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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.
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.

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10.0 INTRODUCTION

The major factors that determine the reward payment rate of a certain job are work
load and job importance. However, wage payment that is only based on these
factors often fails to motivate employees to reach their full potential. In other words,
an equal salary is not an assurance that employees will produce high productivity. In
this case, benefits and services are believed to be a major influence that can help
increase productivity, encourage employees to fully utilize their skills and knowledge
in carrying out their jobs, as well as encouraging them to work as a team.

One of the greatest challenges in business today is attracting and retaining quality
employees. Employee benefits is an important “magnet” that drawing employees to
employers apart of challenging work, fair wages and salaries and also good working
conditions. Employees are increasingly aware of the benefits they receive and they
are comparing those benefits with what other companies are offering. Initially
benefits were used to promote and reward employee loyalty and to discourage
unionization. However, today most employers view benefit as part of the total
compensation package and employees regard them as earned compensation as
shown in figure 10.1.

Figure 10.1: Employee Total Compensation

Benefits cost the firm money, but employees usually receive them indirectly. Benefits
are commitments, which may or may not be compelled by law to be given to an
employee. Generally, they are given by an employer to demonstrate employment
goodwill (kindness or concern) and to meet employees’ expectations. It is vary from
one employer to other employer. Therefore awarding benefits and services to
employees is another critical aspect that needs to be planned and managed by the
human resource department. This topic will discuss in details both aspects which are
benefits and services.

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10.1 THE IMPORTANCE OF EMPLOYEE BENEFITS AND SERVICES

• Improve employee work satisfaction.

• Meet employee health and security requirements.
• Attract and motivate employees.
• Reduce turnover.
• Maintain a favorable competitive position.
• Retain current employees.
• Comply with legal requirement.
• Improve morale.
• Retain top performers.
• To promote and reward employee loyalty.
• Discourage unionization.

10.2 FACTORS TO BE CONSIDERED IN DEVELOPING EMPLOYEE BENEFITS

AND SERVICES PLAN

• The size of the firm.

• Cost containment (control).
• Degree of unionization.
• Profitability.

10.3 CHARACTERISTICS OF AN EFFECTIVE EMPLOYEE BENEFITS AND

SERVICES PROGRAM

Usually, various benefits are offered by employers to their employees due to the
pressures and demands from worker union or according to current trends. Figure
10.2 shows the characteristics of sound employee benefits and services plan.

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 Figure 10.2: Characteristics of Effective Employee benefits and Services Plan
Source: Snell and Bohlander (2009)

However, how far benefits and services can contribute to the human resource
management programs depends on the attention given to the following matters:
 Strategic benefits planning
Employee benefits and services plan has to be based on a specific objective.
The objective formed by an organization depends on many factors such as
size of the firm, location and the degree of worker union involvement. The
specific objective of the employee benefits and services plan has to be in line
with the organization’s compensation management strategic plan (refer to
topic 9 to refresh your understanding of strategic compensation planning). HR
department must ensure that the benefits and services given to the
employees are compatible with the philosophy and policies of the
organization. Among the main objectives of a strategic benefit planning are
stated in 10.2.

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  Allowing for employee involvement
Before new benefits and services are introduced, employees should be
consulted to help identify the need for the benefits and services plan through
negotiations or discussions with employees. Opinion surveys are useful and
probably more objective than other methods in order to get employee
feedback.

 Redesigning employee benefits and services to include diverse

workforce
Variety in lifestyles demands a variety in benefits. Therefore, to be in line with
the purpose of offering this program, employee benefits and services plan has
to be updated constantly so that it is suitable to the changes that occur in
society and the environment, especially changes in composition and
employees’ lifestyles. These changes, forces the management to offer new
benefits which are to fulfill these needs. For example, benefits and services
program are often customized to be family friendly to enable women
employees to play their role well in organization.

 Providing for flexible planning

In order to fulfill the needs of different individuals, the management has to
offer more flexible benefit packages. Flexible benefits package also known as
‘cafeteria plan’. A cafeteria plan is a plan that enables employees to choose
benefits that are best suited with their needs from a number of benefits
package offered by the organization. Usually, employees are offered a basic
or core benefits package plus credits toward other benefits of their choice. A
cafeteria plan can prevent benefit from being wasted (because it is no use to
them or they do not need them).

However, basic or main benefits are provided by the management to all of its
employees such as health insurance, medical leave, day offs, and others.
Aside from the basic benefits package, employees are allowed to choose a
number of extra benefits provided by the management with a specific
predetermined cost limit, ay RM500 for each employee. The advantages and
disadvantages of flexible benefits program is shown in Table 10.6.

