Managing Human Resources Eighth edition Jackson and Schuler Chapter 13: Providing Benefits and Services © 2003 South-Western College Publishing. All rights reserved. Chapter Outline Employee Benefits and Services Within an Integrated HR System The Strategic Importance of Employee Benefits & Services Public Protection Programs Private Protection Programs Health Care Benefits & Services Paid Leave Work-Life Balance Other Benefits & Services Administrative Issues © 2003 South-Western College Publishing. All rights reserved. 13–2 Terminology Benefits and Services In-kind payments to employees For membership or participation in the organization Public Protection Programs Legally required Social Security, unemployment, workers’ compensation Private Protection Programs Voluntary for employers Health care, life insurance, disability, retirement © 2003 South-Western College Publishing. All rights reserved. 13–3 Benefits and Services within an Integrated HR System Total Compensation Monetary….Nonmonetary Other HR Activities • Fairness/Legal • Recruitment • Compensation • Safety/Health Global Environment Objectives for Total Compensation • Communicate Values • Support Objectives • Attract, Retain • Motivate • Contain Costs Organizational Environment © 2003 South-Western College Publishing. All rights reserved. Provide Mandatory Benefits & Services • Social Security • Unemployment/Wkrs Comp Provide Voluntary Benefits and Services • Retirement, Medical • Paid Leave, Life Cycle Communicate and Administer Monitor Health and Safety 13–4 External Influences Expansion of social security Social legislation Competition Wage controls Employee Benefits Inflation Health care costs Union bargaining Federal tax policies © 2003 South-Western College Publishing. All rights reserved. 13–5 Internal Influences Employee wants Human resource philosophy Employee Benefits © 2003 South-Western College Publishing. All rights reserved. Business strategy and objectives 13–6 Average Annual Monetary Benefits and Earnings 7% 2% Pay for Time Worked 9% Private Pensions, Insurance Paid Vacations and Rest Periods 14% Legally Required Payments 68% © 2003 South-Western College Publishing. All rights reserved. Other 13–7 Percentage of Who Rank Each Benefit Most Important Stock Options Disability Long-term care Life Insurance Pension Retirement Savings Health Insurance 0 10 © 2003 South-Western College Publishing. All rights reserved. 20 30 40 50 60 70 13–8 The Strategic Importance of Benefits and Services Benefits and Services May: Attract good employees Increase employee morale Reduce turnover Increase job satisfaction Enhance the organization’s image © 2003 South-Western College Publishing. All rights reserved. 13–9 Benefits, Services and Business Strategy Are generally not considered motivators Benefits and services are not contingent on performance Innovative packages may attract and retain employees Communication is important Many employees don’t know the worth of benefits they receive Employees may view benefits as entitlement Employees differ on the relative value they place on particular benefit © 2003 South-Western College Publishing. All rights reserved. 13–10 Business Objectives Addressed by Benefits and Services Objective: To unify a company acquired from a merger Benefits Response: Analyze immediate versus gradual transfer of subsidiary employees into corporate benefits plan. Objective: To cut accident rates 10% by year end Benefits Response: Establish employee assistance program. Set up literacy training to ensure employees can read safety signs. © 2003 South-Western College Publishing. All rights reserved. 13–11 Benefits Costs In 1929, total benefits averaged 5% of total pay, in 2000: 30% of Wages and salaries are 40 times greater than 60 years ago Benefits and services are 500 times greater © 2003 South-Western College Publishing. All rights reserved. 13–12 Public Protection Programs Social security system Unemployment © 2003 South-Western College Publishing. All rights reserved. compensation benefits Workers’ compensation and disability 13–13 Social Security Social Security Act of 1935; Medicare was added in 1966 Federal Insurance Contributions Act (FICA) 6.2% of the first $68,400 income for retirement and disability 1.45% of total income for hospital insurance (Medicare) Equal contributions from the employer and the employee © 2003 South-Western College Publishing. All rights reserved. 13–14 Unemployment Compensation Jointly administered by Federal and State governments Tax rates for employers vary based on number of people using benefits Level of benefits ranges 50-70% of base salary © 2003 South-Western College Publishing. All rights reserved. 13–15 Workers’ Compensation Covers costs and lost income due to injury or illness that result from on-the-job events Administered by states Fully financed by employers Managing workers’ compensation costs: Use health care cost-containment strategies (audit bills, develop preferred providers, etc.) Implement job safety programs Combine with disability management © 2003 South-Western College Publishing. All rights reserved. 13–16 Relevant Laws Pregnancy Discrimination Act of 1978 Pregnancy is defined as a disability. Female employees (and spouses) must receive same benefits for pregnancy as for other disabilities. © 2003 South-Western College Publishing. All rights reserved. 13–17 Family and Medical Leave Act of 1993 Covers employers with 50 or more workers Required to grant up to 12 weeks of unpaid leave annually For birth/adoption To care for immediate family member with serious health condition For employee with serious health condition Employee keeps preexisting health coverage and must be allowed to return to same or equivalent job © 2003 South-Western College Publishing. All rights reserved. 