This document discusses employee benefits and reasons for their growth. It covers how wage/price controls during wars, union demands, employer initiatives to improve productivity/retention, tax advantages, and government mandates all contributed to the growth of benefits. Common benefits include health insurance, paid time off, retirement plans, and more. The document also examines administrative issues around determining eligibility, providing choices/flexibility, and financing options.
This document discusses employee benefits and reasons for their growth. It covers how wage/price controls during wars, union demands, employer initiatives to improve productivity/retention, tax advantages, and government mandates all contributed to the growth of benefits. Common benefits include health insurance, paid time off, retirement plans, and more. The document also examines administrative issues around determining eligibility, providing choices/flexibility, and financing options.
This document discusses employee benefits and reasons for their growth. It covers how wage/price controls during wars, union demands, employer initiatives to improve productivity/retention, tax advantages, and government mandates all contributed to the growth of benefits. Common benefits include health insurance, paid time off, retirement plans, and more. The document also examines administrative issues around determining eligibility, providing choices/flexibility, and financing options.
This document discusses employee benefits and reasons for their growth. It covers how wage/price controls during wars, union demands, employer initiatives to improve productivity/retention, tax advantages, and government mandates all contributed to the growth of benefits. Common benefits include health insurance, paid time off, retirement plans, and more. The document also examines administrative issues around determining eligibility, providing choices/flexibility, and financing options.
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Employee Benefit and Services
Growth of Employee Benefits
Prof. Dr. Z. Alam The Value of Employee Benefits Employee benefits, also known as perks or fringe benefits, are provided to employees over and above salaries and wages. These employee benefit packages may include overtime, medical insurance, vacation, profit sharing and retirement benefits, to name just a few Employee Benefits ? • .” Fringe benefits are additional compensation provided to an employee by an employer, such as health insurance, paid time off, or a company car. • These additional on-the-job perks, typically referred to as fringe benefits, are viewed as compensation by an employer but are generally not included in an employee’s taxable income. Benefits perks • , profit sharing, health Insurance Vacation/Paid Time Off Performance Bonuses Paid Sick Days, 401(k), Retirement Plan and/or Pension ,Flexible Schedule Office Perks ,Employee Development Programs ,Tuition Reimbursement, Employee Discounts Gym Membership or Wellness Programs Stock Options and/or Equity A Diversity Program Why are employee benefits important?
• Offering benefits to your employees is important
because it shows them you are invested in not only their overall health, but their future. • An employee benefits package can help to attract and retain talent. • Benefits can help you differentiate your business from competitors. • Employee benefits can improve your company’s bottom line by engaging employees to participate in wellbeing programs, such as Virgin Pulse. • Healthier employees mean reduced healthcare costs for your organization. Employees with fewer health risks experience fewer sick days, fewer trips to the doctor, and spend more time working in your organization, bringing their best selves to work every day. • What is emploee benefits? • Why are employee benefits? Why the Growth in Employee Benefits?
