Employee Benefits
The Challenges of Human Resources Management
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
1–1
Employee Benefit Programs
•
•
•
•
•
Part of Total Compensation
Some Government Mandated
Some Incentive Related
Part of Cost of Doing Business
Indirect Compensation
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2 of 34
36
Benefits as a Percentage of Total
Compensation
13-3
Strategic Benefits Planning
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4 of 34
36
Factors Contributing to
Growth of Benefit
Discourage Unions
Benefits not Always Taxed
Easier to negotiate Than
Wages
Attitude of General Public
Decrease in the last few
years because of the Great
Recession
Objectives of Benefit Programs
To Improve Morale
To Meet Health and Safety Needs
To Attract Good Employees
To Reduce Turnover
To Reduce Unionism
To Maintain a Competitive
Position
To Enhance the Organization's
Image
Percentage of Full-Time Workers with
Access to Selected Benefit Programs
13-7
Some Required and Discretionary Benefits
Benefits Required by Federal
or Most State Law
Benefits Discretionary
on Part of Employer*
Social Security
Disability, Life, and Health Insurance(?)
Unemployment Insurance
Pensions
Workers’ Compensation
Employee Assistance and Counseling
Programs
Leaves under the Family Medical Leave
Act
COBRA Insurance (continuing health
“Family Friendly” benefits for Child Care,
Elder Care, Flexible Work Schedules, etc.
coverage—generally 18-36 months)
Executive Perquisites
Health Insurance (Only employers with 50
Paid Time Off for Vacations, Holidays, Sick
Leave, Personal Leave, Jury Duty, etc.
or more employees are required to provide
health insurance by the Affordable Care Act
(ACA)).
* While not required under federal law, all these benefits are regulated
in some way by federal law.
13–8
Benefits Required by Law:
Social Security
• The federal Old Age, Survivors, Disability, and
Health Insurance (OASDHI) program which
combines:
– Old age (retirement) insurance
– Survivor’s insurance
– Disability insurance
– Hospital insurance (Medicare Part A)
– Supplementary medical insurance
(Medicare Part B)
13-9
Benefits Required by Law:
Social Security (continued)
• Employers and employees share the cost of
Social Security through a payroll tax. The
percentage is set by law.
• In 2009, employers and employees each paid a
tax of 7.65% on the first $106,800 of the
employee’s earnings
– 6.2% of earnings goes to OASDHI
– 1.45% of earnings goes to Medicare (Part A)
– For earnings above $106,800 only the 1.45% for
Medicare is assessed
13-10
Benefits Required by Law:
Unemployment Insurance
• A federally mandated program administered
by the states.
• Focuses on minimizing the hardships of
unemployment:
– Payments to unemployed workers.
– Help in finding new jobs.
– Incentives to stabilize employment.
• Most funding comes from federal and state
taxes on employers.
13-11
Benefits Required by Law:
Unemployment Insurance (continued)
• The size of the unemployment tax imposed on
each employer depends on the employer’s
experience rating:
– The number of employees a company has laid off
in the past and the cost of providing them with
unemployment benefits.
• Careful human resource planning can
minimize layoffs and keep their experience
rating favorable.
13-12
Benefits Required by Law:
Unemployment Insurance (continued)
To receive benefits, workers must meet four
conditions:
1.They meet requirements demonstrating they
had been employed.
2.They are available for work.
3.They are actively seeking work.
4.They were not discharged for cause, did not
quit voluntarily, and are not out of work
because of a labor dispute.
13-13
Benefits Required by Law:
Workers’ Compensation
• State programs that provide benefits to
workers who suffer work-related injuries or
illnesses, or to their survivors.
• They operate under a principle of no-fault
liability:
– An employee does not need to show that the
employer was grossly negligent in order to receive
compensation.
– The employer is protected from lawsuits.
13-14
Benefits Required by Law:
Workers’ Compensation (continued)
• Major categories of benefits:
– Disability income
– Medical care
– Death benefits
– Rehabilitative benefits
• The amount of benefits income varies from
state to state. It is generally two-thirds of the
worker’s earnings before the disability.
• The benefits are tax free.
13-15
Benefits Required by Law:
Workers’ Compensation (continued)
• The cost of the workers’ compensation
insurance depend on the:
– Kinds of occupations involved
– State where the company is located
– Employer’s experience rating
• Unfavorable experience ratings lead to higher
insurance premiums.
13-16
The Family and Medical Leave Act (FMLA)
• Provisions:

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
Serious health condition of the employee.
Employees retain their health benefits and have the
right to return to their job or an “equivalent job.”
Those caring for service members are entitled to up to
26 weeks of unpaid leave
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17 of 34
36
Your Rights Under
the Family and
Medical Leave Act
of 1993
13–18
COBRA and HIPAA
• The Consolidated Omnibus Budget Reconciliation Act
of 1986 (COBRA)


