hrm10echap14- managing employee benefits

7/30/2019 HRM10eChap14- Managing Employee Benefits

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Human Resource

ManagementTENTH EDITON

2003 Southwestern College Publishing. All rights reserved. PowerPoint Presentationby Charlie Cook

Managing Employee Benefits

Chapter 14

SECTION 4Compensating

Human

Resources

Robert L. Mathis John H. Jackson


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2002 Southwestern College Publishing. All rights reserved. 142

Learning Objectives

After you have read this chapter, you should beable to:

Define a benefit and identify two strategic reasonwhy employers provide benefits.

Distinguish between mandated and voluntarybenefits and list three examples of each.

Describe two security benefits.

List and define at least six pension-related terms. Explain the importance of health-care cost

management and identify some methods ofachieving it.


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Learning Objectives (contd)

Discuss the growth of family-oriented and time-offbenefits and their importance to many employees.

Summarize benefits communication and flexiblebenefits as considerations in benefits

administration.


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Benefits

BenefitAn indirect compensation given to an employee or

group of employees as a part of organizationalmembership.

Strategic Perspectives on Benefits Benefits absorb social costs for health care and

retirement.

Benefits influence employee decisions about

employers (e.g., recruitment and retirement). Benefits are increasingly seen as entitlements.

Benefit costs are about 40% of total payroll costs.


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How the Benefi t Dol lar Is Spent

Figure 141

Source: Based on information in Employee Benefits, 2000

edition (Washington, D.C.: U.S. Chamber of Commerce, 2000).


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Benefit Needs Analysis

Benefit Needs AnalysisA comprehensive look at all aspects of benefits.

How much total compensation?

What part of total compensation should benefits

comprise?

What expense levels are acceptable for each benefit?

Which employees should get which benefits?

What are we getting in return for the benefit?

How will offering benefits affect turnover, recruiting,

and retention of employees? How flexible should the benefits package be?


7/31 2002 Southwestern College Publishing. All rights reserved. 147

Types of Benefits

Figure 142



Security Benefits

Workers Compensation Benefits provided to persons injured on the job.

Unemployment Compensation

A Federal/state payroll tax that funds state

unemployment systems. Involuntary unemployment and actively seeking

work is required for persons to claim benefit.

Supplemental Unemployment Benefits (SUB)

A union-negotiated benefit provision that pays asupplemental amount to laid-off employees who aredrawing unemployment compensation.



Security Benefits (contd)

Severance PayA security benefit voluntarily offered by employer to

employees who lose their jobs.

Payments are determined by the employees level

within the organization and years of employment. Other benefits (e.g., outplacement and continued

health insurance) may be offered in lieu of cashseverance payments.



Services During Severance

Figure 143

Source: Linda Jones, Severance Policies in Place

at Most Organizations, Human Resource

Executive, May 1, 2001, 28. Used with permission.


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Median Age at Retirement by Gender

Figure 144Source: U.S. Bureau of Labor Statistics. *Projected.


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Retirement Security Benefits

Retirements and Age DiscriminationAge Discrimination in Employment Act (ADEA)

prohibits mandatory retirement age provisions.

Social Security Act of 1935

Established a system providing old age, survivors,disability, and retirementbenefits.

Federal payroll tax on both the employer and theemployee.

Benefit payments are based on employees lifetimeearnings.


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Pension Plans

Pension Plans Retirement benefits established and funded by

employers and employees.

Traditional Benefit Plans

Defined-benefit plans Employees are promised a definite pension amount

based on age and length of service.

Defined-contribution plans

Employer makes an annual payment to an employeesaccount.

Benefit payout is determined by the financial

performance of the employees retirement.


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Pension Plans

Cash Balance PlansA hybrid plan that defines retirement benefits in

terms of a hypothetical account balance.

Employee Retirement Income Security Act

(ERISA) Regulates pension funds to assure their soundness.

Requires firms to offer retirement plans to allemployees if offered to any employees.

Accrued benefits must be paid to departingemployees.