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 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.
 Employees choose packages that best satisfy their needs.
 Increase involvement of employees and families improved understanding of
benefits.

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.
 Cost containment whereby the organization sets the dollar maximum in which
the employee chooses within the constraints.
 Flexible benefits help firms meet the changing needs of a changing workforce.

Disadvantages

For employees:
 Poor employee benefits selection results in unwanted financial costs.
 Employees make bad choices and find themselves not covered for predictable
emergencies.

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.
 Administrative burdens and expense increases.

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 Table 10.6: Flexible benefits plans: Advantages and Disadvantages
Source: Snell and Bohlander (2010)

 Communicating information on employee benefits and services plan

Information on benefits must be spread and conveyed to employees to
ensure that they understand and are clear on each benefit provided, thus
avoiding employee misunderstandings and confusion on the package offered
by the employer. There are many effective ways to convey information
regarding benefits and services plan to employees such as benefits
handbook, organizational newsletter, paycheck notices and bulletin boards or
for some organizations, mostly larger ones, are using networked PCs or
multimedia kiosks to illustrate and explain benefits to employees.

Besides that, the HR department can use this opportunity to answer any
uncertainty on benefits programs which are arise during the orientation
program, training programs and others.

Activity 1 : Explain why an organization chooses to offer the cafeteria benefit

plan to its employees.

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10.4 MANAGEMENT CONCERNS IN PROVIDING EMPLOYEE BENEFITS AND
SERVICES

Managing an employee benefits and services program requires close attention to the
many forces that must be kept in balance if the program is to succeed. Management
must consider union demands, the benefits other employers are offering, tax
consequences and the skyrocketing costs of employee benefits and services.
However, the main issues that HR department should take into consideration are as
follows:
 The high cost of providing benefits
HR department should take into account that some benefit costs are fixed
(which is legally required and the firm has to provides) while others are
voluntarily granted by employers and therefore become employer variable
costs. To control benefits costs, each benefit should be cost out to determine
if it is worth to offer. It is because many benefits represent fixed cost rather
variable cost. Therefore, organization must look into financial position whether
it can afford to pay or not. Figure 10.4 shows on how dollar are spent on
employee benefits and services.

Life Insurance
and Death 0.3% Medical
10.5%
Retirement and Time Not Worked
Savings 9.4%
7.3%
Legally Required
Miscellaneous
8.7%
Benefits
1.3%

Cash Payroll
62.7%

Figure 10.4: How Dollars are spent (as Percentages of Total Payroll)
Source: Snell and Bohlander (2004)

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  Shifting benefits costs to employees
Organizations are today requiring employees to assume greater responsibility
for the rising costs of their benefits and services options. It requires
employees shared responsibility and accountability to decide ‘when’ and ‘how’
to spend their benefits dollars. One current trend is to ask employees to pay
part of the cost of certain benefits should the amount exceed the
predetermined benefits cut-off.

10.5 EMPLOYEE BENEFITS

In general, most organizations provide various benefits to their employees as an

addition to their salary or wages paid to their employees. Snell and Bohlander (2010)
defined employee benefits as an indirect form of compensation intended to improve
the quality of the work lives and the personal lives of employees. Employee benefits
is an indirect financial payment given to employees that may include health and life
insurance, vacation, pension, education plans and discount on company products.
Employee benefits originally referred to as fringe benefits. By this, the management
hopes that employees will be more productive and loyal to the organization.

10.6 TYPES OF EMPLOYEE BENEFITS

Most organizations offer various benefits programs to their employees. Part of the
benefit package provided by an employer is based on the voluntary concept rather
than force. However, there are also benefits which are compulsory or need to be
provided by management due to legal requirement. In other words, there are two (2)
types of employee benefit programs as shown in Figure 10.5, which are:
 Mandatory Benefits (required by law).
 Non Mandatory Benefits (Discretionary).

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 Figure 10.5: Employee Benefits Illustration

Mandatory Employee Benefits

Mandatory benefits program is a benefit set by the labor system. It is the most
minimum allotment on employee rights and has to be provided by employers. In
other words, it is an obligatory payment to compensate the job holders in the
performance of work which is deemed necessary for which the basic pay does not
cover. Among the mandated benefits which are covered by the act are:

1. Employment Act, 1955

According to Employment Act 1955, employers must give certain benefits to
employees who are covered by the act particularly those earning less than
RM1500 a month. Among the benefits are:

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  Maternity Leave protection
Under section 37, every woman employees is entitled for a maternity
leave for a period of not less than 60 days for every confinement
period. Moreover, she will also enjoy maternity leave for 5 children’s.

