Unit 7 – Benefits - Topics Value of Employee Benefits Key Issues in Benefit Planning, Design, and Administration Components of a Benefit Plan Administering the Benefit Program Legally Required Benefits Retirement and Savings Plan Payments Life Insurance Medical and Medically Related Payments Miscellaneous Benefits Benefits for Contingent Workers

What are Employee Benefits? That part of the total compensation package, other than pay for time worked, provided to employees in whole or in part by employer payments (e.g., life insurance, pension, workers’ compensation, vacation)

Why the Growth in Employee Benefits? Wage and Price Controls Employer Impetus Cost Effectiveness of Benefits Unions Government Impetus

Ranking of Employee Benefits Note: “X” indicates a benefit that was not rated in this study.

Key Issues in Benefit Planning and Design 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 and adequacy of benefits Whether employee benefits are cost justified

Key Issues in Benefit Administration Benefit administration issues Who should be protected or benefited? How much choice should employees have among an array of benefits? Standard benefit package Cafeteria-style,” or flexible, benefit plans Market-based, or customer-driven , health care

Advantages and Disadvantages of Flexible Benefit Programs

Key Issues in Benefit Planning How should benefits be financed? Noncontributory Contributory Employee financed Are your benefits legally defensible?

Factors Influencing Choice of Benefit Package

Administering the Benefits Program Communicate about the benefits program Claims processing Cost containment

Communicating the Benefits Program Elements of an effective communications package: Company must spell out its benefit objectives and ensure that 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 Use of the employee benefit handbook

Claims Processing Arises when an employee asserts that a specific event has occurred and demands that the employer fulfill a promise of payment The claims processor must: Determine whether the act has, in fact, occurred Determine if the employee is eligible for the benefit Calculate the payment level

An Historical Perspective Employee benefits in the United States dates back to colonial days American Express began the first private pension plan in 1875 Biggest early push for benefits, though, came from Uncle Sam in 1935 Companies are now reeling from the high cost of benefits, especially health-care costs

? What are the legally required benefits?

Legally Required Benefits Workers’ Compensation Social Security Unemployment Compensation

Workers’ Compensation Form of no-fault insurance Employees are eligible even if their actions caused the accident Covers work-related injuries, diseases Medical care for work-related injuries Temporary disability benefits Permanent partial and permanent total disability benefits Survivor benefits Rehabilitation Covered by State, not Federal laws

Commonalities in State Workers’ Compensation Laws Source: www.ncci.com/media/downloads/PPDsurvey2.xls, retrieved May 29, 2006.

Social Security Provides a foundation of basic security for American workers and their families Money comes from contributions made by: employees, their employers, and self-employed people during working years

Issues: Social Security Number of retired workers is rising without a corresponding increase in number of contributors to offset costs Currently, 3.5 workers pay into system for each person collecting benefits Within next 40 years this ratio drops to about 2 to 1

Unemployment Insurance Financing: Unemployment compensation is financed exclusively by employers that pay federal and state unemployment insurance tax in the majority of states Federal tax amounts to 6.2% of the first $7,000 earned by each worker States additionally impose a tax above the $7,000 figure The extra amount a company pays depends on its experience rating

Unemployment Insurance (cont.) Coverage: Eligibility requirements to receive benefits Must meet state requirements for wages earned or time worked during an established (one year) period of time referred to as a “base period” Must be determined to be unemployed through no fault of your own and meet other eligibility requirements of State law

Family and Medical Leave Act (FMLA) Coverage: Employers with 50 or more employees Eligibility: Must have worked at least 1,250 hours for the employer in the previous year Qualifying events: Specified family or medical reasons Qualifying event coverage: Unpaid leave up to 12 weeks per year

Consolidated Omnibus Budget Reconciliation Act (COBRA) Coverage: Employers with 20 or more employees Eligibility: Current and former employees Their spouses and dependents Qualifying events: Specified events (e.g. layoffs) Qualifying event coverage: 18 to 36 months, depending on category of event

Retirement and Savings Plan Payments Employees rank pensions as one of the more important benefits Two generic types of pension plans Defined benefit plans Defined contribution plans Individual Retirement Accounts (IRAs) Employee Retirement Income Security Act (ERISA)

Life Insurance One of the most common benefits Most companies offer term policies Value of 1-2 times an employee’s salary Most plan premiums paid completely by employer Companies make retiree coverage forfeitable at the time of departure Is heavily affected when shifting to flexible benefit program

Health and Medical Benefits General Health Care Health Care: Cost Control Strategies Short- & Long- Term Disability Dental Insurance Vision Care

General Health Care An employer’s share of health care costs are contributed into one of the six health care systems Community-based system Commercial insurance plan Self-insurance Health maintenance organization (HMO) Preferred provider organization (PPO) Point-of-service plan (POS)

Health Care: Cost Control Strategies Motivate employees to change their demand for health care via changes in design or administration of policies Change structure of health care delivery systems and participate in business coalitions HMOs PPOs Promote preventive health programs

Types of Incentive Rewards Offered Source: Buck Consultants, “Working Well: A Global Survey of Health Promotion and Workplace Wellness Strategies,” October 2007.

Short- and Long-Term Disability Workers’ compensation covers disabilities that are work-related Social security has provisions for disability income to those who qualify Private sources of disability income Employee salary continuation plans Long-term disability plans

Miscellaneous Benefits Paid Time Off During Working Hours Payment for Time Not Worked Child Care Elder Care Domestic Partner Benefits Legal Insurance

Employees Receiving Leave Time Benefits

Benefits Received: Full-Time vs. Contingent Employees Source: Bureau of Labor Statistics, 2006, http://www.bls.gov/news.release/empsit.t06.htm.