Managing Human Resources Bohlander  Snell  Sherman Notes Chapter 11 Employee Benefits

Learning Objectives Describe the characteristics of a sound benefits program. Recognize management concerns about the costs of employee benefits and discuss ways to control those costs. Explain the employee benefits required by law. Discuss suggested ways to control the costs of health care programs.

Learning Objectives, cont. Describe those benefits that involve payment for time not worked. Discuss the recent trends in retirement policies and programs. Describe the major factors involved in the management of pension plans. List the types of service benefits that employers may provide.

Presentation Slide 11-1

Requirements for a Sound Benefits Program Modifying Employee Benefits Allowing for Employee Input Providing Flexibility Employee benefits constitute an indirect form of compensation that is intended to improve the quality of work life for employees. With the large number of benefits offered to employees today, administering an organization’s benefits program can be costly and time-consuming. Fortunately, benefits administration is one of the most technologically advanced areas of HR. With sophisticated software programs readily available, HR personnel can usually administer the benefits program efficiently and effectively. However, a sound benefits program still must meet certain HR requirements, including: Establishing Specific Objectives. The chief objectives of most benefits programs are to improve employee satisfaction, meet basic health and security needs, attach and motivate desirable employees, reduce turnover, and maintain a favorable competitive position. Allowing for Employee Input. The need for a particular benefit should be identified in consultation with employees, either through interviews or surveys. Modifying Employee Benefits. Benefit programs need to reflect the changes in society at large including a family-friendly orientation and retirement planning options for younger workers. Providing Flexibility. Flexible plans, called cafeteria plans, allow individual employees to choose the benefits that best match their needs from a menu of benefits offered by the organization. Communicating Employee Benefits Information. Employers should carefully communicate information about complicated insurance and pension plans so that there will be no misunderstanding about what the plans will and will not provide. This is particularly true for cafeteria plans because many employees simply lack the experience dealing with these issues. Effective communication helps develop employee trust and appreciation for the work the organization is doing on their behalf. Establishing Specific Objectives Communicating Benefits Information

Presentation Slide 11-2 Flexible Employee Benefits Plans

Flexible Benefits Plans (Cafeteria Plans) Benefit plans that enable individual employees to choose the benefits that are best suited to their particular needs

Presentation Slide 11-3 How Benefit Dollars Were Spent in 1997 (Percent of Total)

Presentation Slide 11-4 Categories of Employee Benefits #1 Benefits Required by Law Old age and survivors insurance (OASI) Unemployment insurance Workers’ compensation Leaves without pay Payment for Time Not Worked Holidays Vacations Sick leave Jury duty, military service, and bereavement leaves Supplemental Unemployment Benefits (SUB) Insurance Group life insurance Long-term Care Health care insurance Dental insurance Legal insurance Retirement Benefits Pre-retirement counseling Pension plans Deferred compensation plans

Presentation Slide 11-5 Categories of Employee Benefits #2 Services Employee assistance program Counseling services Educational assistance plans Child care Elder care Food services Health services Legal services Financial planning Housing and moving expenses Transportation: pooling/parking Purchasing assistance Credit unions Social and recreational services Awards

Employee Benefits Required by Law Social Security Unemployment Insurance Not all employee benefits are voluntary. In the U.S., federal and state laws require benefits that constitute nearly a quarter of the benefits package that employers provide. The key programs for required benefits include: Social Security Insurance. Passed in 1935, the Social Security Act provides an insurance plan designed to protect individuals against loss of earnings under a variety of circumstances. Social security is funded by a tax levied on employee earnings and a matching tax paid by the employer. Three major types of benefits are offered: Old-age insurance benefits. Disability benefits. Survivors’ insurance benefits. Teaching Tip: Students need to understand that it is simply not impossible that the social security system will survive as is to meet their retirement needs. Current retirees typically receive all they paid in taxes in benefits in about 3 months time and then live twenty or more years receiving additional benefits. In 1935, 10 workers supported every beneficiary. Today, it is 4 to 1. By 2010, it will be 2 to 1. Unemployment Insurance. Qualified laid-off employees are eligible for up to 26 weeks of unemployment insurance benefits. Workers’ Compensation. These are federal- or state-mandated programs designed to provide workers with income and the cost of treatment when they are unable to work because of work-related injuries or illness. Leaves Without Pay. Many employers voluntarily grant employees leaves of absences without pay for a variety of personal reasons. On the federal level, the Family and Medical Leave Act (FMLA) requires employers with more than 50 employees to provide up to 12 weeks on unpaid leave for certain family and medical reasons. Workers’ Compensation Leaves Without Pay