 Compulsory Time-off payments

a. a weekly rest day
Employees have the right to enjoy one (1) day leave each
week as allocated under Section 59 (1) of Employment Act
1955. The rest day is agreed upon by employee and employer.

b. public holidays
According to Section 60D (1) of Employment Act 1955,
employees are eligible for 10 days public holiday in a year and
will still be paid the basic salary rate. The 10 days allocated
need to include the following 4 days:
 National Day or independence day
 Bithday of Yang Di Pertuan Agong
 Birthdays of Sultans or Yang Di Pertuan Negeri or
Federal Territory day
 Labor day
 The other 6 days are mutually agreed between the
employer and employee.

c. annual leave
Under section 60E of Employment Act 1955, an employee is
eligible to enjoy a number of minimum annual leaves according
to his or her service period as shown in Table 10.1.

Service Period Annual Leave

Less than 2 years 8 days
2 years or more, but less than 5 years 12 days
5 years or more 16 days

Table10.1: Annual Leave Based on Service Period

Source: Employment Act 1955

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 d. Medical or sick leave (without hospitalization)
Under Section 60F of Employment Act 1955, an employee is
eligible to enjoy a number of minimum medical leaves
according to his or her service period as shown in Table 10.2.

Service Period Medical Leave

Less than 2 years 14 days
2 years or more, but less than 5 years 18 days
5 years or more 22 days

Table 10.2: Medical Leave Based on Service Period

Source: Employment Act 1955

e. Sick leave (hospitalization)

Under Section 60F of Employment Act 1955, an employee is
eligible to enjoy 60 days of medical leave due to hospitalization
and must be certified by registered medical practitioner or
panel doctor.

2. Pension Act, 1980

This mandated benefit is only applicable to government servants who opt for
pension and surrender his/her savings in EPF after confirmation in service.
Payment of pension will be paid after an individual reach compulsory
retirement at the age of 56 or 58 (following new government circulation year
2008). Payment of pension will be made on monthly basis.

3. Employees Provident Fund Act, 1991

As allocated under the EPF Act 1991, for each employee, an employer has to
contribute to the employees account in the EPF. This is to encourage
employee saving for their retirement. EPF contributions act as a form of
compulsory savings system for workers so that they would not be
impoverished and dependent on the state once they retired from the
workforce and to ensure every worker has sufficient fund to sustain their life
once they retired. Every employer is required to register with the EPF Board
on setting up a business.

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 All employees are liable to pay monthly contributions to the fund at the rate of
11% of their wages. Meanwhile, employers are required to deduct this
amount from their employees’ wages and pay it on their behalf to the fund
along with the employer’s contribution of 12% of the workers’ monthly wages.
Employers must pay the contributions according to the rate set out in the
Third Schedule of the EPF Act 1991 and should not do their own calculations.

 Person Liable to Contribute to EPF are as follows:

Even though all employees need to contribute to EPF, however, there
are few types of person who are not liable to contribute to EPF. They
are:
 Directors who are paid wages.
 Part timers, temporary and probationary employees.
 An employee who is 55 years and above and who has still not
withdrawn all his savings on attaining the age 55 years.
 An employee who has withdrawn his savings under the
Pensionable Employee Withdrawal Scheme and works with
another employer other than the Federal Government, State
Government or any local or statutory body.
 An employee who is 55 years and above & has never been a
member of the EPF.
 An employee who has withdrawn all his savings under the
Incapacitation Withdrawal Scheme but has recovered and is
re-employed.

 Person Not Liable (Exempted) to Contribute to EPF are as

follows:
 Domestic Servants.
 Expatriates (foreign workers).
 Government Servants with Pension Scheme.
 Self Employed.

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 4. Employees Social Security Act, 1969
This scheme is allocated under the Employee Social Safety Act, 1968 and is
managed by the Social Safety Scheme (SOCSO). The purpose of this
scheme is to provide employees with benefits when employees involved in an
accident at work, contract an occupational decease or become an invalid. All
employers are required to register their employees with SOCSO. Employees
who earn less than RM 3000 per month are required to contribute. Both
employer and employee are charged a certain contribution based on the
employee’s salary as shown in Table 10.3.