Mandates that employers make health coverage—at the same
rate the employer would pay—available to employees, their
spouses, and their dependents on termination of employment,
death, or divorce.
The coverage must be offered for between 18 and 36 months
depending on qualifying guidelines.
• Health Insurance Portability and Accountability Act
(HIPAA) of 1996

Grants employees the right to switch medical insurance between
former and present employers with no gap in coverage regardless
of preexisting health condition once the employees have earned
twelve service credits at the former employee
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19 of 34
36
Policy Issues in Designing Benefit Packages
Which benefits to offer
Who will be covered
Whether to include
retirees
Coverage during
probation
Policy Issues
How to finance benefits
Degree of employee
choice
Cost containment
procedures
Communicating
benefits options
13–20
Who Will Be Covered?
• Defense Secretary Chuck Hagel blasts states on samesex benefits policy
• The Pentagon has cited nine states that are defying
policy on same-sex benefits: Florida, Georgia, Indiana,
Louisiana, Mississippi, Oklahoma, South Carolina, Texas
and West Virginia.
13–21
Competitive Benefits Information
• Competitive Benefits Information







Chamber of Commerce
Bureau of Labor Statistics
Society of Human Resource Management
HR Consulting Firms
Competitors Web Sites
Internal Information
Health Exchanges
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22 of 34
36
Flexible Benefits for a Diverse Workforce
• 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.
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23 of 34
36
Administering Benefits
• Administering an organization’s benefits program
can be both costly and time-consuming
• Fortunately, online employee benefit systems
have become mainstream for both large and
small employers.
• Often referred to as employee self-service
(ESS) systems.
• They can result in a significant cost savings in
benefits administration.
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36
Communicating Employee Benefits Information
• Methods to communicate benefits to employees









In-house publications (employee handbooks, organizational
newsletters, and postings on bulletin boards)
Brochures and enrollment information mailed to employees
Employee meetings and information sessions
Employee meetings with benefits providers such as the
representatives of health care companies, the investment company
that manages a firm’s pension, and so forth.
E-mails with benefit information and enrollments reminders
Blogs
Social media
Payroll inserts and pay stub messages
Benefits hotlines
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25 of 34
36
Communicating Employee Benefits
Information (cont.)
• Pointers for designing benefits information




Avoid complex language when describing benefits.
Clear, concise, and understandable language is
a must.
Explain the purpose behind a benefit and the value it
offers employees. Be up front about the pros and cons
of different benefit plans.
Use graphics whenever possible to make the
information understandable at a glance.
Provide numerous examples to illustrate how a benefit
choice might affect different types of employees,
depending upon their personal circumstances.
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26 of 34
36
Why Are
Health Care Costs
Skyrocketing?
Federal Regulation
Changes in Pricing
Advances in Medicine
Malpractice Insurance
Labor Costs
Over Utilization of Facilities
Elder Care
Transplants/AIDS/Other
Health Care Costs in Various Countries
13-28
Essential Health Benefits Under
The Affordable Care Act
http://www.forbes.com/sites/investopedia/2013/10/1
1/essential-health-benefits-under-the-affordablecare-act/
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Sticker shock often follows insurance cancellation
• http://money.msn.com/businessnews/article.aspx?feed=AP&date=20131102&id=
17064818
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30 of 34
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Healthcare Cost 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)


Is a group of physicians establish an organization that
guarantees lower healthcare costs to the employer.
Allows employees to select their doctor of choice from
a list of participating physicians.
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Going Abroad for Medical Procedures
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33 of 34
36
Optional Benefits Programs:
Paid Time Off
•
•
•
•
•
•
•
•
•
•
Vacation
Holidays
Sick Leave
Personal Days
Floating Holidays
Jury Duty
Funerals
Military Duty
Time Off to Vote
Sabbaticals
• Paid Time Off (PTO)
Bank
– Most flexible approach
– Employer pools personal
days, sick days, and
vacation days for
employees to use as the
need arises
13-34
Federally Recognized Holidays in the U.S.
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35 of 34
36
U.S. and Japanese Workers Take
Short Vacations
• On average, workers in
the United States take
11 of their 13 vacation
days.
• Japanese workers , on
average, receive 15
vacation days but only
take 7.
13-36
Karōshi
Karōshi (過労死)
“death from overwork“
Enters OED in 2002! Tetsu Uehata
occupational sudden death
Major medical causes of Karōshi are heart attack & stroke
First case of Karōshi in 1969 death from a stroke of a 29-year-old
married male worker shipping department of Japan’s largest
newspaper company.
Karōshi
1987- Jap Ministry of Labour began statistical
recording of deaths
Japan's rise from the devastation of WWII to economic prominence
regarded as “trigger” for this epidemic
Employees cannot work for up to twelve hours a day six or seven
days a week continuously without suffering physically as well as
mentally.
Japanese worker has approximately two hours overtime a day on
average, mostly always unpaid
The Ministry of Labour compensates for 20 to 60 deaths each year,
but critics suggest the real figure is nearer 10,000.
143 deaths in 2001 – all time high
Commuter Hell
Cause of Karoshi not just
working hours
Commuting very stressful
One-way commute of 1 hour
not unusual
Housing market means 3 hours round-trip is common
250 workdays/year = 750 hrs/year on trains!
Usually 7:00pm before earliest leavers get home
Other Major Discretionary Benefits
• Life Insurance
• Long-Term Care Insurance
• Retirement Programs