• Wage and price control
• Unions • Employer impetus • Cost effectiveness of benefits • Government impetus. Wage and Price Controls
• During both World War II and the Korean War,
the federal government instituted strict wage and price controls. The compliance agency charged with enforcing these controls was relatively lenient in permitting reasonable increases in benefits. This was the catalyst for growth in pensions, health-care coverage, time off, and the broad spectrum of benefits virtually unthinkable before 1950. Unions
• The wage and price controls has created a
perfect opportunity for unions to flex the muscles they had acquired under the Wagner Act of 1935. With little freedom to raise wages during the war, unions fought for the introduction of new benefits and the improvement of existing benefits. Success on this front during the war years led to further postwar demands. Employer Impetus
• Many of the benefits in existence today were
provided at employer initiative. Much of this initiative can be traced to pragmatic concerns about employee satisfaction and productivity. Savings and profit sharing plans were implemented to improve performance and provide increased security for worker retirement . Many employer-initiated benefits were designed to create a climate in which employees perceived that management was genuinely concerned for their welfare. Cost Effectiveness of Benefits
• Another important and sound impetus for the
growth of employee benefits is their cost effectiveness in two situations. The first cost advantage is that most employee benefits are not taxable. • A second cost-effectiveness component of benefits arises because many group based benefits (e.g., life, health, and legal insurance) can be obtained at a lower rate than could be obtained by employees acting on their own. Government Impetus
• Obviously the government has played an
important role in the growth of employee benefits. Three employee benefits are mandated by either the state or federal government: • workers’ compensation (state), unemployment insurance (federal), and social security (federal). • In addition, most other employee benefits are affected by such laws as the Employee Retirement Income Security Act (ERISA), which affects pension administration, and various sections of the Internal Revenue Code( IRC) .Most recently, the highly controversial Patient Protection and Affordable Care Act signed into law on March 23, 2010, by former President Obama was appeal at the Supreme Court. Review • Wage and price control • Unions • Employer impetus • Cost effectiveness of benefits • Government impetus. Administration Issues • Four major administration issues arise in setting up a benefit package • Who should be protected or benefited ? • How much choice should employees have among an array of benefits ? • How should benefits be financed ? And • Are your benefits legally defensible? • The first issue—who should be covered— ought to be an easy question. The answer is employees , of course. Every organization has a variety of employees with different employment statuses. Should these individuals be treated equally with respect to benefits coverage? Historically companies have provided far fewer benefits for part-time workers. • As a second example, should retired automobile executives be permitted to continue purchasing cars at a discount price, a benefit that could be reserved solely for current employees? In fact, a series of questions need to be answered: 1. What probationary periods (for eligibility of benefits) should be used for various types of benefits? • Is there a rationale for different probationary periods with different benefits? • 2. Which dependents of active employees should be covered ? • 3. Should retirees (as well as their spouses and perhaps other dependents) be covered, and for which benefits? • 4. Should survivors of deceased employees (and/or retirees) be covered? If so, for which benefits? Are benefits for surviving spouses appropriated? be covered? • 5. What coverage, if any, should be extended to employees who are suffering from disabilities? • 6. What coverage, if any, should be extended to employees during layoffs, leaves of absence, strikes, and so forth? • 7. Should coverage be limited to full-time employees? • The second administrative issue concerns choice (flexibility) in plan coverage. In the standard benefit package, employees typically have not been offered a choice among employee benefits. A flexible benefit program are offering greater flexibility and choice. Such plans might provide, for example, (1) optional levels of group term life insurance; (2) the availability of death or disability benefits under pension or profit-sharing plans; (3) choices of covering dependents under group medical expense coverage; and (4) a variety of participation, cash distribution, and investment options under profit-sharing, thrift, and capital accumulation plans. Advantages
• 1. Employees choose packages that best satisfy their unique
needs. • 2. Flexible benefits help firms meet the changing needs of a changing workforce. • 3. Increased involvement of employees and families improves understanding of benefits. • 4. Flexible plans make introduction of new benefits less costly. Any new option is added merely as one among a wide variety of elements from which to choose. • 5. Cost containment: Organization sets dollar maximum; employee chooses within that constraint. Disadvantages
• 1. Employees make bad choices and find themselves
