Employee Benefits and Services

1
(No Transcript)
2
12
Employee Benefits and Services
3
Learning Objectives

• Define indirect financial compensation.
• Explain why organizations provide benefits and
  services to employees.
• Differentiate between mandated and voluntary
  benefits.
• Describe the various types of benefits and
  services offered by most American companies.
• Explain how to manage an effective benefits
  program.

4
Indirect Financial Compensation

• Also called benefits and services, indirect
  financial compensation includes all
  employer-provided rewards and services, other
  than wages or salaries
• Social insurance payments, private insurance,
  retirement plans
• Payment for time not worked
• Extra cash payments, other than bonuses
• Services, such as subsidized cafeterias
• Most of these are available as long as the worker
  is employed, regardless of seniority or
  performance

5
Indirect Financial Compensation

• There is a lack of agreement on
• What is included
• Purposes served
• Responsibility for programs
• Costs and value of the various elements
• Units in which costs and values are measured
• Criteria for decision making
• Decisions about indirect compensation are more
  complex than those related to wages and salaries

6
Indirect Financial Compensation

• Employers face rising benefit costs due to
• Increased legislation
• Insurers insolvency
• The cost of medical technologies
• The aging workforce
• New immigration
• More women in the workforce
• Global competition

7
Why Offer Benefits and Services?

• Programs offered today are the product of 60
  years of effort in this area
• Most benefit programs began during WWII, when
  wages were strictly regulated
• Unions pushed for non-wage compensation
  increases, and they got them
• In 1929, benefits cost the employer 3 of total
  wages and salaries
• By 2004, benefits accounted for 20 to 60 of
  payroll

8
Why Offer Benefits and Services?

• Some employers provide these programs for labor
  market reasons
• Others want to keep a union out, or the union won
  them through negotiations
• Some feel that providing benefits and services
  increases employee performance
• None of these reasons explains the degree to
  which benefits and services are provided

9
Mandated Benefits Programs

• Three benefit programs are mandated by federal
  and state governments
• Unemployment insurance
• Social security
• Workers compensation
• An employer must offer mandated benefits programs
  and cannot change them in any way

10
Unemployment Insurance

• Unemployment insurance (UI), set up under the
  Social Security Act of 1935, had these
  objectives
• Provide income to workers during short periods of
  involuntary unemployment
• Help the unemployed find jobs
• Encourage employers to stabilize employment
• Stabilize the labor supply
• UI and allied systems cover 95 of the labor
  force
• The self-employed, firms with less than four
  employees, domestics, farm employees, government
  employees, and nonprofit employers are excluded

11
Unemployment Insurance

• To be eligible for compensation, the employee
  must
• Have worked a minimum number of weeks
• Be without a job
• Be willing to accept a suitable position offered
  through a state Unemployment Compensation
  Commission
• Neither the Social Security Act nor the National
  Labor Relations Act forbids benefits for strikers
• Each state decides whether to permit or prohibit
  such payments

12
Unemployment Insurance

• Federal unemployment tax accounts for 0.8 of
  payroll
• Tax rates, eligibility requirements, weekly
  benefits, and duration of benefits vary from
  state to state
• Before benefits are paid, the reason for being
  unemployed must be assessed
• Applicants can be disqualified for quitting a job
  
• A negotiated quit is a legitimate reason for
  collecting unemployment benefits
• Discharge for work-related misconduct usually
  disqualifies applicants

13
Unemployment Insurance

• Unemployment compensation is usually limited to
  26 weeks maximum
• In most states, the weekly benefit is about 50
  percent of earnings
• Minimum/maximum limits are set by the federal
  government

14
Social Security

• In 1935, the pension portion of the Social
  Security system was established
• The goal was to provide income to retired people
  to supplement savings, private pensions, and
  part-time work
• At the time it was created
• The wealthy lived alone
• The average person moved in with relatives
• The poor went to a poor house

15
Social Security

• The concept was that
• Both the employer and employee would pay taxes
• The taxes would cover the retirement payments
  each employee would later receive
• This was a self-funding insurance program
• Initially, two goals were sought
• Adequate payments for all
• Individual equity

16
Social Security

• In 1950, there were about 16 workers paying taxes
  for each beneficiary
• Today, there are about 3.3 workers paying taxes
  for each beneficiary

17
Social Security

• Benefit details
• Employees born in 1937 or earlier become eligible
  for full benefits at age 65, or reduced benefits
  at age 62
• Those born in 1960 or later will not receive full
  benefits until age 67
• If an employee dies, a family with children under
  18 receives survivor benefits
• Employees totally disabled before 65 become
  eligible
• Under the Medicare provision, eligible
  individuals receive payments for medical related
  services

18
Social Security

• Social security systems around the globe are in
  crisis
• Steps that may be taken to meet this challenge
• Reduce the level of future benefits
• Increase Social Security taxes
• Allow private retirement accounts
• As more workers reach retirement, the ratio of
  active workers to Social Security recipients will
  decline alarmingly
• The current 20 to 30 percent will reach 40 to 50
  percent over the next 40 years

19
Social Security

• Demographic trends threatening the long-term
  financial security of Americans
• Longer life expectancy
• An increasing risk of long-term disability
• Evolving work patterns
• New family norms
• Seniors need more money than previous generations
  to maintain their standard of living
• Many retirees will rely solely on Social Security
  benefits

