Human Resource
Management
1
ELEVENTH EDITION
GARY DESSLER
Part 4 | Compensation
Chapter 13
Benefits and Services
© 2008 Prentice Hall, Inc.
All rights reserved.
PowerPoint Presentation by Charlie Cook
The University of West Alabama
After studying this chapter, you should be able to:
1. Name and define each of the main pay for time not
worked benefits.
2. Describe each of the main insurance benefits.
3. Discuss the main retirement benefits.
4. Outline the main employees’ services benefits.
5. Explain the main flexible benefit programs.
© 2008 Prentice Hall, Inc. All rights reserved.
13–2
Benefits
Types of Employee
Benefits
Supplemental
Pay
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Insurance
Benefits
Retirement
Benefits
Employee
Services
13–3
FIGURE 13–1
Annual Health Care Cost Increases—National Averages
Sources: Eric Parmenter, “Controlling Health Care Costs,” Compensation and Benefits Review, September/October 2002, p. 44; Leah Carlson, “Health Care Cost
Increases Easing,” Employee Benefit News, Oct. 1, 2004, Item 04274002; Trevor Thomas, “Studies Hint at Slowing Health Care Cost Increases,” National
Underwriter Life & Health, Oct. 24, 2005, vol. 109, p. 8; “Health Care Cost Increases Expected to Slow in 2006,” Managing Benefits Plans, April 2006, p. 9.
© 2008 Prentice Hall, Inc. All rights reserved.
13–4
FIGURE 13–2
Private-Sector Employer Compensation Costs, December 2006
Source: “Employer Costs for Employer Compensation—December 2006,” Bureau of Labor Statistics,
Washington D.C. 20212, www.bls.gov/news.release/pdf/ecec.pdf. Accessed May 21, 2007.
© 2008 Prentice Hall, Inc. All rights reserved.
13–5
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
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13–6
TABLE 13–1
Mandated and Discretionary Benefits
Benefits Required by Federal
or Most State Law
Benefits Discretionary
on Part of Employer*
Social Security
Disability, Health, and Life Insurance
Unemployment Insurance
Pensions
Workers’ Compensation
Paid Time Off for Vacations, Holidays, Sick
Leave, Personal Leave, Jury Duty, etc.
Leaves under the Family Medical
Leave Act
Employee Assistance and Counseling
Programs
“Family Friendly” benefits for Child Care,
Elder Care, Flexible Work Schedules, etc.
Executive Perquisites
* While not required under federal law, all these benefits are regulated
in some way by federal law, as explained in this chapter.
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13–7
Pay For Time Not Worked
Vacations and
Holidays
Unemployment
Insurance
Sick
Leave
Severance
Pay
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Supplementa
l Pay
Benefits
Parental
Leave
Supplemental
Unemployment
Benefits
13–8
Pay for Time Not Worked
• Unemployment Insurance
 Provides for benefits if a person is unable to work
through no fault of his or her own.
 Is an employer payroll tax that is determined by an
employer’s rate of personnel terminations.
 Tax is collected and administered by the state.
• Vacations and Holidays
 Number of paid vacation days varies by employer.
 Number of holidays varies by employer.
 Premium pay for work on holidays.
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13–9
TABLE 13–2
An Unemployment Insurance Cost-Control To-Do Checklist
Cause—Do You:
1. Keep documented history of lateness, absence, and warning notices
2. Warn chronically late employees before discharging them
3. Have policy that three days’ absence without calling in is reason for automatic discharge
4. Request doctor’s note on return to work after absence
5. Make written approval for personal leave mandatory
6. Stipulate date for return to work from leave
7. Obtain a signed resignation statement
8. Mail job abandonment letter if employee fails to return on time
9. Require new employees to stipulate in writing their availability to work overtime, night shifts, etc.
10. Set probationary periods to evaluate new employees
11. Conduct follow-up interviews one to two months after hire
12. Document all instances of poor performance, recording when and how employees did not meet job requirements
13. Require supervisors to document the steps taken to remedy the situation
14. Require supervisors to document employee’s refusal of advice and direction
15. Make sure all policies and rules of conduct are understood by all employees
16. Require all employees to sign a statement acknowledging acceptance of firm’s policies and rules
17. File the protest against a former employee’s unemployment claim on time (usually within 10 days)
18. Use proper terminology on claim form and attach documented evidence regarding separation
19. Attend hearings and appeal unwarranted claims
20. Check every claim against the individual’s personnel file
21. Routinely conduct exit interviews to produce information for protesting unemployment claims
22. Hold periodic workshops with supervisors to review procedures and support effort to reduce turnover costs
23. Identify turnover problems as they occur by
a. location
b. department
c. classification of employee
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13–10
Pay for Time Not Worked (cont’d)
• Sick Leave
 Provides pay to an employee when he or she is out
of work because of illness.

