Employee Benefits
Managing Human Resources
Bohlander • Snell
© 2007 Thomson/South-Western.
All rights reserved.
14th edition
PowerPoint Presentation by Charlie Cook
The University of West Alabama
Objectives
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 benefits that involve payment for time not
worked.
© 2007 Thomson/South-Western. All rights reserved.
11–2
Objectives
(cont’d)
After studying this chapter, you should be able to:
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.
© 2007 Thomson/South-Western. All rights reserved.
11–3
The Chief Objectives of Benefits Programs
• Improve employee work satisfaction
• Meet employee health and security
requirements
• Attract and motivate employees
• Reduce turnover
• Maintain a favorable competitive position
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11–4
Requirements for a Sound Benefits Program
Strategic
Benefits
Planning
Communicating
Employee Benefits
Information
Providing
for
Flexibility
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Allowing for
Employee
Involvement
Benefits for a
Diverse
Workforce
11–5
Providing for Flexibility
• 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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11–6
Figure 11–1
Flexible Benefits Plans: Advantages and Disadvantages
ADVANTAGES
• Employees select benefits to match their individual needs.
• Benefit selections adapt to a constantly changing (diversified)
workforce.
• Employees gain greater understanding of the benefits offered
to them and the costs incurred.
• Employers maximize the psychological value of their benefits
program by paying only for highly desired benefits.
• Employers limit benefit costs by allowing employees to “buy”
benefits only up to a maximum (defined) amount.
• Employers gain competitive advantage in the recruiting and
retention of employees.
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11–7
Figure 11–1
Flexible Benefits Plans: Advantages and Disadvantages (cont’d)
DISADVANTAGES
• Poor employee benefits selection results in unwanted financial
costs.
• 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.
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11–8
Communicating Benefits Information
• In-house publications (employee handbooks and
organizational newsletters)
• Group meeting and training classes
• Audiocassettes/videotapes
• Bulletin boards
• Payroll inserts/pay stub messages
• Specialty brochures
• Employee self-service systems (ESS)
© 2007 Thomson/South-Western. All rights reserved.
11–9
Highlights in HRM 1
Crafting an Effective Benefits Communication Program
In building an identity:
• Design materials that are eye-catching and of high interest to employees.
• Develop a graphic logo for all material.
• Identify a theme for the benefits program.
In writing benefits materials:
• Avoid complex language when describing benefits. Clear, concise, and
understandable language is a must.
• Provide numerous examples to illustrate benefit specifics.
• Explain all benefits in an open and honest manner. Do not attempt to conceal
unpleasant news.
• Explain the purpose behind the benefit and the value of the benefit to employees.
In publicizing benefits information:
• Use all popular employee communication techniques.
• Maintain employee self-service (ESS) technology to disseminate benefits
information and to update employee benefits selections.
• Use voice mail to send benefits information.
• Employ presentation software such as PowerPoint or Lotus Freelance to present
information to groups of employees.
• Maintain a benefits hotline to answer employee questions.
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11–10
Highlights in HRM 2
A Personalized
Statement of
Benefits Costs
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11–11
Benefits Issues
Concerns of Management
Union demands for additional benefits
Benefits offered by other employees
Tax consequences of benefits
Rising costs of providing benefits
Benefits coverage for domestic partners
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11–12
The High Cost of Providing Benefits
• According to a 2003 U.S. Chamber of Commerce study,
the cost of employee benefits in that year averaged 42.3
percent of payroll.
• The average distribution of these benefits was $18,000
per employee per year.
• The current trend is for employers to require employees
to pay part of the costs of certain benefits (for example,
through copayments or higher deductibles), especially
medical coverage.
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11–13
Domestic Partner Benefits
• Domestic Partner (Apple Computer)
 A person over age 18 who shares living quarters with another
adult in an exclusive, committed relationship in which the
partners are responsible for each other’s common welfare.
• A standard definition of domestic partnership contains
the following:
A minimum age requirement
A requirement that the couple live together
A specification of financial interdependence
A requirement that the relationship be a permanent one
A requirement that each not be a blood relative
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11–14
Types of Employee Benefits
Required By Law
Discretionary
Social Security
Health care
Unemployment Insurance
Payment for time not worked
Workers’ Compensation
Supplemental
Unemployment Benefits
Unpaid leave (FMLA)
Life and LT care insurance
Retirements and pensions
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11–15
Types of Employee Benefits
• Benefits Required by Law
 Social Security
 Unemployment insurance
 Workers’ compensation insurance
• Payment for time not worked
 Holidays
 Vacations
 Sick leave
 Jury duty, military service, and bereavement leaves
 Severance pay
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11–16
Types of Employee Benefits (cont’d)
• Supplemental Unemployment Benefits (SUB)
• Insurance
 Group life
 Long-term care
 Health care
 Dental
 Legal
• Retirement Benefits
 Pre-retirement counseling
 Pension plans
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11–17
Social Security Insurance
Social Security Act (1935)
A payroll tax on both employees and employers
Old Age and Survivors Insurance (OASI)
Provides long-term disability benefits
Must work 40 quarters in an occupation
covered by Act to qualify for benefits
Benefits paid are determined by an
individual’s life-time earnings
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11–18
Unemployment Insurance
• Federal payroll tax on employer and employee
 Tax is refunded to states which individually administer
unemployment compensation programs.