Workers’ Compensation Insurance Federal- or state-mandated insurance provided to workers to defray the loss of income and cost of treatment due to work-related injuries or illness

Presentation Slide 11-6 Controlling Workers’ Compensation Costs Assess high-risk areas within the workplace. Prevent injuries through job design, employee selection, and training. Utilize physicians with experience in occupational health. Maintain effective communication with an injured worker. Manage the care of injured worker until he/she returns to work. Provide worker training in health and safety areas.

Discretionary Benefits Health Care Payment for Time Not Worked Supplementary Unemployment Benefits Discretionary benefits are provided by employers either to motivate and recruit good employees, because the competition offers them, or both. These programs have profound effects on HRM and are outlined below: Health Care Benefits. Many employers offer health care plans that cover doctor’s visits, hospital care, surgery, prescription drugs, dental, optical, and mental health care coverage. The cost of these plans as risen 254 percent between 1980 and 1993. Health insurance premiums paid by employers have increased more than 50 percent faster the medical costs. Teaching Tip: 23 percent of all health care costs go to physicians compensation, the largest share of any part of the health care system. Payment for Time Not Worked. Employer typically offer payment for time not worked in a variety of ways: Vacations with Pay. Most workers get a one-week paid vacation a year. Paid Holidays. Workers can expect up to 10 paid holidays a year. Sick Leave. Workers usually earn a number of paid sick days per time worked. Severance Pay. Many firms offer lump sum payments to departing employees. Supplemental Unemployment Benefits. These are plans that allow laid-off employees to draw weekly payments on top of unemployment payments from a fund set up by the employer for that purpose. Life Insurance. Many employers offer free or low-cost life insurance. Retirement Programs. Many organizations offer retirement benefits and planning. Pension Plans. A variety of pension plans are designed to provide income to individuals after retirement. Originally based on a reward philosophy, such plans are now based on an earnings philosophy. Types of pension plans are covered in more detail on the following slide. Pension Plans Retirement Programs Life and Long-Term Care Insurance

Health Maintenance Organizations (HMOs) Organizations of physicians and healthcare professionals that provide a wide range of services to subscribers and dependents on a prepaid basis

Preferred Provider Organization (PPO) A group of physicians who establish an organization that guarantees lower health care costs to the employer

Supplemental Unemployment Benefits (SUBs) A plan that enables an employee who is laid off to draw, in addition to state unemployment compensation, weekly benefits from the employer that are paid from a fund created for this purpose

Silver Handshake An early-retirement incentive in the form of increased pension benefits for several years, or a cash bonus

