Maintaining employee benefits programs

Based upon the readings, conduct external research and apply what you have learned. Do you agree or disagree with the company’s approach? The paper should be at least 1 page. Be sure to include references.

  • Part One: Introduction to Employee Benefits

    Chapter One: Introducing Employee Benefits

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    Learning Objectives

    In this chapter you will gain an understanding of:

    the fundamentals of employee benefits and their fit in the total compensation scheme.

    the field of employee-benefits practice.

    legal and regulatory influences on discretionary employee-benefits practices.

    the strategic importance of benefits and approaches to strategically planning a benefits program.

    information used to develop strategic benefits plans.

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    Overview

    Start by defining employee benefits.

    Next, employee benefits are shown in the context of total compensation systems.

    Followed by an expansion of the definition of employee benefits.

    Finally, strategic considerations are examined when establishing and maintaining employee benefits programs.

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    Exhibit 1.1

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    Employee Benefits in the Total Compensation Scheme

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    Defining Employee Benefits

    Employee benefits refer to compensation other than hourly wage or salary.

    Organize benefits based on

    the three roles they serve for recipients, and

    the two broad sources of the benefits.

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    Defining Employee Benefits

    Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

    Three fundamental roles of benefits programs:

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    Protection programs

     

     

    promote opportunities for employees and their families

     

     

    compensates employees when they are not performing their primary work duties such as vacation or illness

     

     

    provide benefits, promote health, and guard against income loss caused by unemployment, disability, and illnesses

     

     

    Paid time-off

     

     

    Accommodation and enhancement benefits

     

     

    Defining Employee Benefits

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    Employee benefits derive from two broad sources.

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    Legally required

     

     

    Discretionary

     

     

    laws such as the Social Security Act of 1935 mandate a variety of programs

     

     

    companies may offer additional benefits on a discretionary basis

     

     

    Defining Employee Benefits

    Legally required

    Old-Age, Survivor, and Disability Insurance (OASDI).

    Health care insurance.

    Medicare.

    Unemployment insurance.

    Workers’ compensation.

    Family and Medical leave.

    Discretionary

    A few examples include:

    dental or vision care,

    life insurance,

    retirement programs,

    holiday and vacation pay,

    sick leave pay,

    jury duty leave,

    military leave,

    family assistance, and

    tuition reimbursement.

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    Employee Benefits in the Total Compensation Scheme

    Total compensation

    represents both core compensation (wages, salaries, adjustments) and employee benefits.

    Core compensation programs

    reward employees according to their job performance levels or for acquiring job-related knowledge or skills.

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    Employee Benefits in the Total Compensation Scheme

    Core compensation.

    Base pay is money employees receive for performing their jobs.

    Can be hourly pay or an annual salary.

    Adjustments to core compensation.

    Employers may choose to adjust base pay for a variety of reasons.

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    Adjustments to Core Compensation

    Cost-of-living (COLAs).

    Periodic adjustments often matching CPI.

    Seniority-pay.

    Raises based on length of service.

    Merit-pay.

    Permanent increases rewarding excellence.

    Incentive pay.

    Rewards employees for attaining predetermined work objectives.

    Person-focused pay.

    Rewards employees for acquiring new knowledge and skills.

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    The Field of Employee-Benefits Practice

    Virtually every company offers at least one benefit to employees, and many offer several.

    Benefits professionals work within the broader human resource functions or as a consultant.

    Benefits managers plan, direct, and coordinate benefits an organization offers its employees.

    Opportunities for employment are projected to grow.

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    Legally Required Benefits

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    All provide protection programs to employees and their dependents.

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    The Social Security Act of 1935

     

     

    Workers’ Compensation

     

     

    Family and Medical Leave Act of 1993

     

     

    The Patient Protection and Affordable Care Act of 2010

     

     

    Legally Required Benefits

    The Social Security Act of 1935 set up two programs:

    a federal retirement system, and

    unemployment insurance.

    Amendments established:

    Old-Age, Survivor, and Disability Insurance (OASDI), and

    Medicare

     

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    Legally Required Benefits

    Workers’ compensation.

    State compulsory disability laws created workers’ compensation programs.

    Workers’ compensation insurance programs, run by each state, covers employee expenses from work-related accidents or injuries.

    Family and Medical Leave Act (FMLA) 1993

    provides job protection in cases of family or medical emergencies.

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    Legally Required Benefits

    The Patient Protection and Affordable Care Act (PPACA) requires employers to offer health-care benefits to their employees.

    Companies may use:

    fee-for-service plans, alternative managed-care plans, point-of-service plans, or consumer-driven health care.

    Companies may also offer:

    dental care, vision care, prescription drug plans, and mental health and substance abuse plans.

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    Discretionary Benefits

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    Discretionary benefits fulfill three main roles:

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    Protection programs

     

     

    Paid time off

     

     

    Accommodation and enhancements

     

     

    Discretionary Benefits

    Protection programs.

    Disability insurance replaces income if unable to work due to illness or injury.