not covered for predictable emergencies. • 2. Administrative burdens and expenses increase. • 3. Adverse selection: Employees pick only benefits they will use; the subsequent high benefit utilization increases its cost. • 4. Flexible benefit plans are subject to nondiscrimination requirements in Section 125 of the Internal Revenue Code. • Another way to increase employee awareness, and probably the biggest trend today in health care, is to offer market-based, or customer-driven , health care. Although there are many variants on consumer-driven health care, here are the basic choices: • Full-Defined Contribution —The employee is responsible for finding and purchasing individual medical coverage. The employer provides funding through either direct compensation or a voucher • Tiered Networks —The employer offers employees a choice of medical plans, which include medical systems of varying costs. • Menu-Driven —Employers provide online information to help employees customize their own benefit plan by selecting co-pays, deductibles, and so forth. • Each of the alternatives creates a motivation for employees to think about what option fits their budget and particular health characteristics. • The third administrative issue involves the question of how to finance benefit plans. Alternatives include: • 1.Noncontributory (Employer pays total costs.) • 2. Contributory (Costs are shared between employer and employee.) • 3. Employee financed (Employee pays total costs for some benefits—by law the organization must bear the cost for certain benefits.) • In general, organizations prefer to make benefit options contributory, reasoning that a “free good,” no matter how valuable, is less valuable to an employee. Furthermore, employees have no personal interest in controlling the cost of a free good. • Managed Competition —The employer provides a subsidized basic medical plan with buy-up options. Plans can be from the same or multiple insurers. • • Health Savings Accounts —A fund is created by the employer, employee, or jointly that is used to pay the first x dollars of health-care expenses. • The answers to these questions depend on the policy decisions regarding adequacy, competition, and cost effectiveness . Benefits Planning and Design Issues
• What do you want—or expect—the role of
benefits to be in your overall compensation package . For example, if a major compensation objective is to attract good employees, we need to ask, “What is the best way to achieve this? The answer is not always, or even frequently, “Let’s add another benefit.” • Consider the situation as the benefits manager. Recently, a casino opened up in the Niagara Falls area. The Seneca Indians own this casino, and they needed to fill thousands of entry-level jobs. The wages for a blackjack dealer were $4 per hour plus tips. The combination of the two exceeds minimum wage, but not by much.. • How do we attract more dealers, and other applicants, given these low wages? One temptation might be to set up a day care center to attract more mothers of preschool children . A more prudent compensation policy would ask the question: “Is day care the most effective way to achieve my compensation objective?” Sure, day care may be popular with working mothers, but can the necessary workers be attracted to the casino using some other compensation tool that better meets needs? • Surveys of this group indicate day care is an extremely important factor in the decision to accept a job.” • As a second example, how do we deal with undesirable turnover? Rich Floersch, Sr. Vice President of HR at McDonald’s, faced this very question. After looking at other alternatives to reduce turnover, Rich decided that the best strategy was to design a benefit package that improved progressively with seniority, thus providing a reward for continuing service. Keep in mind, though, Rich only made this decision after evaluating the effectiveness of other compensation tools (e.g., increasing wages, introducing incentive compensation). • In addition to integrating benefits with other compensation components, the planning process also should include strategies for ensuring external competitiveness and adequacy of benefits . Competitiveness requires an understanding of what other firms in your product and labor markets offer as benefits. Firms conduct benefit surveys much as they conduct salary surveys. , • Benefits Planning and Design Issues – How to attract good employees – How to deal with undesirable turnover – Integrating benefits with other compensation components – Strategies for ensuring external competitiveness – Ensuring that benefits are adequate – Whether employee benefits are cost justified • In addition to integrating benefits with other compensation components, the planning process also should include strategies for ensuring external competitiveness and adequacy of benefits. Competitiveness requires an understanding of what other firms in your product and labor markets offer as benefits. Firms conduct benefit surveys much as they conduct salary surveys. • Most organizations evaluating adequacy consider the financial liability of employees with and without a particular benefit (e.g., employee medical expenses with and without medical expense benefits). More organizations need to consider whether employee benefits are cost justified. • Who should be protected or benefited? – Series of questions need to be addressed • How much choice should employees have among an array of benefits? – Concerns choice (flexibility) in plan coverage – Standard benefit package – Cafeteria-style,” or flexible, benefit plans • How issues associated with flexibility should benefits be financed? – Noncontributory – Contributory – Employee financed • Are your benefits legally defensible? Factors Influencing Choice of Benefit Package, • Employer Factors • 1. Relationship to total compensation costs • 2. Costs relative to benefits • 3. Competitor offerings • 4. Role of benefits in: • Attraction • Retention • Motivation • 5. Legal requirements • Employee Factors • 1. Equity: fairness historically and in • relationship to what others receive • 2. Personal needs as linked to: • Age • Sex • Marital status • Number of dependents Relationship to Total Compensation Costs