• Unemployment benefits vary from state to state.
 Involuntarily unemployed workers are eligible for up to
26 weeks of unemployment benefits.
 Benefit is based on an employee’s recent earnings.
 Unemployed workers are required to seek “suitable
employment.”
© 2007 Thomson/South-Western. All rights reserved.
11–19
Workers’ Compensation Insurance
• Workers’ Compensation Insurance
 Federal- or state-mandated insurance (funded by an
employer payroll tax) provided to workers to defray
the loss of income and cost of treatment due to workrelated injuries or illness.
 Factors influencing the employer’s insurance rate:

The risk of injury or illness for an occupation

Each state’s level of benefits for injuries sustained by
employees varies.

The company’s frequency and severity of employee
injuries (the company’s experience rating).
© 2007 Thomson/South-Western. All rights reserved.
11–20
Workers’ Compensation Insurance
Injury is a cost of doing business
Covers Employers
Covers Employees
Assumed employment risk
Cost of injury
Negligent co-workers
Temporary, Permanent,
Partial or Total Disability
Contributory negligence
Survivor’s Insurance
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11–21
Figure 11–2
Reducing Workers’ Compensation Costs: Key Areas
1. Perform an audit to assess high-risk areas within a
workplace.
2. Prevent injuries by proper ergonomic design of the job and
effective assessment of job candidates.
3. Provide quality medical care to injured employees by
physicians with experience and preferably with training in
occupational health.
4. Reduce litigation by effective communication between the
employer and the injured worker.
5. Manage the care of an injured worker from the injury until
return to work.
6. Keep a partially recovered employee at the work site.
7. Provide extensive worker training in all related health and
safety areas.
© 2007 Thomson/South-Western. All rights reserved.
11–22
Consolidated Omnibus Budget
Reconciliation Act (COBRA)
• 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.
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11–23
The Family and Medical Leave Act (FMLA)
• 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 (spouse, child,
or parent) with a serious medical condition.
 Serious health condition of the employee.
• Employees on leave retain their benefits and the
right to return to their job or an “equivalent job.”
© 2007 Thomson/South-Western. All rights reserved.
11–24
Highlights in HRM 4
“Your Right”:
Another Federally
Required Poster
Note: Other federally required posters are
reproduced in Chapters 2, 5, 9, and 12.
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11–25
The Older Workers Benefit Protection Act
• Older Workers Benefit Protection Act (OWBPA)
of 1990
 Prohibits age-based discrimination in early retirement
and other benefit plans by imposing strict guidelines
on employers who seek to have employees sign
release forms waiving their right to pursue age
discrimination claims under the ADEA.
 Requires that a valid waiver must be voluntary and
written in a manner that is understandable to the
parties involved.
 Employees have the right to consult with an attorney
before signing the waiver.
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11–26
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)
 Physicians who establish an organization that
guarantees lower healthcare costs to the employer.
 PPOs allow employees to select from a list of
physicians (participating doctors) their doctor of
choice.
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11–27
Healthcare Cost Containment (cont’d)
• Consumer-Driven Health Plan (CDHP)
 A high-deductible insurance medical insurance plan,
financed by employer contributions to an employee’s
limited individual healthcare spending account
 Also known as:
Defined-contribution health plans
 Medical savings accounts (MSAs)
 Health savings accounts (HSAs)
 Flexible spending accounts (FSAs)
 Health reimbursement accounts (HRAs).

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11–28
Highlights in HRM 5
Employers Methods for Containing Healthcare Costs
• Pre-admission certification for surgical procedures.
• Financial incentives for outpatient surgery and testing.
• Mail-order prescription drug program and medical drug discount cards.
• Mandatory second opinions for surgical procedures.
• Alternative approaches to healthcare treatment such as herbal therapy or homeopathy.
• Educational programs encouraging healthcare consumers to assume more responsibility and accountability for
the cost and quality of their healthcare.
• Promoting web sites or printed materials that list common conditions, treatment, drug prices, and effectiveness.
• Implementation of step therapy programs.
• Multi-tier hospital coverage networks that allow employees to choose from a variety of hospitals with small,
moderate, and steep copayments at the point of service.
• Use of variable copayments (for example, $10 for physician and $25 for specialists).
• The consolidation of healthcare plans offered by employers.