    Life insurance protects family members by paying a specified amount upon employee’s death.

    Retirement plans provide income to individuals and beneficiaries throughout retirement.

    Defined contribution plan – employee’s contribute.

    Defined benefit plan – predetermined monthly sum.

    Hybrid plans can contain any combination.

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    Discretionary Benefits

    Paid time-off policies compensate employees when not performing primary work duties.

    Most time off is a matter of custom.

    In unionized settings, paid time-off provisions are specified through collective bargaining.

    Common time-off includes holidays and vacations, jury duty, funeral leave and military leave.

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    Discretionary Benefits

    Accommodation and enhancement benefits promote various opportunities for employees.

    Mental and physical well-being could include a stress management class.

    Family assistance programs such as child care.

    Skills and knowledge acquisition through tuition reimbursement.

    Manage daily challenges with transportation services.

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    Basic Design Considerations for Discretionary Benefits

    Common features include:

    eligibility provisions,

    kinds of benefits,

    levels of benefits,

    waiting periods,

    financing benefits including noncontributory, contributory, and employee-financed benefits;

    employee choice including flexible benefits, and voluntary benefits; and

    communication.

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    Origins of Employee Benefits

    Legally required benefits provided a form of social insurance.

    Arose during industrialization and Great Depression.

    Retirement plans were the earliest discretionary benefit, in the late 1800’s.

    Welfare practices described anything for the comfort of employees, not required by law.

    Employees typically view benefits as entitlement.

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    Legal and Regulatory Influences on Discretionary Benefits Practices

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    Specific laws regulate the application.

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    ERISA

     

     

    the Employee Retirement Income Security Act of 1974 protected private sector employee’s retirement benefits

     

     

     

    Various laws

     

     

    require government pay to private-sector companies be aligned with customary wages in the local area

     

     

    Strategic Planning For a Benefits Program

    Strategic planning is a series of judgments, made under uncertainty, that companies direct toward making strategic decisions.

    Strategic decisions guide the activities of the companies in the market.

    Strategic planning supports business objectives.

    Competitive strategy is the planned use of resources to sustain competitive advantage.

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    Exhibit 1.3

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    Relationship between Strategic Decisions and Employee Benefit Practices

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    Strategic Planning For a Benefits Program

    HR strategies specify the use of HR practices.

    Total compensation strategies use total compensation to support HR strategies.

    Strategic benefit plans detail scenarios that may affect the company.

    Benefits decisions are based on two questions:

    Does offering particular benefits support the company’s benefits strategy?

    What is the optimal design?

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    Approaches to Strategic Benefit Planning

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    Two general approaches:

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    Top-down approach

     

     

    Backing-in approach

     

     

    is a reactive process evaluating benefits only when problems arise

     

     

    is a proactive process of regular review of benefits programs

     

     

    Information Used in Strategic Benefit Planning

    Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

    Two information sources:

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    external market environment

     

     

    internal company environment

     

     

    External Environment

    External environmental factors include:

    industry prospects, economic conditions, and forecasts;

    employer costs for compensation and benefits;

    government regulation of employee benefits; and

    changing demographics of the labor force.

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    External Environment

    The external environment consists of industry prospects, economic conditions, and forecasts.

    The first two are behind strategic benefits plans.

    Strong forecasts call for strengthening benefits.

    Weak forecasts call for saving costs by shifting more responsibility onto employees.

    Employers will continue to offer benefits due to tax advantages and retaining the best employees.

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    External Environment

    Employer costs for compensation and benefits.

    Overall, benefits accounted for about 30% of total compensation costs in the private sector.

    Government regulation of employee benefits.

    Four broad forces contribute to an employer’s choice of discretionary benefits:

    the adequacy of legally require benefits,

    employee expectations,

    the cost of legally required benefits, FICA and FUTA,

    and a variety of other economic considerations.

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    External Environment

    Changing demographics in the labor force.

    Labor force diversity will continue to increase based on gender, age, race, and ethnicity.

    Employees are more likely to endorse benefit plans if these benefits fulfill their needs and preferences.

    Differences in preferences and needs call for flexible benefits offerings.

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    Internal Environment

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    Factors include:

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    Workforce demographics

     

     

    Collective bargaining agreements

     

     

    Internal Environment

    Workforce demographics usually represent those of the broad labor force.

    Employee needs and wants are often associated with life events.

    Should companies presume the needs and preferences of employees? Probably not.

    Surveys allow benefits professionals to gather information on the usefulness of benefits.

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    Internal Environment

    Collective bargaining agreements specify terms of employment, including pay, benefits, and working conditions.

    Arise out of negotiations between management and labor unions.

    Private-sector employers spend more on benefits for union workers than on non-union workers.

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    Summary

    We began by defining employee benefits.

    Next, employee benefits were shown in the context of total compensation systems.

    Followed by an expansion of the definition of employee benefits.

    Finally, strategic considerations were examined when establishing and maintaining employee benefits programs.

    Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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