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PowerPoint Presentation by Charlie Cook The University of West Alabama Managing Human Resources Bohlander Snell 14 th edition © 2007 Thomson/South-Western. All rights reserved. Employee Benefits
© 2007 Thomson/South-Western. All rights reserved.11–2 Objectives After studying this chapter, you should be able to: 1.Describe the characteristics of a sound benefits program. 2.Indicate management concerns about the costs of employee benefits and discuss ways to control those costs. 3.Identify and explain the employee benefits required by law. 4.Discuss suggested ways to control the costs of healthcare programs. 5.Describe benefits that involve payment for time not worked.
© 2007 Thomson/South-Western. All rights reserved.11–3 Objectives (cont’d) After studying this chapter, you should be able to: 6.Discuss the recent trends in retirement policies and programs. 7.Indicate the major factors involved in the management of pension plans. 8.Describe the types of work/life benefits that employers may provide.
© 2007 Thomson/South-Western. All rights reserved.11–4 The Chief Objectives of Benefits Programs Improve employee work satisfaction Meet employee health and security requirements Attract and motivate employees Reduce turnover Maintain a favorable competitive position
© 2007 Thomson/South-Western. All rights reserved.11–5 Requirements for a Sound Benefits Program Strategic Benefits Planning Allowing for Employee Involvement Benefits for a Diverse Workforce Providing for Flexibility Communicating Employee Benefits Information
© 2007 Thomson/South-Western. All rights reserved.11–6 Providing for Flexibility Flexible Benefits Plans (Cafeteria Plans) Benefit plans that enable individual employees to choose the benefits that are best suited to their particular needs. A basic or core benefits package of life and health insurance, sick leave, and vacation ensures that employees have a minimum level of coverage. Employees use “credits” to “buy” whatever other benefits they need.
© 2007 Thomson/South-Western. All rights reserved.11–7 Figure 11–1 Flexible Benefits Plans: Advantages and Disadvantages ADVANTAGES Employees select benefits to match their individual needs. Benefit selections adapt to a constantly changing (diversified) workforce. Employees gain greater understanding of the benefits offered to them and the costs incurred. Employers maximize the psychological value of their benefits program by paying only for highly desired benefits. Employers limit benefit costs by allowing employees to “buy” benefits only up to a maximum (defined) amount. Employers gain competitive advantage in the recruiting and retention of employees.
© 2007 Thomson/South-Western. All rights reserved.11–8 Figure 11–1 Flexible Benefits Plans: Advantages and Disadvantages (cont’d) DISADVANTAGES Poor employee benefits selection results in unwanted financial costs. There are certain added costs to establishing and maintaining the flexible plan. Employees may choose benefits of high use to them that increase employer premium costs.
© 2007 Thomson/South-Western. All rights reserved.11–9 Communicating Benefits Information In-house publications (employee handbooks and organizational newsletters) Group meeting and training classes Audiocassettes/videotapes Bulletin boards Payroll inserts/pay stub messages Specialty brochures Employee self-service systems (ESS)
© 2007 Thomson/South-Western. All rights reserved.11–10 Highlights in HRM 1 Crafting an Effective Benefits Communication Program In building an identity: Design materials that are eye-catching and of high interest to employees. Develop a graphic logo for all material. Identify a theme for the benefits program. In writing benefits materials: Avoid complex language when describing benefits. Clear, concise, and understandable language is a must. Provide numerous examples to illustrate benefit specifics. Explain all benefits in an open and honest manner. Do not attempt to conceal unpleasant news. Explain the purpose behind the benefit and the value of the benefit to employees. In publicizing benefits information: Use all popular employee communication techniques. Maintain employee self-service (ESS) technology to disseminate benefits information and to update employee benefits selections. Use voice mail to send benefits information. Employ presentation software such as PowerPoint or Lotus Freelance to present information to groups of employees. Maintain a benefits hotline to answer employee questions.
