Gary Dessler

tenth edition

Chapter 13

Part 4 Compensation

Benefits and Services

2005 Prentice Hall Inc. All rights reserved. PowerPoint Presentation by Charlie Cook The University of West Alabama

After studying this chapter, you should be able to:

1. Name and define each of the main pay for time not
worked benefits.

2. 3. 4. 5.

Describe each of the main insurance benefits. Discuss the main retirement benefits. Outline the main employees services benefits. Explain the main flexible benefit programs.

2005 Prentice Hall Inc. All rights reserved.

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Benefits
Benefits
Indirect financial and nonfinancial payments employees receive for continuing their employment with the company.

Types of employee benefit plans

Supplemental pay: sick leave and vacation pay Insurance: workers compensation Retirement: Pensions Employee services: child-care facilities

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The Benefits Picture Today

Most full-time employees in the United States receive benefits.

Virtually all employers99%offer some health insurance coverage.

Benefits are a major expense (about onethird of wages and salaries) for employers. Employees do seem to understand the value of health benefits.

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Annual Health Care Cost Increases

Source: Eric Parmenter, Controlling Health-Care Costs, Compensation and Benefits Review, September/ October 2002, p. 44

Figure 131
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Private-Sector Employer Compensation Costs, June 2003

Source: Total Employer Costs Rose to 22.61 in Second Quarter, BNA Bulletin to Management, September 11, 2003, p. 293

Figure 132
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Laws Affecting Employee Benefits

Retirement plans
Employee Retirement Income Security Act of 1975 (ERISA) Economic Growth and Tax Relief Conciliation Act of 2000 Job Creation and Worker Assistance Act

Health plans
The Newborn Mothers Protection Act of 1996 The Mental Health Parity Act of 1996 Age Discrimination in Employment Act Health Insurance Portability and Accountability Act of 1996 (HIPAA) Family and Medical Leave Act (FMLA) Americans with Disabilities Act (ADA)

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Types of Employee Benefits

Pay for time not worked Insurance benefits Retirement benefits Services

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Issues in Developing Benefits Plans

Benefits to be offered. Coverage of retirees in the plan Denial of benefits to employees during initial probationary periods Financing of benefits. Benefit choices to give employees. Cost containment procedures to use. Communicating benefits options to employees.

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Legally Required or Regulated Benefits

* While not required under federal law, all these benefits are regulated in some way by federal law, as explained in this chapter.
Table 131
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Pay for Time Not Worked

Unemployment insurance
Provides for benefits if a person is unable to work through no fault of his or her own. Payroll tax on employers that is determined by an employers rate of personnel terminations. Tax is collected and administered by the state.

Vacations and holidays

Number of paid vacation days varies by employer. Number of holidays varies by employer. Premium pay for work on holidays.

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Pay for Time Not Worked (contd)

Sick leave
Provides pay to an employee when he or she is out of work because of illness.
Costs for misuse of sick leave Pooled paid leave plans

Parental leave
The Family Medical Leave Act of 1993 (FMLA)
Up to 12 weeks of unpaid leave within a one-year period Employees must take unused paid leave first. Employees on leave retain their health benefits. Employees have the right to return to their job or equivalent position.
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Pay for Time Not Worked (contd)

Severance pay
A one-time payment when terminating an employee. Reasons for granting severance pay:
Acts as a humanitarian gesture and good public relations. Mirrors employees two week quit notice. Avoids litigation from disgruntled former employees. Meets Worker Adjustment and Retraining Notification (plant closing) Act requirements. Reassures employees who stay on after the employer downsizes its workforce of employers good intentions.

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Pay for Time Not Worked (contd)

Supplemental unemployment benefits (SUB)
Payments that supplement the laid-off or furloughed employees unemployment compensation.
The employer makes contributions to a reserve fund from which SUB payments are made to employees for the time the employee is out of work due to layoffs, reduced workweeks, or relocations. SUB payments are considered previously earned compensation for unemployment calculation purposes.

2005 Prentice Hall Inc. All rights reserved.

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Insurance Benefits
Workers compensation
Provides income and medical benefits to workrelated accident victims or their dependents, regardless of fault.
Death or disability: a cash benefit based on earnings per week of employment. Specific loss injuries: statutory list of losses

Controlling worker compensation costs

Screen out accident-prone workers. Make the workplace safer. Thoroughly investigate accident claims. Use case management to return injured employees to work as soon as possible.
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Insurance Benefits (contd)

Hospitalization, health, and disability insurance
Provide for loss of income protection and grouprate coverage of basic and major medical expenses for off-the-job accidents and illnesses.
Accidental death and dismemberment Disability insurance

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Insurance Benefits (contd)

Health maintenance organization (HMO)
A medical organization consisting of specialists operating out of a community-based health care center.
Provides routine medical services to employees who pay a nominal fee. Receives a fixed annual contract fee per employee from the employer (or employer and employee), regardless of whether it provides that person with service.

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Insurance Benefits (contd)

Preferred provider organizations (PPOs)
Groups of health care providers that contract to provide medical care services at reduced fees.
Employees can select from a list of preferred individual health providers. Preferred providers agree to discount services and to submit to certain utilization controls, such as on the number of diagnostic tests they can order. Employees using non-PPO-listed providers may pay all of the service costs or the portion of the costs above the reduced fee structure for services.