Preretirement and Phased Retirement Programs
• Pension Plans



401(k) Savings Plans
Cash Balance Pension Plans
Federal Regulation of Plans
• Domestic Partner Benefits
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40 of 34
36
Types of Pension Plans
• Contributory plan
– Contributions to a plan
are made jointly by
employees and
employers.
• Defined-benefit plan
– The amount an
employee is to receive
upon retirement is
specifically set forth.
• Noncontributory plan
– Contributions to a plan
are made solely by
the employer.
• Defined-contribution
plan
– The basis (amount) an
employer contributes
to the pension fund is
specified.
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41 of 34
36
Defined Benefit Plan
Amount is Specifically Defined
Years of Service Required
Average Earnings During Certain
Years
Age at Retirement
“Example: Average Annual
Salary of Last 3-5 years x
number of years of service”
Defined Contribution Plan
Basis Upon Which the
Employer Pays
Paid to Thrift Plan, IRA, etc.
Benefits Depends Upon
Accumulation
Pension Funds
Privately Managed
$3 Trillion in Assets
Invested in Stocks and
Bonds
Types of Pension Plans
• 401(k) Savings Plans
– A tax-deferred
savings plan.
– Employees save
through payroll
deductions.
– Employers may
match a portion of
employee savings.
(cont.)
• Cash-Balance Pension
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.
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36
Value of Retirement Savings
Invested at Different Ages
13-46
Increasing Savings Plan Participation
• Use the status quo bias for the default option
– Default 1; employee has to take steps to enroll in program
at firm because the default position is that they are not
enrolled in savings plan
– Default 2; employee has to take steps to unenroll in
program at firm because the default position is that they
are enrolled in savings plan (automatic enrollment)
• Provide limited choices (more choice is not better)
– We choose not to choose even when it goes against our
self-interest.
– Iyengar and 401k plans (a negative correlation between
the number of funds and the plan participation rate)
13-47
Organ Donation Consent Rates by Country
13-48
A Way to Decrease Savings
Plan Participation
• An unscrupulous company may give lots of
choices to employees in the hopes that
employee 401(k) participation rates will fall
and therefore the company will not have to
match employee contributions (up to a certain
limit, e.g., 3.7).
• How Much Choice is Too Much?:
Contributions to 401(k) Retirement Plans
13-49
High
Low
Adaptiveness/well Being
An Inverted-U Shaped Function
Low
High
Pessimistic
13-50
Vesting
A guarantee or accrued benefits to
participants at retirement age,
regardless of their employment status
at that time.
Vesting
Guarantee of Benefits
Paid at Retirement
Regardless of Last
Employment
Non-revokable by Employer
Vested After XX Years
Complex Rules (ERISA)
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.
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Vesting Provisions (General Plans)
General Provisions
1. 5-Year Vesting: An employee must receive
nonforfeitable rights after five years of
service to all accrued benefits derived from
employer contributions.
2. 3- to 7-Year Vesting: An employee must
receive nonforfeitable rights after three
years of service to 20 percent of accrued
benefits derived from employer
contributions. Nonforfeitable rights
increase 20 percent each year until the
employee is 100 percent vested in the
employer-derived accrued benefits after 7
years of service.
Federal Regulation of Pension Plans (cont.)
• Pension Plans and Underfunding