13–18 Relevant Laws (cont’d) Economic Recovery Tax Act of 1981 Employees allowed to make tax deductible contributions to employer-sponsored plan or individual retirement account (IRA) Encouraged employee stock ownership Health Insurance Portability and Accountability Act of 1996 Facilitates employees’ transfer of coverage when they change jobs © 2003 South-Western College Publishing. All rights reserved. 13–19 Economic Growth and Tax Relief Reconciliation Act of 2001 Raises contribution limits for IRAs and employersponsored retirement plans Reduces (to 3 yrs) length of service before employer contributions to retirement programs must be available Shortens pension vesting waiting periods Eliminates federal taxes on withdrawals from college savings plans © 2003 South-Western College Publishing. All rights reserved. 13–20 Private Protection Programs Are not required by law Include Retirement income plans Capital accumulation plans Savings and thrift plans Supplemental unemployment Guaranteed pay © 2003 South-Western College Publishing. All rights reserved. 13–21 Pension Plans Qualified Plan: Covers broad class of employees Receives favorable tax treatment ERISA (Employee Retirement Income Security Act of 1974) Protects benefits for workers covered by private pension plans; prohibits unfunded plans Specifies provisions for vesting (time when employer’s contribution belongs to employee) © 2003 South-Western College Publishing. All rights reserved. 13–22 Types of Pension Plans Defined Benefit Plan Benefits vary with age and length of service Provides predictable income after retirement Penalizes employee mobility Regulated by ERISA Cash Balance Plan Pays a lump sum upon employees’ departure Has become more popular as employee mobility has increased © 2003 South-Western College Publishing. All rights reserved. 13–23 Types of Pension Plans (cont’d) Defined Contribution Plans Each employee has separate account Employer may contribute (contributory) or not (noncontributory) Money purchase plans • Employer makes regular contributions Tax-deferred profit-sharing plans • Employees share profits and investment risk © 2003 South-Western College Publishing. All rights reserved. 13–24 Supplemental Plans 401K Plans Employer and employee contribute to fund Employee makes investment decisions Employee stock and stock option plans Recent trend is to offer to all employees © 2003 South-Western College Publishing. All rights reserved. 13–25 Health Care Benefits and Services Medical Coverage Wellness Programs Employee Assistance Programs Disability Insurance © 2003 South-Western College Publishing. All rights reserved. 13–26 Medical Care Most employees underestimate cost and view medical care as an entitlement Companies that provide health insurance spend more than 13 cents of every dollar they make to pay for coverage. © 2003 South-Western College Publishing. All rights reserved. 13–27 Medical Care Approaches Insurance Companies Provider Organizations Health Maintenance Organizations (HMOs) Preferred Provider Networks Self-Funded Plans © 2003 South-Western College Publishing. All rights reserved. 13–28 Medical Cost Containment Strategies Hospital utilization © 2003 South-Western College Publishing. All rights reserved. programs Coordination of benefits Data analysis Case management Cost sharing with employees Incentives to promote employee health 13–29 Wellness Programs Proactive programs to prevent health problems May include: On-site exercise programs Stress-management training Assistance to stop smoking Weight-loss programs © 2003 South-Western College Publishing. All rights reserved. 13–30 Employee Assistance Programs Assist employees with chronic personal problems that hinder job performance and attendance Employees referred to confidential counseling services Includes help with alcohol and drug dependencies, domestic problems, mental disorders, financial problems © 2003 South-Western College Publishing. All rights reserved. 13–31 Paid Leave Off the job: Vacations and holidays Paid absences On the job Lunches, rest periods © 2003 South-Western College Publishing. All rights reserved. 13–32 Managing Absenteeism In U.S., average daily absenteeism rate 2-3% of payroll. Programs that reward attendance may be more effective than disciplinary approaches. Personal Time Off (PTO) benefits may prevent unscheduled absenteeism. © 2003 South-Western College Publishing. All rights reserved. 13–33 Work-Life Balance Child Care Services Dependent care reimbursement accounts Resource and referral programs On-site care facilities Flexible scheduling Backlash from child-free workers tends to be limited in scope © 2003 South-Western College Publishing. All rights reserved. 13–34 Work-Life Balance Elder Care Services Information and referral programs Long-term care insurance 28% of employees over 30 spend an average of 10 hours a week giving care to an older relative © 2003 South-Western College Publishing. All rights reserved. 13–35 Work-Life Balance (cont’d) Other Life Cycle and Life Style Benefits Benefits for spousal equivalents Educational expense allowances Relocation and housing assistance © 2003 South-Western College Publishing. All rights reserved. 13–36 Administrative Issues Determining the benefits package Communicating the benefits package © 2003 South-Western College Publishing. All rights reserved. Providing benefits flexibility Managing & reducing benefits costs 13–37 Determining the Benefits and Services Package Employee preferences vary considerably and are difficult to predict, based on demographic characteristics. Corporate size, ability to pay, strategy and culture affect benefits decisions. Flexible plans, which allow employee choice of benefits, are very effective. © 2003 South-Western College Publishing. All rights reserved. 13–38 Communicating the Benefits and Services Package Most companies use passive, impersonal techniques New approaches include: Voice response systems (call centers) Intranet web sites © 2003 South-Western College Publishing. All rights reserved. 13–39