Managing Employee
Benefits
Chapter 13
Nice Benefits!
SECTION 4
Compensating
Human Resources
Benefits

Benefit


An indirect compensation given to an employee or group of
employees as a part of organizational membership.
Health benefits in the U.S. are provided by employers



This is unique
Benefit costs are being shifted even more on employers by state and
federal governments
Strategic Perspectives on Benefits


Benefits vs. Salaries- which is preferred for addition or subtraction?
Benefits influence employee decisions about employers





Retention
Absenteeism
Recruitment
Benefits are increasingly seen as entitlements.
Benefit costs average over 40% of total payroll costs.
FIGURE 13–1
Employer Compensation and Benefits Costs per Hour
Source: U.S. Bureau of Labor Statistics, 2008.
13–3
FIGURE 13–8
Private Industry Workers with Health Benefits
Source: U.S. Bureau of Labor Statistics, www.bls.gov/ncs/home.htm.
13–4
How the Typical Benefits Dollar Is Spent
Source: Based on information from the U.S. Department of Labor, Bureau of Labor Statistics,
National Compensation Survey: Employee Benefits in Private Industry in the United States, 2003;
and Employee Benefits Study, 2003 ed. (Washington, DC: U.S. Chamber of Commerce, 2004).
Benefit Design

HR Decisions Affecting Benefit Design:

How much total compensation?

Lag, Meet or Lead the Market

What part of total compensation should benefits comprise?

What expense levels are acceptable for each benefit?

Which employees should get which benefits?

Legal, Ethical and Business reasons for decisions

What are we getting in return for the benefit? (ROI)

How will offering benefits affect turnover, recruiting, and retention of
employees?

How flexible should the benefits package be?

Flexibility is high today due to the different familial structure in U.S. families than
has been historically prevalent

What happens to ROI when the plan is more flexible?
Types of Benefits
Security Benefits


WARN- 60 days announcement during mass layoffs pending
egregious shocks to the company
Worker’s Compensation


Unemployment Compensation



Benefits provided to persons injured on the job.
A Federal/state payroll tax that funds state unemployment
systems.
Involuntary unemployment and actively seeking work is required
for persons to claim benefit.
Supplemental Unemployment Benefits (SUB)

A union-negotiated benefit provision that pays a supplemental
amount to laid-off employees who are drawing unemployment
compensation.
Security Benefits (cont’d)

Severance Pay
A
security benefit voluntarily offered by employer to
employees who lose their jobs.
 Payments
are determined by the employee’s level
within the organization and years of employment.
 Other
benefits (e.g., outplacement and continued health
insurance) may be offered in lieu of cash severance
payments.
Retirement Benefits

Social Security Act of 1935
 Established
a system providing old age, survivor’s,
disability, and retirement benefits.
 Federal
payroll tax (7.65%) on both the employer and the
employee.
 Medicare
taxes are 2.9%
 Benefit
payments are based on an employee’s lifetime
earnings.
 Administered
by the Social Security Administration.
Median Age at Retirement by Gender
People are retiring sooner but working longer…what is really happening here?
Source: U.S. Bureau of Labor Statistics www.bls.gov.
Pension Plans

Pension Plans

Retirement benefits established and funded by employers
and employees.


ERISA- you don’t HAVE to have a pension plan. However, if you
do, it is governed by ERISA.
Traditional Benefit Plans

Defined-benefit plans


Employees are promised a definite pension amount based on
age and length of service.
Defined-contribution plans
Employer makes an annual payment to an employee’s account.
 Benefit payout is determined by the financial performance of
the employee’s retirement.

FIGURE 13–11
Worker Participation in Pension Plans
Source: U.S. Bureau of Labor Statistics, www.bls.gov
13–14
Pension Terms and Concepts

Contributory Plan


Non-contributory Plan


All pension benefits funding is paid by the employer.
Vesting


Both employer and employee pay money into the retirement
fund.
The right of employees to receive certain benefits from their
pension plans.
Portability

A pension plan feature that allows employees to move their
benefits from one employer to another.
Employer Maximum Matches of 401(k) Contributions
Of total pay
Source: EBN/Hay Benefits Survey, 2003. Used with permission.
Cost of Health Care

Why is health care so expensive?
 Uninsured
workers
 Retirees
 Older
generations in the workplace
 FDA rules versus pharmaceutical ROI
 Lawsuits?
 Other?
Cost-Control Strategies for Health-Care Benefits
Source: Bulletin to Management, Bureau of National Affairs, (Washington, DC, 2002), February 14, 2002, S2.
To purchase this publication and find out more about other BNA HR solutions visit http://hrcenter.bna.com or
call 800-372-1033. Used with Permission.
Controlling Health-Care Costs

Managed Care
 Approaches
that monitor and reduce medical costs
using restrictions and market system alternatives.

Preferred Provider Organization
A
health-care provider that contracts with an employer
group to provide health-care services to employees at
a competitive rate.