20
Social Security

• The social security retirement benefit is tax
  free in 24 states and is entirely free from
  federal tax
• However, beneficiaries under age 65 can earn no
  more than 9,120 per year
• Those between 65 and 69 can earn up to 14,500
• Those 70 are not penalized for earnings
• Employers and employees pay a payroll tax to fund
  social security benefits
• Each pays a tax of 6.2 on the first 90,000 of
  the employees earnings (12.4 total)

21
Workers Compensation

• Workers with job-related illnesses or accidents
  receive some financial protection
• Workers compensation programs are administered
  by the states
• Employers pay the entire cost
• Premiums are tied directly to each employers
  past experience with job-related accidents and
  illnesses
• All states plus the District of Columbia have
  workers compensation laws
• Only Texas makes participation voluntary

22
Workers Compensation

• Eligibility varies from state to state
• Benefits range from 60 to 75 percent of the
  average weekly wage
• Costs are growing due to
• Escalating fraudulent claims
• The expansion of compensable injuries
• Fewer restrictions to eligibility
• A growing number of states are providing workers
  compensation through alternative sources
• Some are also adding deductibles to their plans

23
Voluntary Benefits

• Many employers provide these kinds of benefits
  voluntarily
• Pay for time not worked
• Insurance protection
• Retirement plans

24
Voluntary Benefits

• Most employers now offer compensation for time
  not worked
• Break time
• Get-ready time
• Wash-up time
• Clothes-changing time
• Lunch and rest periods
• Coffee breaks

25
Voluntary Benefits

• Employers also pay employees when they are not
  actually at work
• Holidays
• Vacations
• Sick leave
• Funeral leave
• Jury duty
• Personal leaves
• Insurance
• Retirement Plans
• The smaller the business, the fewer the
  provisions for time off with pay

26
Employee Services

• Employee services is something of a catchall
  category of voluntary benefits, such as
• Cafeterias
• Saunas and gyms
• Free parking
• Commuter vans
• Infirmaries
• Ability to purchase company products at a
  discount
• Death, personal, and financial counseling

27
Education Programs

• Many organizations support off-the-job education
• Employees can receive up to 5,250 annually in
  tax-free educational assistance
• Reimbursements for graduate-level courses are
  taxable
• The tax status of other reimbursement plans is
  unsure
• Employees most likely to participate
• Salaried full-time
• Nonunion hourly
• 85 of those eligible to participate do so

28
Pre-retirement Programs

• Companies are increasingly offering preretirement
  planning programs on
• Health
• Money management
• Legal issues
• Housing

29
Childcare Programs

• At least 5,000 parents a day miss work or fail to
  find a job because they cant find childcare
• An increasing number of employers are responding
  with company-sponsored childcare programs
• Alternatives include flexible working hours,
  telecommuting, lists of child care facilities,
  providing on-site programs
• Offering these programs causes absenteeism and
  turnover to fall
• Job satisfaction, productivity and loyalty soar

30
Elder Care

• People 65 or older will make up 23 percent of the
  population of the U.S. by 2050
• At least 20 percent of employees already provide
  assistance to elderly relatives or friends
• They spend between 6 and 35 hours per week
  providing this care
• At least half also have children at home
• The burden falls more heavily on working women

31
Elder Care

• The employee/caregiver experiences these
  problems
• Missed work (58 percent)
• Loss of pay (47 percent)
• Less energy to work (15 percent)
• The employer experiences these problems
• Extensive phone calls
• Tardiness
• Excessive absenteeism
• Unscheduled time off
• Loss of concentration

Elder care is an emerging employee benefit
32
Financial Services

• Organizations help and encourage their employees
  to save through
• Employee savings plans
• Credit unions
• Thrift plans
• Financial planning services are also offered,
  especially to executives and professional
  personnel

33
Social and Recreational Programs

• More than 50,000 organizations provide recreation
  facilities for employees
• Experts foresee a growing trend to release
  employees from work to participate in sports
  activities
• These activities are intended to keep employees
  physically fit and tie them to their employer
• No studies show the value to the employer
• Recreational services are the least preferred of
  all benefits and services

34
Managing an Effective Benefits Program

• When making decisions about benefits and
  services, managers must consider that
• Mandated programs must be funded
• There is little evidence that benefits and
  services motivate performance or increase
  satisfaction
• Most employees see benefits/services as
  entitlements
• Unions, competitors, and industry trends pressure
  managers to provide or increase voluntary
  benefits
• Costs of benefits and services continue to
  escalate dramatically

35
Managing an Effective Benefits Program

• To manage a benefits program effectively
• Step 1 Set Objectives and Strategy for Benefits
• Step 2 Involve Participants and Unions
• Step 3 Communicate Benefits
• Step 4 Monitor Costs Closely

36
Cost-Benefit Analysis

• When benefit costs increase, the price of
  products and services increases
• This makes companies less competitive
• Higher benefits can reduce permanent employment
• It is cheaper to pay overtime or hire part-time
  employees than pay full-time wages plus benefits
• Most evidence shows that benefits do not affect
  turnover at all

37
Cost-Benefit Analysis

• It is rational for employees to want additional
  benefits because they constitute tax-free income
• Many companies cannot afford to pay benefits plus
  high wages
• There has been little research on the effect of
  benefits on productivity