© 2007 Thomson/South-Western. All rights reserved.11–11 Highlights in HRM 2 A Personalized Statement of Benefits Costs
© 2007 Thomson/South-Western. All rights reserved.11–12 Benefits Issues Rising costs of providing benefits Benefits offered by other employees Concerns of Management Union demands for additional benefits Tax consequences of benefits Benefits coverage for domestic partners
© 2007 Thomson/South-Western. All rights reserved.11–13 The High Cost of Providing Benefits According to a 2003 U.S. Chamber of Commerce study, the cost of employee benefits in that year averaged 42.3 percent of payroll. The average distribution of these benefits was $18,000 per employee per year. The current trend is for employers to require employees to pay part of the costs of certain benefits (for example, through copayments or higher deductibles), especially medical coverage.
© 2007 Thomson/South-Western. All rights reserved.11–14 Domestic Partner Benefits Domestic Partner (Apple Computer) A person over age 18 who shares living quarters with another adult in an exclusive, committed relationship in which the partners are responsible for each other’s common welfare. A standard definition of domestic partnership contains the following: A minimum age requirement A requirement that the couple live together A specification of financial interdependence A requirement that the relationship be a permanent one A requirement that each not be a blood relative
© 2007 Thomson/South-Western. All rights reserved.11–15 Types of Employee Benefits Required By Law DiscretionaryDiscretionary Health care Unemployment Insurance Workers’ Compensation Payment for time not worked Supplemental Unemployment Benefits Supplemental Social Security Unpaid leave (FMLA) Life and LT care insurance Retirements and pensions
© 2007 Thomson/South-Western. All rights reserved.11–16 Types of Employee Benefits Benefits Required by Law Social Security Unemployment insurance Workers’ compensation insurance Payment for time not worked Holidays Vacations Sick leave Jury duty, military service, and bereavement leaves Severance pay
© 2007 Thomson/South-Western. All rights reserved.11–17 Types of Employee Benefits (cont’d) Supplemental Unemployment Benefits (SUB) Insurance Group life Long-term care Health care Dental Legal Retirement Benefits Pre-retirement counseling Pension plans
© 2007 Thomson/South-Western. All rights reserved.11–18 Social Security Insurance Benefits paid are determined by an individual’s life-time earnings Provides long-term disability benefits Social Security Act (1935) A payroll tax on both employees and employers Old Age and Survivors Insurance (OASI) Must work 40 quarters in an occupation covered by Act to qualify for benefits
© 2007 Thomson/South-Western. All rights reserved.11–19 Unemployment Insurance Federal payroll tax on employer and employee Tax is refunded to states which individually administer unemployment compensation programs. Unemployment benefits vary from state to state. Involuntarily unemployed workers are eligible for up to 26 weeks of unemployment benefits. Benefit is based on an employee’s recent earnings. Unemployed workers are required to seek “suitable employment.”
© 2007 Thomson/South-Western. All rights reserved.11–20 Workers’ Compensation Insurance Federal- or state-mandated insurance (funded by an employer payroll tax) provided to workers to defray the loss of income and cost of treatment due to work- related injuries or illness. Factors influencing the employer’s insurance rate: The risk of injury or illness for an occupation Each state’s level of benefits for injuries sustained by employees varies. The company’s frequency and severity of employee injuries (the company’s experience rating).
© 2007 Thomson/South-Western. All rights reserved.11–21 Workers’ Compensation Insurance Covers Employers Covers Employees Cost of injury Negligent co-workers Contributory negligence Temporary, Permanent, Partial or Total Disability Temporary, Permanent, Partial or Total Disability Assumed employment risk Survivor’s Insurance Injury is a cost of doing business
© 2007 Thomson/South-Western. All rights reserved.11–22 Figure 11–2 Reducing Workers’ Compensation Costs: Key Areas 1.Perform an audit to assess high-risk areas within a workplace. 2.Prevent injuries by proper ergonomic design of the job and effective assessment of job candidates. 3.Provide quality medical care to injured employees by physicians with experience and preferably with training in occupational health. 4.Reduce litigation by effective communication between the employer and the injured worker. 5.Manage the care of an injured worker from the injury until return to work. 6.Keep a partially recovered employee at the work site. 7.Provide extensive worker training in all related health and safety areas.
© 2007 Thomson/South-Western. All rights reserved.11–23 Consolidated Omnibus Budget Reconciliation Act (COBRA) The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) Mandates that employers make health coverage—at the same rate the employer would pay— available to employees, their spouses, and their dependents on termination of employment, death, or divorce. The coverage must be offered for between 18 and 36 months depending on qualifying guidelines.
