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CHAPTER 12 - MANAGING EMPLOYEE BENEFITS
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KEY CONCEPTS AND SKILLS
➲ Objectives of benefits from perspective of society, organisation, and employee
➲ Principal types of benefits provided to employees by organisations
➲ Concept of cafeteria benefits and advantages ➲ Calculate cost of benefits and maintenance loading
factor
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CHAPTER OUTLINE
➲ Role of benefits➲ Principal types of benefit➲ Benefits practice➲ Administration of benefits➲ Cafeteria benefits➲ Employee costs analysis
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FRINGE BENEFITS
➲ Form of indirect compensation given to employees as addition to salaries
➲ Taken for granted by employees, yet represent cost to employer
➲ Providing benefits to employees is a specialised and expensive management task
➲ Legislation constantly increases types and amounts of benefits and employees today are demanding new kinds of benefits unheard of in past.
➲ Employees seldom appreciate value of benefits provided but cost of benefits constantly rising
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ROLE OF BENEFITS
Objectives of Society➲ Governments ensure that employers help solve
social problems and provide security to employees ➲ Benefits like EPF, retrenchment and lay-off benefits,
SOCSO, are examples of compulsory benefits ➲ Besides compulsion, government through favourable
tax deductions encourages employers to provide benefits like medical and hospitalisation, insurance, and even housing loans.
➲ Main objective of society is to ensure that burden of nation in providing care for citizens when ill-health, death, or retirement occur is shared with employers.
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ROLE OF BENEFITS
Objectives of Organisations➲ Most organisations need to provide better than
statutory benefits if they are to recruit new employees from labour market and retain them.
➲ Benefits will serve to free employees from worry of rising costs and uncertain futures, thus allowing them to concentrate on job and be more productive
➲ Also benefits will help ensure that employees are well rested and reduce fatigue.
➲ At same time, organisations need to keep current benefits entitlements in line with market practice so that policy matches business needs and control benefits costs to acceptable level.
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ROLE OF BENEFITS
Objectives of Employees➲ In case of employees, main objectives are lower
cost and tax benefit➲ Another objective for employees is benefits are
free from inflation➲ A benefit, once given, is difficult to withdraw➲ Even when high inflation resulting in benefit being
very costly, organisation will still provide it.
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PRINCIPAL TYPES OF BENEFIT
Pay For Time Not Worked➲ Annual Leave➲ Medical and hospitalisation leave➲ Public Holidays➲ Compassionate leave➲ Maternity leave➲ Paternity leave➲ Other leave
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PRINCIPAL TYPES OF BENEFIT
Insurance Benefits➲ Death-in-service benefits➲ Personal accident insurance➲ Social Security Organisation (SOCSO) ➲ Medical and hospitalisation insurance
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PRINCIPAL TYPES OF BENEFIT
Retirement and Termination Benefits➲ Employees Provident Fund➲ Pre-retirement counselling➲ Extra-statutory redundancy pay➲ Outplacement advice (career counselling)
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PRINCIPAL TYPES OF BENEFIT
Employee Services Benefits➲ Housing Loans➲ Vehicle loans➲ Emergency loans➲ Festival advance➲ Employee development loans➲ Subsidised or free transportation➲ Uniforms and safety clothing➲ Food service➲ Staff-purchase discounts➲ Sports and social facilities
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PRINCIPAL TYPES OF BENEFIT
Status Benefits➲ Company cars➲ Personal drivers➲ Club memberships
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PRINCIPAL TYPES OF BENEFIT
Intangible Benefits➲ Status➲ Power➲ Training and development opportunities➲ Balance of work and family responsibilities
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BENEFITS PRACTICE
➲ Practice varies according to market practice and employee status
➲ Certain industries are more generous with certain benefits
➲ Generally the more senior the employee the more benefits provided
➲ Many organisations today opt to provide fairly equal benefits to all levels of employees with aim of harmonising benefits
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ADMINISTRATION OF BENEFITS
➲ One major problem is lack of planning and focus in provision of benefits
➲ Many organisations provide extra benefits on ad hoc basis as result of market pressures, union demands, or employee wishes, and not as result of established objectives, systematic plans, and standards
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ADMINISTRATION OF BENEFITS
➲ Generally lack of employee participation in selection of benefits
➲ One major concern is that a benefit, once given, will be difficult to withdraw
➲ Many organisations waste money providing benefits which are unwanted or not appreciated
➲ Because most employees have little choice in their individual benefit packages, the purpose of providing the benefit is not achieved.
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ADMINISTRATION OF BENEFITS
➲ Also many organisations which do not publicise benefits available
➲ Mistaken belief that when employees are unaware and do not make use, organisation will be able to save money
➲ What actually happens is this lack of knowledge may cause employees to request for more benefits to meet their needs and result in organisation having to spend more on benefits
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CAFETERIA BENEFITS
➲ One trend gaining popularity in developed countries is provision of variable fringe benefits programme
➲ Employees provided with benefits account which contains specified amount of money for fringe benefits above statutory requirements
➲ With this money, employee can choose a specific list of benefits from a list provided
➲ Main disadvantage with cafeteria approach is increased costs of administration
➲ Advantages are many: employee participation, no wastage of unwanted benefits, and increased appreciation on part of employees.
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EMPLOYEE COSTS ANALYSIS
➲ Many costs associated with human resources ➲ Four phases:➲ 1. Acquisition➲ 2. Development➲ 3. Maintenance➲ 4. Separation
➲ To fully analyse the cost of human resources, all costs involved in these four phases will have to be taken into account
➲ Highest cost is maintenance and need to calculate Maintenance Loading Factor which is cost of benefits as a percentage of the basic salary.