Inadequate funds to cover retirement
obligations along with pension plan failures
could overwhelm the Pension Benefit
Guarantee Corporation (PBGC).
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2012Cengage
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55 of 34
36
Asking Older Employees About
Retirement Plans—Danger or Diligence?
• Can you ask older employees about their retirement
plans? Yes, if you are careful. But push too hard and
it starts to look like age discrimination.
• If an employer has a legitimate reason, like workforce
planning or succession planning, it’s not a violation of
the ADEA to ask an employee about his or her
retirement plans. However, if the person asking the
question does not tread carefully, there can be legal
quicksand.
• If the employee says “No, I have no retirement plans,”
that’s the end of the conversation. If you continue to
press, you’re starting to move over the line toward age
discrimination and harassment.
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May not
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part, except
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2012Cengage
Cengage
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May
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part,
for use as
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56 of 34
36
Work-Life Balance and Other Benefits
• 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.
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57 of 34
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Percentage of Employees with Various
Levels of Child Care Benefits
13-58
Optional Benefits Programs:
Other Quality of Work-Life Benefits
• Subsidized cafeterias
• On-site health care
services
• Moving and relocation
expenses
• Employee discounts on
products
• Employee buying
service
• Tuition reimbursement
• On-site fitness center
• On-site dry cleaning
services
• Dues for professional
organizations
• Off-site company
recreation area
• Pet services
13-59
Work-Family Benefits
• 100 Best Companies to Work For
• The most dramatic policy changes over the last
decade among companies on Fortune's “100 Best
Companies to Work For” list concern improved
work-family benefits:
•72 offer job sharing programs today,
compared with only 18 a decade ago.
•79 now offer compressed work weeks on a
year-round, regular basis, compared with 25
companies 10 years ago.
•82 provide telecommuting opportunities
today, compared with only 18 a decade earlier.
• The Top 25 Companies for Work-Life Balance

Nokia
• Yahoo CEO Marissa Mayer Bans Working From Home
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2012Cengage
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60 of 34
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•
•
•
•
Singlism and Work-Family
Balance
The stereotyping, stigmatizing, and
discrimination against people who are
single
There are more than 1,000 federal
laws that benefit or protect only those
people who are legally married—that’s
discrimination
Singlism: What It Is, Why It Matters,
and How to Stop It by Bella DePaulo
Related to work-life balance
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61 of 34
36
Jack Welch (Neutron Jack)
on Work-Life Balance*
• “There’s no such thing as work-life balance,” Mr.
Welch [said]. “There are work-life choices, and
you make them, and they have consequences.”
• Mr. Welch said those who take time off for family
could be passed over for promotions if … “you’re
not there in the clutch.”
• Denying that there is a possibility for a “work-life
balance” is a bummer for the entire human race.
• What say you?
*a 2009 speech at the national conference of the Society for Human Resource Management
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62 of 34
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Flexible Work Hours
• Flexible Work Hours at Kellogg Cereal
Company
13-63
Other Benefits??
• Pet Friendly Workplaces
• Medical Marijuana Friendly Workplaces
13-64
Other Benefits
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Learning.
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65 of 34
36
Communicating Benefits to Employees
• Organizations must communicate benefits
information to employees so that they will
appreciate the value of their benefits.
• This is essential so that benefits can achieve
their objective of attracting, motivating, and
retaining employees.
• Employees are interested in their benefits,
and they need a great deal of detailed
information to take advantage of benefits.
13-66
Silver Handshake
An early-retirement incentive in the
form of increased pension benefits for
several years or a cash bonus.
Summary
• Like pay, benefits help employers attract, retain, and
motivate employees. The variety of possible benefits
also helps employers tailor their compensation
packages to attract the right kinds of employees.
• Employees expect at least a minimum level of
benefits, and providing more than the minimum
helps an organization compete in the labor market.
• Benefits are also a significant expense, but employers
provide benefits because employees value them and
many benefits are required by law.
13-68
Summary (continued)
• Employers must contribute to the Old Age, Survivors,
Disability, and Health Insurance program known as
Social Security through a payroll tax shared by
employers and employees.
• Employers must also pay federal and state taxes for
unemployment insurance.
• State laws require that employers purchase workers’
compensation insurance.
• The major categories of paid leave are vacations,
holidays, and sick leave.
13-69
Summary (continued)
• Medical insurance is one of the most valued
employee benefits.
• To manage the costs of health insurance, many
organizations offer coverage through a health
maintenance organization or preferred provider
organization, or they may offer flexible spending
accounts.
• Retirement plans may be contributory or
noncontributory. These plans may be defined benefit
plans or defined contribution plans.
13-70
Summary (continued)
• Employers have responded to work-family role
conflicts by offering family-friendly benefits.
• In deciding the contents of a benefits package,
organizations need to establish objectives and select
benefits that support those objectives.
• Organizations should also consider employees’
expectations and values.
• Employers must comply with the numerous laws and
regulations affecting how they design and administer
benefits programs.
13-71
Summary (continued)
• Communicating information about benefits is
important so that employees will appreciate the
value of their benefits.
• Communicating their value is the main way benefits
attract, motivate, and retain employees.
13-72