Contribution on SOCSO
Employer Employee
1.25% 0.25%

Table 10.3: SOCSO contribution rate

Source: Employee Social Safety Act 1969

Non Mandatory Benefits (Discretionary Benefits)

Non-mandated benefits offered by employees to employees voluntarily and without
force. Usually, non-mandated benefits are offered for the purpose of attracting new
employees with potential and talent from outside the organization as well as to
increase employees’ satisfaction and motivate them. The non-mandated benefits that
are usually provided by employers are often given to the jobholder in recognition of
the status and function of the position.

Because they are discretionary, they can be withdrawn by the management

depending on the circumstances affecting the position or the organization. More often
than not, once given, they are difficult to withdraw because of this type of benefits are
offered voluntarily by the organization. Below are the examples of non-mandatory
benefits given by employer to employees’ such as:
 Allowances (travel, meal, housing).
 Housing loans.
 Meals.
 Healthcare benefits (dental, optical, mental health).

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  Additional Time off Payment for time not worked (vacations with pay, paid
holidays).
 Life insurance.
 Recreational Facilities.
 Compassionate Leave.
 Car allowance.
 Entertainment.
 Family health care.
 Insurance plans.
 Retirement plans.
 Vacation.
 Social Services.
 Financial Services.
 Educational Facilities

Activity 2 : Refer to Snell and Bohlander (2010) text book and internet to find
out the details of the benefits above.

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 Table 10.4 shows the examples of benefits based on type of benefits. Table 10.5
shows an exhibit of non-mandatory benefits given based on level of job position.

Type of Benefits Examples

Allowance Transport, meal, housing, shift, entertainment, travel

Additional time off Emergencies leave, studies/exam leave, death of

payment close relatives
Compassionate leave Marriage, paternity

Healthcare or Medical Medical, surgical, dental

Payment
Insurance Plan Life, accident protection for employees and family
members
Educational Facilities Educational loan, scholarship, libraries, study kits,
attending course, seminars etc

Financial Services House loan, car loan, computer loan

Social Services Nursery, counseling, religious and social activities,

family day
Subsidies & Discounts Purchase of company products etc

Table 10.4: Exhibits of Non Mandatory Benefits

Type of benefit Senior Middle Lower

Car allowance Given Usually not

Entertainment given
Family health care Common Depending on
Housing loan job
Meals Usually companywide benefit
Retirement plan Depending on company’s policy
Vacation Not given Recommended
Usually companywide benefit
Recommended Not common

Table 10.5: Sample of Benefits by Positions

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 Activity 3 : List down at least 3 differences between mandated benefits and
non-mandated benefits.

10.7 EMPLOYEE SERVICES

There have been an increasing number of services designed to make life at work
more rewarding and to enhance the well-being of employees. Today, many
employers are trying to create a work/life environment by offering a host of employee
services designed to balance employee work and personal needs. Table 10.6 lists
some of the employer-sponsored work-life environment.

Work-Life Services: Balancing Work And Home Needs

 Employee assistance programs

 Counseling
 Child care/elder care referral services
 Time off for children’s school activities
 Employer-paid-on-site or near-site-child care facilities
 Flexible work hour scheduling
 Health club and wellness programs
 Employer accumulated leave days for dependent care
 Customized training programs
 Subsidized temporary or emergency dependent care
costs
 Extended leave policies for child/elder care
 Educational reimbursement
 Sick-child programs (caregiver on call)

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  Work-at-home arrangements/telecommuting
 Partial funding of child care costs
 Customized career paths
 Part-time work schedules

Table 10.6: Work-life services: Balancing work and home needs

Source: Snell and Bohlander (2010)

10.8 TYPES OF EMPLOYEE SERVICES

As shown in Table 10.6 above, here are some of the employee services introduced
by company to accommodate the needs of employees’.

Employee assistance program

This program is designed to help employees handle various problems that might
affect their performance. This employee assistance program provides counseling,
diagnosis and referral for advice or treatment for a wide variety of problems
confronting employees such as alcohol, drug, marital, emotional disorder, financial
difficulty and family problems. The main intend is to help employees solve their
personal problems or at least to prevent problems from turning into crises that affect
their ability to work productively.

Child and elder care

The increase of female employees as well as dual income families has forced
employers to provide another amenity in the workplace that is more family-friendly
which is the child day care center. The preparation costs for this center is either
borne entirely by the employers or employers only provide the amenity and employee
utilizing the amenity have to pay for the operation costs. Responsibility for the care of
aging parents and other relatives is also another fact of life for increasing numbers of
employees.