Requires minimum funding for IRS approval andpurchase of plan termination insurance.


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Pension Terms and Concepts

Contributory Plan Both employer and employee pay money into the

retirement fund.

Non-contributory Plan

All pension benefits funding is paid by the employer.

Vesting

The right of employees to receive benefits from theirpension plans.

Portability

A pension plan feature that allows employees tomove their benefits from one employer to another.


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Individual Retirement

KeoghPlans

IndividualRetirement

Accounts (IRAs)

401(k) and403 (b) Plans

IndividualRetirement

Options


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401(k) for Small Bus iness

Figure 145

Source: Based on data in Virginia Munger Kahn, Pension

Plans for Everyone, Business Week Small Biz, July 16, 2001,

22.


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Controlling Health-Care Benefits Costs

Co-Payment Employees are required to pay a portion of the cost

of both insurance premiums and medical care.

Defined Contribution Plans for Health Benefits

Employer provides a set amount that the employeemay spend on health-care coverage benefits.


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Controlling Health-Care Costs (contd)

Managed CareApproaches that monitor and reduce medical costs

using restrictions and market system alternatives.

Preferred Provider Organization

A health-care provider that contract with anemployer group to provide health-care services toemployees at a competitive rate.

Health Maintenance Organization (HMO)

A managed care plan that provides services for afixed period on a prepaid basis.


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Inc reases in Health-Care Benefits Cos ts

to Employers

Figure 146Source: U.S. Bureau of Labor Statistics, U.S. Department of Labor, 2002.


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Health-Care Legislation

COBRA Provisions Former employees, their spouses, and eligible

dependents are covered for 18 to 36 months

Up to 102% of group premium costs paid by the

former employee. HIPPA Provisions

Allows employees to switch their health insuranceplan from one company to another, regardless of

pre-existing health conditions. Health plans must continue to cover sick

employees.


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U.S. Popu lat ion Lack ing Health Insurance

Figure 147Source: U.S. Census Bureau, 2002.


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Other Benefits

Benefits

Relocation

Expenses

Life, Disability,

Legal Insurances

Educational

Assistance

Social and

Recreational

Family-Oriented

Benefits

Family-Care

Benefits

Credit Unions

Purchase Discounts

Stock Investment


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Family Medical Leave Act (FMLA)

Coverage Employers with 50 or more employees

Requirements

Employers must allow eligible employees to take up

to a total of 12 weeks of unpaid leave to attend toa family or serious medical condition.

Employees have the right to continued healthbenefits and the right to return to their job.


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Most Common Paid Hol idays in th e U.S.

Figure 148


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Companies Offer ing Different Types of Paid Time Off

Figure 149

Source: Employee Benefits Survey Technical Note, Compensation and Working

Conditions (Washington, DC: U.S. Bureau of Labor Statistics), Fall 2000.


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Time-Off Benefits

Holiday Pay

Eligibility

Vacation Pay

Leaves of Absence

Family Leave

Medical and Sick Leave

Paid Time-Off (PTO) Plans

Military Leave

Election Leave

Jury-duty Leave

Funeral Leave


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Benefits Administration

Benefits Communication Benefits Statements Annual personal statement of benefits that translates

the benefits into dollars to show their worth.

HRIS and Benefits Communication HRIS information allows employees to obtain benefits

information on-line.


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Typical Division of HR Responsib i l i t ies:

Benef its Adm inistrat ion

Figure 1410


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Flexible Benefits

Flexible Benefit PlanA plan (flexor cafeteria) that allows employees toselect the benefits they prefer from groups ofbenefits established by the employer.

Flexible Spending AccountsAn account that allows employees to contribute

pre-tax dollars to buy additional benefits (e.g., lifeinsurance).

Problems with Flexible Plans Inappropriate benefits package choices

Adverse selection and use of specific benefits byhigher-risk employees


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2002 S th t C ll P bli hi All i ht d 14 31

Pension and Ret i rement Funct ions on the Internet

Figure 1411

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