Costs for misuse of sick leave

Pooled paid leave plans
• Parental Leave
 The Family Medical Leave Act of 1993 (FMLA)

Up to 12 weeks of unpaid leave within a one-year period.

Employees must take unused paid leave first.

Employees on leave retain their health benefits.

Employees have right to return to job or equivalent position.
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13–11
Pay for Time Not Worked (cont’d)
• Severance Pay
 A one-time payment when terminating an employee.
 Reasons for granting severance pay:

Acts as a humanitarian gesture and good public relations.

Mirrors employee’s two week quit notice.

Avoids litigation from disgruntled former employees.

Meets Worker Adjustment and Retraining Notification (“plant
closing”) Act requirements.

Reassures employees who stay on after the employer
downsizes its workforce of employer’s good intentions.
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13–12
Pay for Time Not Worked (cont’d)
• Supplemental Unemployment Benefits (SUB)
 Payments that supplement the laid-off or furloughed
employee’s unemployment compensation.

The employer makes contributions to a reserve fund from
which SUB payments are made to employees for the time
the employee is out of work due to layoffs, reduced
workweeks, or relocations.

SUB payments are considered previously earned
compensation for unemployment calculation purposes.
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13–13
FIGURE 13–3
Your Rights
Under the
Family and
Medical Leave
Act of 1993
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13–14
FIGURE 13–4
University
Family Illness
Leave Request
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13–15
Insurance Benefits
• Workers’ Compensation
 Provides income and medical benefits to work-
related accident victims or their dependents,
regardless of fault.
Death or disability: a cash benefit based on earnings per
week of employment.
 Specific loss injuries: statutory list of losses.

 Controlling workers’ compensation costs
Screen out accident-prone workers.
 Make the workplace safer.
 Thoroughly investigate accident claims.
 Use case management to return injured employees to work
as soon as possible.

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13–16
Insurance Benefits (cont’d)
• Hospitalization, Health, and Disability Insurance
 Provide for loss of income protection and group-rate
coverage of basic and major medical expenses for
off-the-job accidents and illnesses.
 Accidental
 Disability
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death and dismemberment
insurance
13–17
FIGURE 13–5
Access to and
Participation by
Workers for
Selected Benefits,
Private Industry,
March 2006
Note: The access rate
represents the percent
of employees offered
the benefit and the
participation rate
represents the percent
of employees that
receive the benefit.
Source: “National Compensation Survey: Employee Benefits in Private Industry in the United
States, March 2006,” U.S. Department of Labor, U.S. Bureau of Labor Statistics, August 2006.
© 2008 Prentice Hall, Inc. All rights reserved.
13–18
Insurance Benefits (cont’d)
• Health Maintenance Organization (HMO)
 A medical organization consisting of specialists
operating out of a health care center.
 Provides
routine medical services to employees
who pay a nominal fee.
 Receives
a fixed annual contract fee per
employee from the employer (or employer and
employee), regardless of whether it provides that
person with service.
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13–19
Insurance Benefits (cont’d)
• Preferred Provider Organizations (PPOs)
 Groups of health care providers that contract to
provide services at reduced fees.
 Employees
can select from a list of preferred
individual health providers.
 Providers
agree to discount services and to
submit to utilization controls.
 Employees
using non-PPO-listed providers may
pay all costs or only costs above the reduced fee
structure for services.
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13–20
Trends in Health Care Cost Controls
Cost-Control
Trends
Communication,
Involvement, and
Empowerment
Premiums and
Co-Pays
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Prevention
Programs
Health Savings
Accounts
Claim
Audits
13–21
Other Cost-Control Options
Automating health care
plan administration
Defined contribution
health care plans
Controlling Health
Care Costs
Outsourcing health care
plan administration
Eliminating retiree
health care coverage
Benefits purchasing
alliances
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13–22
Insurance Benefits (cont’d)
• Laws Influencing Health Care Benefits Issues
 Retirement and Pension Plans

Employee Retirement Income Security Act of 1974 (ERISA)
 Mental Health Benefits

Mental Health Parity Act of 1996
 Family Leave
Family Medical Leave Act
 The Newborn Mother’s Protection Act of 1996

 Health Insurance
COBRA requirements
 Health Insurance Portability and Accountability Act of 1996
(HIPAA)

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13–23
FIGURE 13–6
COBRA RecordKeeping
Compliance
Checklist
Source: Reprinted from www.HR.BLR.com with
permission of the publisher Business and Legal
Reports, Inc., 141 Mill Rock Road East, Old
Saybrook, CT © 2004.
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13–24
Other Benefits Issues
• Life Insurance
 Types
Group life insurance
 Accidental death and dismemberment