© 2007 Thomson/South-Western. All rights reserved.11–24 The Family and Medical Leave Act (FMLA) An employer must grant an eligible employee up to 12 workweeks of unpaid leave in a 12-month period for the following reasons: Birth of and care for a newborn child. Adoption or foster care placement of a child. Care for an immediate family member (spouse, child, or parent) with a serious medical condition. Serious health condition of the employee. Employees on leave retain their benefits and the right to return to their job or an “equivalent job.”
© 2007 Thomson/South-Western. All rights reserved.11–25 Highlights in HRM 4 “Your Right”: Another Federally Required Poster Note: Other federally required posters are reproduced in Chapters 2, 5, 9, and 12.
© 2007 Thomson/South-Western. All rights reserved.11–26 The Older Workers Benefit Protection Act Older Workers Benefit Protection Act (OWBPA) of 1990 Prohibits age-based discrimination in early retirement and other benefit plans by imposing strict guidelines on employers who seek to have employees sign release forms waiving their right to pursue age discrimination claims under the ADEA. Requires that a valid waiver must be voluntary and written in a manner that is understandable to the parties involved. Employees have the right to consult with an attorney before signing the waiver.
© 2007 Thomson/South-Western. All rights reserved.11–27 Healthcare Cost Containment Health Maintenance Organizations (HMOs) Organizations of physicians and health-care professionals that provide a wide range of services to subscribers and dependents on a prepaid basis. Preferred Provider Organization (PPO) Physicians who establish an organization that guarantees lower healthcare costs to the employer. PPOs allow employees to select from a list of physicians (participating doctors) their doctor of choice.
© 2007 Thomson/South-Western. All rights reserved.11–28 Healthcare Cost Containment (cont’d) Consumer-Driven Health Plan (CDHP) A high-deductible insurance medical insurance plan, financed by employer contributions to an employee’s limited individual healthcare spending account Also known as: Defined-contribution health plans Medical savings accounts (MSAs) Health savings accounts (HSAs) Flexible spending accounts (FSAs) Health reimbursement accounts (HRAs).
© 2007 Thomson/South-Western. All rights reserved.11–29 Highlights in HRM 5 Employers Methods for Containing Healthcare Costs Pre-admission certification for surgical procedures. Financial incentives for outpatient surgery and testing. Mail-order prescription drug program and medical drug discount cards. Mandatory second opinions for surgical procedures. Alternative approaches to healthcare treatment such as herbal therapy or homeopathy. Educational programs encouraging healthcare consumers to assume more responsibility and accountability for the cost and quality of their healthcare. Promoting web sites or printed materials that list common conditions, treatment, drug prices, and effectiveness. Implementation of step therapy programs. Multi-tier hospital coverage networks that allow employees to choose from a variety of hospitals with small, moderate, and steep copayments at the point of service. Use of variable copayments (for example, $10 for physician and $25 for specialists). The consolidation of healthcare plans offered by employers. Requiring employees to pay an additional cost if a working spouse refuses coverage from his or her employer. Customized healthcare benefits design allowing employees to purchase riders to increase the level of benefits provided. Promotion of wellness and employee assistance programs. Automated benefits functions. Promoting quality, patient safety, and positive outcomes in health plans by using a variety of health plan assessment tools such as the Joint Commission on Accreditation of Healthcare Organizations. Implementation of a disease management program. A survey of methods used by employers to control healthcare costs can be found in “Despite Rising Health-Care Costs, Few Companies Have Cut Benefits,” HRFocus 81, no. 9 (September 2004): 3–5.
© 2007 Thomson/South-Western. All rights reserved.11–30 Payment for Time Not Worked Sick leave Severance pay Paid holidays Vacations with pay Time Not Worked
© 2007 Thomson/South-Western. All rights reserved.11–31 Other Discretionary Benefits Supplemental Unemployment Benefits (SUBs) A plan that enables an employee who is laid off to draw, in addition to unemployment compensation, weekly benefits from the employer that are paid from a fund created for this purpose. SUB benefits are considered deferred compensation and not current earnings. The fund is derived from employer contributions based on the total hours of work performed by employees.
