CHAPTER 12 - MANAGING EMPLOYEE BENEFITS

KEY CONCEPTS AND SKILLS ➲ Objectives of benefits from perspective of society, organisation, and employee ➲ Principal types of benefits provided to employees by organisations ➲ Concept of cafeteria benefits and advantages ➲ Calculate cost of benefits and maintenance loading factor

CHAPTER OUTLINE ➲ Role of benefits ➲ Principal types of benefit ➲ Benefits practice ➲ Administration of benefits ➲ Cafeteria benefits ➲ Employee costs analysis

FRINGE BENEFITS ➲ Form of indirect compensation given to employees as addition to salaries ➲ Taken for granted by employees, yet represent cost to employer ➲ Providing benefits to employees is a specialised and expensive management task ➲ Legislation constantly increases types and amounts of benefits and employees today are demanding new kinds of benefits unheard of in past. ➲ Employees seldom appreciate value of benefits provided but cost of benefits constantly rising

ROLE OF BENEFITS Objectives of Society ➲ Governments ensure that employers help solve social problems and provide security to employees ➲ Benefits like EPF, retrenchment and lay-off benefits, SOCSO, are examples of compulsory benefits ➲ Besides compulsion, government through favourable tax deductions encourages employers to provide benefits like medical and hospitalisation, insurance, and even housing loans. ➲ Main objective of society is to ensure that burden of nation in providing care for citizens when ill-health, death, or retirement occur is shared with employers.

ROLE OF BENEFITS Objectives of Organisations ➲ Most organisations need to provide better than statutory benefits if they are to recruit new employees from labour market and retain them. ➲ Benefits will serve to free employees from worry of rising costs and uncertain futures, thus allowing them to concentrate on job and be more productive ➲ Also benefits will help ensure that employees are well rested and reduce fatigue. ➲ At same time, organisations need to keep current benefits entitlements in line with market practice so that policy matches business needs and control benefits costs to acceptable level.

ROLE OF BENEFITS Objectives of Employees ➲ In case of employees, main objectives are lower cost and tax benefit ➲ Another objective for employees is benefits are free from inflation ➲ A benefit, once given, is difficult to withdraw ➲ Even when high inflation resulting in benefit being very costly, organisation will still provide it.

PRINCIPAL TYPES OF BENEFIT Pay For Time Not Worked ➲ Annual Leave ➲ Medical and hospitalisation leave ➲ Public Holidays ➲ Compassionate leave ➲ Maternity leave ➲ Paternity leave ➲ Other leave

PRINCIPAL TYPES OF BENEFIT Insurance Benefits ➲ Death-in-service benefits ➲ Personal accident insurance ➲ Social Security Organisation (SOCSO) ➲ Medical and hospitalisation insurance

PRINCIPAL TYPES OF BENEFIT Retirement and Termination Benefits ➲ Employees Provident Fund ➲ Pre-retirement counselling ➲ Extra-statutory redundancy pay ➲ Outplacement advice (career counselling)

PRINCIPAL TYPES OF BENEFIT Employee Services Benefits ➲ Housing Loans ➲ Vehicle loans ➲ Emergency loans ➲ Festival advance ➲ Employee development loans ➲ Subsidised or free transportation ➲ Uniforms and safety clothing ➲ Food service ➲ Staff-purchase discounts ➲ Sports and social facilities

PRINCIPAL TYPES OF BENEFIT Status Benefits ➲ Company cars ➲ Personal drivers ➲ Club memberships

PRINCIPAL TYPES OF BENEFIT Intangible Benefits ➲ Status ➲ Power ➲ Training and development opportunities ➲ Balance of work and family responsibilities

BENEFITS PRACTICE ➲ Practice varies according to market practice and employee status ➲ Certain industries are more generous with certain benefits ➲ Generally the more senior the employee the more benefits provided ➲ Many organisations today opt to provide fairly equal benefits to all levels of employees with aim of harmonising benefits

ADMINISTRATION OF BENEFITS ➲ One major problem is lack of planning and focus in provision of benefits ➲ Many organisations provide extra benefits on ad hoc basis as result of market pressures, union demands, or employee wishes, and not as result of established objectives, systematic plans, and standards

ADMINISTRATION OF BENEFITS ➲ Generally lack of employee participation in selection of benefits ➲ One major concern is that a benefit, once given, will be difficult to withdraw ➲ Many organisations waste money providing benefits which are unwanted or not appreciated ➲ Because most employees have little choice in their individual benefit packages, the purpose of providing the benefit is not achieved.

ADMINISTRATION OF BENEFITS ➲ Also many organisations which do not publicise benefits available ➲ Mistaken belief that when employees are unaware and do not make use, organisation will be able to save money ➲ What actually happens is this lack of knowledge may cause employees to request for more benefits to meet their needs and result in organisation having to spend more on benefits

CAFETERIA BENEFITS ➲ One trend gaining popularity in developed countries is provision of variable fringe benefits programme ➲ Employees provided with benefits account which contains specified amount of money for fringe benefits above statutory requirements ➲ With this money, employee can choose a specific list of benefits from a list provided ➲ Main disadvantage with cafeteria approach is increased costs of administration ➲ Advantages are many: employee participation, no wastage of unwanted benefits, and increased appreciation on part of employees.

EMPLOYEE COSTS ANALYSIS ➲ Many costs associated with human resources ➲ Four phases: ➲ 1.Acquisition ➲ 2.Development ➲ 3.Maintenance ➲ 4.Separation ➲ To fully analyse the cost of human resources, all costs involved in these four phases will have to be taken into account ➲ Highest cost is maintenance and need to calculate Maintenance Loading Factor which is cost of benefits as a percentage of the basic salary.