• A good compensation manager considers
employee benefit costs as part of a total package of compensation costs. Frequently employees think that just because an employee benefit is attractive, the company should provide it. A good compensation manager thinks somewhat differently: “Is there a better use for this money? Could we put the money into some other compensation component and achieve better results?” Benefit costs are only one part of a total compensation package. Costs Relative to Benefits • To control spiraling benefit costs, administrators should adopt a broader, cost-centered approach. As a first step, this approach would require policy decisions on the level of benefit expenditures acceptable both in the short and the long runs. • Historically, benefit managers negotiated or provided benefits on a package basis rather than a cost basis. The current cost of a benefit would be identified, and if the cost seemed reasonable, the benefit would be provided for or negotiated with employees. • A cost-centered approach would require that benefit administrators • , in cooperation with insurance carriers and armed with published forecasts of anticipated costs for particular benefits, determine the cost commitments for the existing benefit package. Factors affecting this decision include an evaluation of benefits offered by other firms and the competitiveness of the existing package. Also important is compliance with various legal requirements as they change over time . • Finally, the actual benefit of a new option must be explored in relation to employee preferences. The benefits that top the list of employee preferences should be evaluated in relation to current and future costs. • In the negotiation process, then, employees or union representatives can evaluate their preference for the option against the forecasted cost burden. In effect, this approach defines in advance the contribution an employer is willing to make. Competitor Offerings
• Benefits must be externally equitable, too.
This begs the question, what is the absolute level of benefit payments relative to important product and labor market competitors? Role of Benefits in Attraction, Retention, and Motivation Administering the Benefits Program Three Administrative Issues
• Communicating about the benefits
program • Claims processing • Cost containment Employee Benefit Communication
• Benefits communications revolves around four
issues: What is communicated, • to whom, • how it’s communicated, and • how frequently. • The most frequent method for communicating employee benefits today is probably still the employee benefit handbook. • A typical handbook contains a description of all benefits, including levels of coverage and eligibility requirements. • Second, an effective communications package should match the message with the appropriate medium . Technological advances have made tremendous improvements in employee benefit communication. • Benefit administration over the Internet is also growing at a rapidly. Employers are increasingly posting their employee benefit handbook components on their intranets or of their web site. Claims Processing
• As noted by one expert, claims processing
arises when an employee asserts that a specific event (e.g., disability, hospitalization, unemployment) has occurred and demands that the employer fulfill a promise of payment. A claims processor must first determine whether the act has, in fact, occurred. • If the event did occur, the second step involves determining if the employee is eligible for the benefit. If payment is not denied at this stage, the claims processor calculates the payment level. Cost Containment
• Increasingly, employers are auditing their
benefit options for cost containment opportunities. The most prevalent practices include: • Probationary periods—excluding new employees from benefit coverage until some term of employment (e.g., three months) is completed. • 2. Benefit limitations—it is not uncommon to limit disability income payments to some maximum percentage of income and to limit medical/dental coverage for specific procedures to a certain fixed amount. • 3. Co-pay—requiring that employees pay a fixed or percentage amount for coverage. • 4. Administrative cost containment—controlling costs through policies such as seeking competitive bids for program delivery. • Probably the biggest cost-containment strategy in recent years is the movement to outsourcing. Outsourcing is also known as Business Process Outsourcing (BPO). This is the process of hiring another individual or company, either domestically or internationally, to handle business activities for you. Communicating the Benefits Program
• Three elements of effective communications
– Company must spell out its benefit objectives and ensure communications achieve the objectives – Match the message with the appropriate medium • Use of intranet – an internal organizational online Web through which all forms of communication within the organization can be streamlined • Streamlined call center operation – Content of communications package must be complete, clear, and free of complex jargon • Methods of communication – Employee handbook – Personalized benefit statements – Meetings with employees – Multi-media presentations – Intranet – Streamlined call center operation Claims Processing • Claims processor must: – Determine whether the act has, in fact, occurred – Determine if the employee is eligible for the benefit – Calculate the payment level Cost Containment Prevalent Practices