Defined-Contribution Types of Pension Plans Noncontributory Defined-Benefit Contributory Defined-Contribution Several types of pension plans can be distinguished. Key issues regarding regulation are also important. Types of plans include: Contributory Plan. This is a pension plan where contributions are made jointly by employees and employers. Teaching Tip: Many such plans are “grandfathered” in at rates exceeding new plan contribution limits. Noncontributory Plan. This is a pension plan where contributions are made solely by the employer. Defined-Benefit Plan. Under this plan, the amount an employee is to receive upon retirement is set forth. The amount paid is typically computed as a percentage of earnings in a given period, the length of service, and age at retirement. Teaching Tip: An important and expensive exception to this formula is that used by the U.S. military. Under current law, military retirees receive one-half their base active duty pay after twenty years of service, three-fourths their active duty base pay after thirty years. And they receive cost-of-living adjustments (COLAs) at least once a year at rate designed to meet inflation but actually about a point higher than inflation. This means that after seven years of retirement, military retirees actually makes more money than when they were working. As the number of retirees increases (even while fewer people serve in the military overall), this problem grows exponentially. For example, there are more general officers in the military now (with less than 2 million people in the military) than during WW II, when 12 million people were under arms. Vesting. Vesting is a guarantee of accrued benefits to participants at retirement age, regardless of their employment status at that time.

Contributory Plan A pension plan where contributions are made jointly by employees and employers

Noncontributory Plan A pension plan where contributions are made solely by the employer

Defined-Benefit Plan A pension plan in which the amount an employee is to receive upon retirement is specifically set forth

Defined-Contribution Plan A pension plan that establishes the basis on which an employer will contribute to the pension fund

Contemporary Pension Plan Options 401(k) Savings Plans Tax-deferred savings plans 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 also earns interest each year Experts predict it will replace traditional pension plans

Vesting A guarantee of accrued benefits to participants at retirement age, regardless of their employment status at that time

Employee Assistance Programs Educational Assistance Employee Services Employee Assistance Programs Counseling Services Employee services are generally not included in benefit-cost data compiled by the U.S. Chamber of Commerce, but do represent a cost to the employer. However, such services can provide enormous utility to employees, in some cases saving the employer substantial amounts of money. Key employee services include: Employee Assistance Programs (EAP). An EAP typically provides diagnosis, counseling, and referral for advice or treatment when necessary for problems related to alcohol or drug abuse, emotional difficulties, and financial or family difficulties. Their main intent is to help employees to cope with problems that otherwise cause interference with the employee’s work-related activities. Counseling Services. Often a part of an EAP, counseling services may extend to other areas as well, such as nutritional and wellness counseling or even financial planning. Educational Assistance Plans. These plans offer employees a chance to obtain additional education or training usually at the company’s expense. Child Care. The increased number of women working full time has created a demand for child care arrangements. Services here can include tuition support payments to cover the cost of child care or on-site services provided by the company. Elder Care. Because senior citizens now live unprecedented long lives after retirement, many employees (most of them women) are now caring for aged parents as well as their own families. Some organizations offer assistance programs in this area. Educational Assistance Elder Care Child Care

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

Elder Care Care provided to an elderly relative by an employee who remains actively at work

Other Services Awards Food Services Recreational and Social Services On-Site Health Services Credit Unions Legal Services A variety of other benefits and services are also offered by many employees: Food Services. From vending machines to cafeterias to free lunches, many companies provide some level of food service support on site. On-Site Health Services. Usually designed to handle minor illnesses and injuries, these services provide convenience and help to reduce absenteeism associated with travel for such services. Legal Services. Some companies offer a variety of legal services support, from call-up advice to comprehensive aid for complex matters such as divorce and will preparation. Financial Planning. Mostly offered to executives and middle managers, these services help employees with investments, taxes, and estate planning. Housing and Moving Expenses. Such relocation assistance can include compensation for loss of equity during a move and the costs associated with actual moving. Transportation Pooling. Van pooling helps employees with transportation-related costs such as vehicle depreciation, insurance, repair, fuel, and parking. Employers benefit from reduced tardiness and absenteeism. Purchasing Assistance. Many employers offer discount programs for purchasing merchandise. Credit Unions. These provide financial services such as checking, savings, and sometimes investment options. Recreational and Social Services. Company-sponsored leagues for sports and games and family-oriented gatherings such as picnics are examples. Awards. These may be cash (usually for cost savings) or noncash expressions of gratitude to recognize productivity, special contributions, and service to an organization. Purchasing Assistance Financial Planning Transportation Pooling Housing and Moving