© 2007 Thomson/South-Western. All rights reserved.11–32 Figure 11–3 Trends Affecting Retirement The number of people age 65 and older tripled to about 34 million between 1940 and 1995. According to U.S. census projections, people age 65 and older are expected to number 86 million by 2050, an increase of 51 million since 2000. In 1960, 45.4 percent of male workers over age 65 were still in the labor force; in 1990, only 27.4 percent were still working. While the labor force participation rates of women between ages 55 and 64 have been rising, further increases are not expected. Eight baby boomers turn 50 every ten minutes. The U.S. net national savings rate was relatively stable at about 7 percent of GDP from 1951 to 1980. It has collapsed since 1980, most recently dropping to less than 1 percent of GDP. In 1990, the average life expectancy in the U.S. was 48; today, it is 80 for women and 75 for men.
© 2007 Thomson/South-Western. All rights reserved.11–33 Retirement Programs Silver Handshake An early-retirement incentive in the form of increased pension benefits for several years or a cash bonus. Preretirement Programs Counseling Seminars Workshops Retirement tryouts
© 2007 Thomson/South-Western. All rights reserved.11–34 Types of Pension Plans Contributory plan Contributions to a plan are made jointly by employees and employers. Noncontributory plan Contributions to a plan are made solely by the employer. Defined-benefit plan The amount an employee is to receive upon retirement is specifically set forth. Defined-contribution plan The basis (amount) an employer contributes to the pension fund is specified.
© 2007 Thomson/South-Western. All rights reserved.11–35 Contemporary Pension Plan Options 401(k) Savings Plans A tax-deferred savings plan. Employees save through payroll deductions. Employers may match a portion of employee savings. Cash-Balance Savings Plans Employer contributes a percentage of employee’s pay each year. Account balance earns interest each year. Experts predict it will replace traditional pension plans.
© 2007 Thomson/South-Western. All rights reserved.11–36 Federal Regulation of Pension Plans Employee Retirement Income Security Act (ERISA). Private pension plans are subject to ERISA regulations that provides standards and controls for pension plans: Plans must comply IRS tax standards to qualify. Plans must meet actuarial standards to qualify for Pension Benefit Guarantee (PBGC) insurance. Plans must meet Department of Labor standards for treatment of plan participants.
© 2007 Thomson/South-Western. All rights reserved.11–37 Federal Regulation of Pension Plans Vesting A guarantee of accrued benefits to participants at retirement age, regardless of their employment status at that time. ERISA requires that plans must provide that employees will have vested rights in their accrued benefits after certain minimum-years-of-service requirements have been met. Pension Plans and Underfunding Inadequate funds to cover retirement obligations along with pension plan failures could overwhelm the PBGC.
© 2007 Thomson/South-Western. All rights reserved.11–38 Employee Services: Creating a Work/Life Setting Employee Assistance Programs (EAPs) Services provided by employers to help workers cope with a wide variety of problems that interfere with the way they perform their jobs. Typically provide diagnosis, counseling, and referral for advice or treatment for problems related to alcohol or drug abuse, emotional difficulties, and financial or family difficulties. Child and Elder Care Care provided to a child or an elderly relative by an employee who remains actively at work.
© 2007 Thomson/South-Western. All rights reserved.11–39 Figure 11–4 Work/Life Benefits: Balancing Work and Home Needs Child care/elder care referral services Time off for children’s school activities Employer-paid onsite or near-site child care facilities Flexible work hours scheduling Employer-accumulated leave days for dependent care Customized training programs Subsidized temporary or emergency dependent-care costs Extended leave policies for child/elder care Sick-child programs (caregiver on call) Work-at-home arrangements/telecommuting Partial funding of child care costs Customized career paths
© 2007 Thomson/South-Western. All rights reserved.11–40 AwardsAwards Other Benefits and Services Recreational and Social Credit Unions Food Services Purchasing Assistance Transportation Pooling On-Site Health Services Legal Services Financial Planning Housing and Moving
© 2007 Thomson/South-Western. All rights reserved.11–41 Key Terms consumer-driven health plan contributory plan defined-benefit plan defined-contribution plan elder care employee assistance programs (EAPs) flexible benefits plans (cafeteria plans) health maintenance organizations (HMOs) noncontributory plan preferred provider organization (PPO) silver handshake supplemental unemployment benefits (SUBs) vesting workers’ compensation insurance
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