Resource Human Management
TENTH EDITON
Compensating Human Resources
SECTION 4
Robert L. Mathis John H. Jackson
Chapter 14
Managing Employee Benefits
2003 Southwestern College Publishing. All rights reserved.
PowerPoint Presentation by Charlie Cook
Learning Objectives After you have read this chapter, you should be able to:
Define a benefit and identify two strategic reason why employers provide benefits. Distinguish between mandated and voluntary benefits and list three examples of each. Describe two security benefits. List and define at least six pensionrelated terms. Explain the importance of healthcare cost management and identify some methods of achieving it.
2002 Southwestern College Publishing. All rights reserved. 142
Learning Objectives (cont'd)
Discuss the growth of familyoriented and timeoff benefits and their importance to many employees. Summarize benefits communication and flexible benefits as considerations in benefits administration.
2002 Southwestern College Publishing. All rights reserved.
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Benefits
Benefit
Strategic Perspectives on Benefits
An indirect compensation given to an employee or group of employees as a part of organizational membership. Benefits absorb social costs for health care and retirement. Benefits influence employee decisions about employers (e.g., recruitment and retirement). Benefits are increasingly seen as entitlements. Benefit costs are about 40% of total payroll costs.
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How the Benefit Dollar Is Spent
Source: Based on information in Employee Benefits, 2000 edition (Washington, D.C.: U.S. Chamber of Commerce, 2000). 2002 Southwestern College Publishing. All rights reserved.
Figure 141
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Benefit Needs Analysis
Benefit Needs Analysis
A comprehensive look at all aspects of benefits.
How much total compensation? What part of total compensation should benefits comprise? What expense levels are acceptable for each benefit? Which employees should get which benefits? What are we getting in return for the benefit? How will offering benefits affect turnover, recruiting, and retention of employees? How flexible should the benefits package be?
2002 Southwestern College Publishing. All rights reserved.
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Types of Benefits
Figure 142
2002 Southwestern College Publishing. All rights reserved. 147
Security Benefits
Worker's Compensation
Unemployment Compensation
Benefits provided to persons injured on the job. A Federal/state payroll tax that funds state unemployment systems. Involuntary unemployment and actively seeking work is required for persons to claim benefit.
Supplemental Unemployment Benefits (SUB)
A unionnegotiated benefit provision that pays a supplemental amount to laidoff employees who are drawing unemployment compensation.
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2002 Southwestern College Publishing. All rights reserved.
Security Benefits (cont'd)
Severance Pay
A security benefit voluntarily offered by employer to employees who lose their jobs. Payments are determined by the employee's level within the organization and years of employment. Other benefits (e.g., outplacement and continued health insurance) may be offered in lieu of cash severance payments.
2002 Southwestern College Publishing. All rights reserved.
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Services During Severance
Source: Linda Jones, "Severance Policies in Place at Most Organizations," Human Resource Executive, May 1, 2001, 28. Used with permission. 2002 Southwestern College Publishing. All rights reserved.
Figure 143
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Median Age at Retirement by Gender
Source: U.S. Bureau of Labor Statistics. *Projected. 2002 Southwestern College Publishing. All rights reserved.
Figure 144
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Retirement Security Benefits
Retirements and Age Discrimination Social Security Act of 1935
Age Discrimination in Employment Act (ADEA) prohibits mandatory retirement age provisions. Established a system providing old age, survivor's, disability, and retirement benefits. Federal payroll tax on both the employer and the employee. Benefit payments are based on employee's lifetime earnings.
2002 Southwestern College Publishing. All rights reserved.
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Pension Plans
Pension Plans
Traditional Benefit Plans
Definedbenefit plans
Retirement benefits established and funded by employers and employees.
Employees are promised a definite pension amount based on age and length of service.
Definedcontribution plans
Employer makes an annual payment to an employee's account. Benefit payout is determined by the financial performance of the employee's retirement.
2002 Southwestern College Publishing. All rights reserved.
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Pension Plans
Cash Balance Plans
Employee Retirement Income Security Act (ERISA)
A hybrid plan that defines retirement benefits in terms of a hypothetical account balance.
Regulates pension funds to assure their soundness. Requires firms to offer retirement plans to all employees if offered to any employees. Accrued benefits must be paid to departing employees. Requires minimum funding for IRS approval and purchase of plan termination insurance.
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2002 College Southwestern Publishing. All rights reserved.
Pension Terms and Concepts
Contributory Plan
Noncontributory Plan Vesting
Both employer and employee pay money into the retirement fund. All pension benefits funding is paid by the employer. The right of employees to receive benefits from their pension plans. A pension plan feature that allows employees to move their benefits from one employer to another.
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Portability
2002 Southwestern College Publishing. All rights reserved.
Individual Retirement
Individual Retirement Accounts (IRAs)
401(k) and 403 (b) Plans
Individual Retirement Options
Keogh Plans
2002 Southwestern College Publishing. All rights reserved.
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401(k) for Small Business
Source: Based on data in Virginia Munger Kahn, "Pension Plans for Everyone," Business Week Small Biz, July 16, 2001, 22. 2002 Southwestern College Publishing. All rights reserved.
Figure 145
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Controlling Health-Care Benefits Costs
CoPayment
Defined Contribution Plans for Health Benefits
Employees are required to pay a portion of the cost of both insurance premiums and medical care. Employer provides a set amount that the employee may spend on healthcare coverage benefits.
2002 Southwestern College Publishing. All rights reserved.
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Controlling Health-Care Costs (cont'd)
Managed Care
Preferred Provider Organization
Approaches that monitor and reduce medical costs using restrictions and market system alternatives. A healthcare provider that contract with an employer group to provide healthcare services to employees at a competitive rate. A managed care plan that provides services for a fixed period on a prepaid basis.
Health Maintenance Organization (HMO)
2002 Southwestern College Publishing. All rights reserved.
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Increases in Health-Care Benefits Costs to Employers
Source: U.S. Bureau of Labor Statistics, U.S. Department of Labor, 2002. 2002 Southwestern College Publishing. All rights reserved.
Figure 146
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Health-Care Legislation
COBRA Provisions
HIPPA Provisions
Former employees, their spouses, and eligible dependents are covered for 18 to 36 months Up to 102% of group premium costs paid by the former employee. Allows employees to switch their health insurance plan from one company to another, regardless of preexisting health conditions. Health plans must continue to cover sick employees.
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2002 Southwestern College Publishing. All rights reserved.
U.S. Population Lacking Health Insurance
Source: U.S. Census Bureau, 2002.
2002 Southwestern College Publishing. All rights reserved.
Figure 147
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Other Benefits
Credit Unions Purchase Discounts Stock Investment
Family-Care Benefits
Relocation Expenses
Family-Oriented Benefits
Benefits
Life, Disability, Legal Insurances
Social and Recreational
Educational Assistance
2002 Southwestern College Publishing. All rights reserved.
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Family Medical Leave Act (FMLA)
Coverage
Requirements
Employers with 50 or more employees Employers must allow eligible employees to take up to a total of 12 weeks of...