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Other Cost-Saving Strategies

1. Wellness programs 2. Disease management 3. Absence management 4. On-site primary care 5. Eliminating cost-inefficient plans 6. Moving toward PPO

Source: Shari Caudron, Health Care Costs: HRs Crisis Has Real Solutions, Workforce, February 2002, p. 30.

Figure 134
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Insurance Benefits (contd)

New trends in health care cost control:
Use of cost-containment specialists Getting employees more involved and empowered Automating health care plan administration
Online selection software

Using defined contribution health care plans Outsourcing health care benefits administration Reducing or eliminating retiree health care coverage Joining benefits purchasing alliances

2005 Prentice Hall Inc. All rights reserved.

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Insurance Benefits (contd)

Other insurance issues
Mental health benefits and the Mental Health Parity Act of 1996
Set minimum mental health care benefits at the national level

The Pregnancy Discrimination Act COBRA requirements Long-term care Group life insurance Provision of benefits for part-time and contingent workers

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Retirement Benefits
Social Security (Federal Old Age and Survivors Insurance)
A federal payroll tax (7.65%) paid by both the employee and the employer on the employees wages
Retirement benefits at the age of 62 Survivors or death benefits paid to the employees dependents Disability payments to disabled employees and their dependents.

The Medicare program

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Retirement Benefits (contd)

401(k) Plans
Defined contribution plans based on section 401(k) of the Internal Revenue Code.
Plans are funded by pretax payroll deductions. Contributions are invested in mutual stock funds and bond funds. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) raised limits on employee contributions.

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Retirement Benefits (contd)

Other types of defined contribution plans
Savings and thrift plans
Employees contribute a portion of their earnings to a fund; the employer usually matches this contribution in whole or in part.

Deferred profit-sharing plans

Employers contribute a portion of profits to the pension fund, regardless of the level of employee contribution.

Employee stock ownership plans (ESOPs)

Qualified, tax-deductible stock bonus plans in which employers contribute company stock to a trust for eventual use by employees.

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Personal Services
Credit unions
Separate businesses established with the employers assistance to help employees with their borrowing and saving needs.

Employee assistance programs (EAPs)

Provide counseling and advisory services:
Personal legal and financial services Child and elder care referrals Adoption assistance Mental health counseling Life event planning

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Employee Assistance Programs

Key steps for launching a successful EAP program include:
Develop a policy statement.
Ensure professional staffing. Maintain confidential record-keeping systems. Be aware of legal issues.

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Family-Friendly Benefits
On-site or subsidized child care Elder care Fitness and medical facilities Food services Flexible work scheduling Telecommuting Educational subsidies Sabbaticals Loan programs for home office equipment Stock options Concierge services Trauma counseling

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Executive Perquisites
Management loans Golden parachutes Financial counseling Relocation benefits Sabbaticals Severance pay Outplacement assistance Company cars Chauffeured limousines Security systems
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Company planes and yachts Executive dining rooms Physical fitness programs Legal services Tax assistance Expense accounts Club memberships Season tickets Credit cards Childrens education
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Flexible Benefits Programs

The cafeteria (flexible benefits) approach
Each employee is given a benefits fund budget to spend on the benefits he or she prefers.
The fund limits the total cost for each benefits package. Core plus option plans establish a core set of benefits which are mandatory for all employees.

Flexible spending accounts

Enable employees to pay for medical and other expenses with pretax dollars by depositing funds in their accounts from payroll deductions.

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Flexible Work Arrangements

Flextime
A plan whereby employees workdays are built around a core of mid-day hours when all workers are required to be present. Workers can arrange their own starting and stopping hours before and after the core period.
Positive effects on employee productivity, job satisfaction, satisfaction with work schedule, and employee absenteeism.

Positive effect on absenteeism was much greater than on productivity.

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Flexible Work Arrangements (contd)

Compressed workweeks
Increase productivity
Less disruption from shift changes Longer time-off-work periods Reduced absenteeism

Longer workdays; fewer workdays:

Four-day workweeks, with four 10-hour days. Two days on, two days off, three days on, then two days off, two days on, and so forth. Three 12-hour shifts, and then off for the next four days.

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Other Flexible Work Arrangements

Job sharing
Allowing two or more people to share a single fulltime job.

Work sharing
A temporary reduction in work hours by a group of employees during economic downturns as a way to prevent layoffs.

Telecommuting
Employees work at home using telephones and the Internet to transmit letters, data, and completed work to the home office.
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Key Terms
benefits supplemental pay benefits unemployment insurance sick leave severance pay supplemental unemployment benefits workers compensation savings and thrift plan deferred profit-sharing plan employee stock ownership plan (ESOP) Employee Retirement Income Security Act (ERISA) vesting Pension Benefits Guarantee Corporation (PBGC) early retirement window cash balance plans employee assistance program flexible benefits plan/cafeteria benefits plan job sharing work sharing telecommuting

health maintenance organization (HMO)

preferred provider organizations (PPOs) group life insurance Social Security pension plans defined benefit pension plan defined contribution pension plan 401(k) plan

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