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 Flexible Work Schedules
The flexible work schedules are becoming popular because they alter the normal
workweek in which the employee begin and end their work day. It allows employees
to increase control over the hours they work. The common flexible work schedules
are the compressed workweek, flexi time, job sharing and telecommuting. Table 10.7
exhibits the advantages and disadvantages of flexible work schedules.

a. Compressed Workweek
Compressed workweek is shortening the number of days in the workweek by
lengthening the number of hours worked per day. Generally the formula used
is 4/10 or 4/40 in which employees working 4 days a week with 10 hours a
day from Monday to Thursday or employees working 4 days a week with 40
hour a week from Monday to Thursday. In Malaysia, the public sector working
5 days a week with 8 hours a day (5/8 or 5/40).
b. Flextime
It is a working hours that permit employees the option of choosing daily
starting and quitting times, provided that they work a set number of hours per
day or week. All employees are required to be present during a designated
“core period.”Flexible hours help to reduce absenteeism and tardiness.
Employees can schedule their working hours for the time of day when they
are most productive.

c. Job Sharing
Job sharing is the arrangement whereby two part-time employees perform a
job that otherwise would be held by one full-time employee. Through job
sharing concept, job sharers may work three days a week, creating an
overlap day for extended face-to-face conferencing.

d. Telecommuting
Through telecommuting, it enable the employees use of personal computers,
networks, and other communications technology such as fax machines to do
work at home that is traditionally done in the workplace. Table 10.8 shows the
keys for successful telecommuting.

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 Advantages of Flexible Work Schedules
• Increased flexibility for employees.
• Ability to attract workers who might not otherwise be
available.
• Lessened burden on working parents.
• Less time and money wasted on physical commuting.
• Increased productivity.
• Reduced tardiness & absenteeism.
• More freedom to adjust their life.
• Reduce traffic congested /pressure.
• Motivated employees who likes comfortable at homes.

Disadvantages of Flexible Work Schedules

• Difficult or less monitoring, control and coordination.
• Employees take for granted.
• Not suitable for certain jobs.
• Problems in communication and supervising.
• Lack of self discipline.
• Longer time for work.

Table 10.7: The advantages and disadvantages of flexible work schedules

Keys for Successful Telecommuting

• Identify jobs best suited to distance work.

• Select responsible employees.
• Establish employee feedback procedures and performance
review methods for evaluation.
• Establish formalized flexible work schedules procedures.
• Begin a formal training program.
• Keep telecommuters informed and “in the loop.”
• Recognize when telecommuting isn’t working.

Table 10.8: Key for successful telecommuting

Source: Snell and Bohlander (2010)

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10.8 OTHER EMPLOYEE SERVICES
Below are the examples of other services provided for the employees’ as shown in
Figure 10.6.

Figure 10.6: Other Employee Services

Source: Snell and Bohlander (2010)

10.10 HRIS AND EMPLOYEE BENEFITS AND SERVICES

For employers, the administration of an employee benefits and services program can
be a time consuming and costly. Even for small employers, keeping track of each
employee’s benefit package with many changes is cumbersome. However, for both
small and large employers, there is a wide choice of commercially developed
computer packages that greatly facilitate benefits management. With an interactive,
on-line benefits programs employees can quickly learn about and change their
benefits selection as needs change. Employees need not contact HR for benefit
forms thus saving time and the employer expense of maintaining a benefits staff.

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 Activity 4 : List down type of services provided by your organization.

10.11 SUMMARY

Benefits and services are very important to retain workers. Benefits and services
provided benefits both organization and its employees by fulfilling both intrinsic and
extrinsic values. Companies use both extrinsic and intrinsic rewards to compensate
employees for their time and effort. Benefits beside pay systems are designed to
attract; retain and motivate employees while complying with the laws. Law requires
certain benefits to be offered and some are voluntarily.

Employee benefits are not just a fringe cost to employer; they represent a substantial
percentage of the total payroll. Benefits are usually awarded equally to all workers or
on a seniority basis. To develop a benefit program in a company, flexibility,
employees’ inputs and communication of the benefits offered shall be considered.

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 1. What are the pros and cons of flexible benefits programs?
2. Explain why an organization may choose to develop a cafeteria benefits
plan for its employees.
3. Explain the concept of work-life benefits. Name and discuss at least
FIVE of these benefits employers offer their employees.
4. Define a benefit and identify TWO strategic reasons why employers
provide benefits.
5. Distinguish between mandatory and non mandatory benefits and list
THREE examples of each.
6. Name and define each of the main pay for time not worked benefits.
7. Outline the main employees’ services benefits.
8. Describe the characteristics of a sound benefits programs.
9. Indicate management concerns about the costs of employee benefits
and discuss ways to control those costs.

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Study Notes

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