 Personnel policies
Benefits-paid schedule
 Supplemental benefits
 Financing

• Benefits for Part-Time and Contingent Workers
 Leave and health benefits are now more commonly
available to part-time workers.
 Benefits for long-term independent contractors.
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13–25
Retirement Benefits
• Social Security (Federal Old Age and Survivor’s
Insurance)
 A federal payroll tax (7.65%) paid by both the
employee and the employer on the employee’s
wages

Retirement benefits at the age of 62

Survivor’s or death benefits paid to the employee’s
dependents

Disability payments to disabled employees and their
dependents
 The Medicare program
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13–26
Retirement Benefits (cont’d)
Policy Issues In
Pension Planning
Membership
Requirements
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Benefit
Formula
Plan
Funding
Vesting
13–27
Retirement Benefits (cont’d)
Defined Benefits Plans
Defined Contribution Plans
Types of Pension
Plans
Qualified Plans
Nonqualified Plans
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13–28
Retirement Benefits (cont’d)
Types of Defined
Contribution
Plans
401(k)
Plans
Savings and
Thrift Plans
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Deferred
Profit-Sharing
Plans
Employee
Stock
Ownership
Plans
(ESOPs)
Cash Balance
Pension Plans
13–29
Retirement Benefits (cont’d)
• Employee Retirement Income Security Act
(ERISA) of 1974
 Established guidelines for “qualified” pension plans.
 Requires fiduciary responsibility.
• Pension Benefits Guarantee Corporation
(PBGC)
 Insures plans that terminate without sufficient funds
to meet obligations.
 Guarantees only defined benefit plans.
 Pays individual pensions up to $49,000 per year.
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13–30
Retirement Benefits (cont’d)
• Employees’ Vesting Rights under ERISA
 Cliff vesting

Gives participants full right to the employer’s matching
contribution after three years of service.
 Graded vesting

Gives participants an increasing right to the employer’s
matching contribution over a six year schedule of 20% after
two years of service and 20% for each succeeding year
thereafter.
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13–31
Retirement Benefits (cont’d)
• Early Retirement Windows
 Specific employees (often age 50-plus) are offered
an incentive to voluntarily retire earlier than usual.
 The incentive is a combination of improved or
liberalized pension benefits plus a cash payment.
• Older Workers’ Benefit Protection Act (OWBPA)
 Imposes limitations on waivers that purport to
release a terminating employee’s potential claims
against the employer based on age discrimination.
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13–32
Personal Services
• Credit Unions
 Separate businesses established with the
employer’s assistance to help employees with their
borrowing and saving needs.
• Employee Assistance Programs (EAPs)
 Provide counseling and advisory services:

Personal legal and financial services

Child and elder care referrals

Adoption assistance

Mental health counseling

Life event planning
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13–33
Personal Services (cont’d)
Steps for Launching an EAP Program
1
Develop a policy statement.
2
Ensure professional staffing.
3
Maintain confidential record-keeping systems.
4
Be aware of legal issues.
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13–34
Family-Friendly Benefits
•
•
•
•
•
•
•
•
•
Subsidized child care
Sick child benefits
Elder care
Time off
Subsidized employee transportation
Food services
Educational subsidies
Fitness and medical facilities
Flexible work scheduling
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13–35
FIGURE 13–7
Sample Survey
of Employee
Needs
Source: Michelle Buckley, “Checkup
for Health Benefit Offerings,”
Compensation and Benefits Review,
September/October 2000, p. 43.
Reprinted by permission of Sage
Publications, Inc.
© 2008 Prentice Hall, Inc. All rights reserved.
13–36
Flexible Benefits Programs
• Cafeteria (Flexible Benefits) Approach
 Each employee is given a limited benefits fund
budget to spend on preferred benefits.
 Types of plans
Flexible spending accounts
 Core plus option plans

• Flexible Work Arrangements
 Flextime schedules
 Compressed workweek schedules
 Job sharing
 Work sharing
 Telecommuting
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13–37
KEY TERMS
benefits
supplemental pay benefits
unemployment insurance
sick leave
severance pay
supplemental unemployment benefits
workers’ compensation
case management
health maintenance organization (HMO)
preferred provider organizations (PPOs)
group life insurance
Social Security
pension plans
defined benefit pension plan
defined contribution pension plan
portability
401(k) plan
© 2008 Prentice Hall, Inc. All rights reserved.
savings and thrift plan
deferred profit-sharing plan
employee stock ownership plan (ESOP)
cash balance plans
Employee Retirement Income Security Act
(ERISA)
Pension Benefits Guarantee Corporation
(PBGC)
vested funds
early retirement window
employee assistance program
family-friendly benefits
flexible benefits plan/cafeteria benefits plan
flextime
compressed work week
job sharing
work sharing
telecommuting
13–38