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.
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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.
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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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.
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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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.
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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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.
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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Legal and Regulatory Influences on Discretionary Benefits Practices
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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.
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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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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