Health Maintenance Organization (HMO)
A
managed care plan that provides services for a
fixed period on a prepaid basis.
Different Types of Insurance
HMO
HSA
Medicare
PPO
Trad
Medical
Medicaid
HSA
Uninsured
Trad
Medical
Medicare
Health-Care Legislation

Consolidated Omnibus Budget Reconciliation Act
(COBRA) Provisions
 Former
employees are eligible to purchase group
insurance at no more than 102% of group insurance
premium rate.
 Former
employees, their spouses, and eligible
dependents are covered for 18 to 36 months
 COBRA
requirements incur additional paperwork and
related costs for employers.
Health-Care Legislation (cont’d)

Health Insurance Portability and Accountability Act
(HIPAA) of 1996 Provisions
 Allows
employees to switch their health insurance plan
from one company to another, regardless of preexisting health conditions.
 Health
 Require
plans must continue to cover sick employees.
employers to provide privacy notices to
employees.
 Regulate the disclosure of protected health information
without authorization.
Health Care Reform: Obamacare






One of Obama’s major campaign issues
Attempts to deal with uninsured workers
Attempts to make good on Obama’s promise not to
heavily tax the middle class to pay for it.
A price of about $1 trillion.
Titles HR 3962
Passed the House in November 2010 220-215 with
39 dems voting against

“Americans want a common sense approach to
health care reform, not Speaker Nancy Pelosi’s
2,000-page government takeover that increases
costs, adds to our skyrocketing debt, destroys jobs
with tax hikes and new mandates, and cuts
Medicare benefits,” said House Minority Leader
Rep. John Boehner, R-Ohio. “Americans who ask
‘where are the jobs?’ are getting more of the same
from out-of-touch Washington Democrats: more
spending, more debt and more government.”



The legislation as passed by the House would require
employers with annual payrolls above $500,000 to
provide health benefits to their employees or pay a
penalty or payroll tax of up to 8 percent. The money
would go to fund a new health insurance exchange and
lower-cost health plans, which would be offered by the
government.
“Cadillac” health insurance will also be taxed to help pay
for the plan.- Kicks in 2018
Up to a 5.4% tax will be leveled on incomes greater than
280k (individual ) or 350k (couple) to help pay for the
program.

Individuals without coverage from employers or
other sources would be required to purchase
insurance or pay a penalty of up to 2.5 percent of
their taxable income. Medicaid coverage would be
extended to nearly 15 million additional lowerincome people who do not currently qualify for
coverage. Federal subsidies would be available to
low- and middle-income families that still could not
afford to pay for health coverage after the reforms
are enacted.

The legislation would extend COBRA health
insurance continuation benefits until an individual
becomes eligible for health insurance coverage
through the health insurance exchange. The
insurance exchange would be a health insurance
marketplace where individuals would have the
choice of purchasing coverage from private-sector
providers or from a government-run insurance plan.
Primary Concern

“As we have stated repeatedly over the past
several months, the House bill’s regulatory
framework will, unintentionally, compel many
employers to cease offering health coverage and
simply ‘pay’ a penalty rather than ‘play’ through
sponsoring a plan, thereby losing all the innovation
that employers bring through promoting wellness
programs and insisting on good quality outcomes,”
said Jim Klein, president of the American Benefits
Council.
Current Evidence



One basic premise of Obamacare is that people with
health insurance are paying for ER visits for people
without Health Insurance. Thus, will all people having
health insurance costs will go down for everyone.
You can’t get those savings if those people are still going to
the emergency room.- President Barack Obama, March 3,
2010
[P]eople are no longer going to the emergency room and
they now have good health care, they’re now getting
preventive care.- President Barack Obama, September 24,
2013
Current Evidence Contd.

Study published in Science by Harvard Researchers
called the Oregon Health Insurance Experiment
 Considered
the best empirical study to date on
Obamacare
 Shows when people do not have to pay for health
insurance or are given significant discounts Emergency
Room Visits increase 40%
 Suggests the cost savings will not be realized in the
immediate or over time.

Forbes article in full
Other Benefits
Credit Unions
Purchase Discounts
Stock Investment
Family-Care
Benefits
Family-Oriented
Benefits
Social and
Recreational
Relocation
Expenses
Benefits
Life, Disability,
Legal Insurances
Educational
Assistance
Family Medical Leave Act (FMLA)

Coverage
 Employers
with 50 or more employees
 Employees who have worked at least 12 months and
1,250 hours in the previous year.

Requirements
 Employers
must allow eligible employees to take up to
a total of 12 weeks of unpaid leave in a 12-month
period to attend to a family or serious medical
condition.
 Employees have the right to continued health benefits
and the right to return to their job.
New Changes to FMLA 1/2008

Requires that employers provide 12 weeks of FMLA
leave to the immediate family members (spouses,
children or parents) of reservists or members of the
National Guard who are called to active duty in the
U.S. military. Under the new law, employers also
must offer up to 26 weeks of unpaid leave to
employees who are providing care for family
members wounded while serving in the U.S. military.
Workers can take the leave in increments of the
shortest time periods tracked by their employers’
payroll system.
Benefits for Domestic Partners

Domestic Partners or Spousal Equivalents
 Unmarried
employees who are living with individuals of
the opposite sex
 Gay and lesbian employees who have partners

Affidavit of Spousal Equivalence
 Each
is the other’s only spousal equivalent.
 They are not blood relatives.
 They are living together and jointly share
responsibility for their common welfare and financial
obligations.
Flexible Benefits

Flexible Benefit Plan
A
plan (flex or cafeteria plan) that allows employees to
select the benefits they prefer from groups of benefits
established by the employer.

Problems with Flexible Plans
 Inappropriate
benefits package choices
 Adverse
selection and use of specific benefits by
higher-risk employees
 Higher
administrative cost
Discussion






What future events do we see affecting benefits
in organizations?
What will be their impact?
How will we manage them?
Workers Compensation and Unemployment
Insurance Activity
USERRA
SHRM National Survey on Benefits