Human Resource Management

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Human ResourceManagement
SECTION 4CompensatingHuman Resources
Chapter 14

• Managing Employee Benefits

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Learning Objectives

• After you have read this chapter, you should be
  able to
• Define a benefit and identify two strategic
  reason why employers provide benefits.
• Distinguish between mandated and voluntary
  benefits 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 of achieving
  it.

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Learning Objectives (contd)

• Discuss the growth of family-oriented and
  time-off benefits and their importance to many
  employees.
• Summarize benefits communication and flexible
  benefits as considerations in benefits
  administration.

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Benefits

• Benefit
• An indirect compensation given to an employee or
  group of employees as a part of organizational
  membership.
• 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 Benefit Dollar Is Spent
Source Based on information in Employee
Benefits, 2000 edition (Washington, D.C. U.S.
Chamber of Commerce, 2000).
Figure 141
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Benefit Needs Analysis

• Benefit Needs Analysis
• A 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?

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Types of Benefits
Figure 142
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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 a
  supplemental amount to laid-off employees who are
  drawing unemployment compensation.

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Security Benefits (contd)

• Severance Pay
• A 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 cash
  severance payments.

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Services During Severance
Source Linda Jones, Severance Policies in Place
at Most Organizations, Human Resource Executive,
May 1, 2001, 28. Used with permission.
Figure 143
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Retirement Security Benefits

• Retirements and Age Discrimination
• Age Discrimination in Employment Act (ADEA)
  prohibits mandatory retirement age provisions.
• Social Security Act of 1935
• Established a system providing old age,
  survivors, disability, and retirement benefits.
• Federal payroll tax on both the employer and the
  employee.
• Benefit payments are based on employees lifetime
  earnings.

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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 employees
  account.
• Benefit payout is determined by the financial
  performance of the employees retirement.

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Pension Plans

• Cash Balance Plans
• A 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 all
  employees if offered to any employees.
• Accrued benefits must be paid to departing
  employees.
• Requires minimum funding for IRS approval and
  purchase 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
  their pension plans.
• Portability
• A pension plan feature that allows employees to
  move their benefits from one employer to another.

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Individual Retirement
IndividualRetirementAccounts (IRAs)
401(k) and403 (b) Plans
Individual Retirement Options
KeoghPlans
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401(k) for Small Business
Source Based on data in Virginia Munger Kahn,
Pension Plans for Everyone, Business Week Small
Biz, July 16, 2001, 22.
Figure 145
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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 employee
  may spend on health-care coverage benefits.

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Controlling Health-Care Costs (contd)

• Managed Care
• Approaches that monitor and reduce medical costs
  using restrictions and market system
  alternatives.
• Preferred Provider Organization
• A health-care provider that contract with an
  employer group to provide health-care services to
  employees at a competitive rate.
• Health Maintenance Organization (HMO)
• A managed care plan that provides services for a
  fixed period on a prepaid basis.

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Increases in Health-Care Benefits Coststo
Employers
Figure 146
Source 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 insurance
  plan from one company to another, regardless of
  pre-existing health conditions.
• Health plans must continue to cover sick
  employees.

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Other Benefits
Credit Unions Purchase Discounts Stock Investment
Relocation Expenses
Family-Care Benefits
Benefits
Life, Disability, Legal Insurances
Family-Oriented Benefits
Educational Assistance
Social and Recreational
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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 to a family or serious medical condition.
• Employees have the right to continued health
  benefits and the right to return to their job.

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Most Common Paid Holidays in the U.S.
Figure 148
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Companies Offering Different Types of Paid Time
Off
Source Employee Benefits Survey Technical
Note, Compensation and Working Conditions
(Washington, DC U.S. Bureau of Labor
Statistics), Fall 2000.
Figure 149
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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 ResponsibilitiesBenefits
Administration
Figure 1410
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Flexible Benefits

• Flexible Benefit Plan
• A plan (flex or cafeteria) that allows employees
  to select the benefits they prefer from groups of
  benefits established by the employer.
• Flexible Spending Accounts
• An account that allows employees to contribute
  pre-tax dollars to buy additional benefits (e.g.,
  life insurance).
• Problems with Flexible Plans
• Inappropriate benefits package choices
• Adverse selection and use of specific benefits by
  higher-risk employees