• Requiring employees to pay an additional cost if a working spouse refuses coverage from his or her employer.
• Customized healthcare benefits design allowing employees to purchase riders to increase the level of benefits
provided.
• Promotion of wellness and employee assistance programs.
• Automated benefits functions.
• Promoting quality, patient safety, and positive outcomes in health plans by using a variety of health plan
assessment tools such as the Joint Commission on Accreditation of Healthcare Organizations.
• Implementation of a disease management program.
A survey of methods used by employers to control healthcare costs can be found in “Despite Rising
Health-Care Costs, Few Companies Have Cut Benefits,” HRFocus 81, no. 9 (September 2004): 3–5.
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11–29
Payment for Time Not Worked
Vacations with pay
Severance pay
Time Not
Worked
Paid holidays
Sick leave
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11–30
Other Discretionary Benefits
• Supplemental Unemployment Benefits (SUBs)
 A plan that enables an employee who is laid off to
draw, in addition to unemployment compensation,
weekly benefits from the employer that are paid from
a fund created for this purpose.
 SUB benefits are considered deferred compensation
and not current earnings.
 The fund is derived from employer contributions
based on the total hours of work performed by
employees.
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11–31
Figure 11–3
Trends Affecting Retirement
• The number of people age 65 and older tripled to about 34 million
between 1940 and 1995.
• According to U.S. census projections, people age 65 and older are
expected to number 86 million by 2050, an increase of 51 million
since 2000.
• In 1960, 45.4 percent of male workers over age 65 were still in the
labor force; in 1990, only 27.4 percent were still working. While the
labor force participation rates of women between ages 55 and 64
have been rising, further increases are not expected.
• Eight baby boomers turn 50 every ten minutes.
• The U.S. net national savings rate was relatively stable at about 7
percent of GDP from 1951 to 1980. It has collapsed since 1980, most
recently dropping to less than 1 percent of GDP.
• In 1990, the average life expectancy in the U.S. was 48; today, it is 80
for women and 75 for men.
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11–32
Retirement Programs
• Silver Handshake
 An early-retirement incentive in the form of increased
pension benefits for several years or a cash bonus.
• Preretirement Programs
 Counseling
 Seminars
 Workshops
 Retirement tryouts
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11–33
Types of Pension Plans
• Contributory plan
 Contributions to a plan
are made jointly by
employees and
employers.
• Noncontributory plan
 Contributions to a plan
are made solely by the
employer.
© 2007 Thomson/South-Western. All rights reserved.
• Defined-benefit plan
 The amount an
employee is to receive
upon retirement is
specifically set forth.
• Defined-contribution
plan
 The basis (amount) an
employer contributes
to the pension fund is
specified.
11–34
Contemporary Pension Plan Options
• 401(k) Savings
Plans
 A tax-deferred
savings plan.
 Employees save
through payroll
deductions.
 Employers may
match a portion of
employee savings.
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• Cash-Balance Savings
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.
11–35
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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11–36
Federal Regulation of Pension Plans
• Vesting
 A guarantee of accrued benefits to participants at
retirement age, regardless of their employment status
at that time.
 ERISA requires that plans must provide that
employees will have vested rights in their accrued
benefits after certain minimum-years-of-service
requirements have been met.
• Pension Plans and Underfunding
 Inadequate funds to cover retirement obligations
along with pension plan failures could overwhelm the
PBGC.
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11–37
Employee Services: Creating a Work/Life
Setting
• 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.
© 2007 Thomson/South-Western. All rights reserved.
11–38
Figure 11–4
Work/Life Benefits: Balancing Work and Home Needs
• Child care/elder care referral services
• Time off for children’s school activities
• Employer-paid onsite or near-site child care facilities
• Flexible work hours scheduling
• Employer-accumulated leave days for dependent care
• Customized training programs
• Subsidized temporary or emergency dependent-care costs
• Extended leave policies for child/elder care
• Sick-child programs (caregiver on call)
• Work-at-home arrangements/telecommuting
• Partial funding of child care costs
• Customized career paths
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11–39
Other Benefits and Services
Awards
Recreational and
Social
Food Services
On-Site Health
Services
Credit Unions
Legal Services
Purchasing
Assistance
Transportation
Pooling
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Financial
Planning
Housing and
Moving
11–40
Key Terms
• consumer-driven health
plan
• contributory plan
• defined-benefit plan
• defined-contribution plan
• elder care
• employee assistance
programs (EAPs)
• flexible benefits plans
(cafeteria plans)
• health maintenance
organizations (HMOs)
© 2007 Thomson/South-Western. All rights reserved.
• noncontributory plan
• preferred provider
organization (PPO)
• silver handshake
• supplemental
unemployment benefits
(SUBs)
• vesting
• workers’ compensation
insurance
11–41