicesLegal ServicesLegal ServicesLegal Services
FinancialFinancial
PlanningPlanning
FinancialFinancial
PlanningPlanning
Housing andHousing and
MovingMoving
Housing andHousing and
MovingMoving

Chapter 11 Employee Benefits

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