Mgmt HR ch13 - Chapter 13 8 questions Reasons for benefits...

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Reasons for benefits growth Types of Benefits (know in detail) Cost control Flexible spending accounts Regulator issues Chapter 13 Introduction The average cost of benefits adds up to about 37 percent for every payroll dollar benefits compose about 27 percent of the total compensation package. Benefits are unique because: -there is more regulation of benefits than of direct pay. -benefits have become almost obligatory for employers to provide. -benefits are complex for employees to understand. Reasons for Benefits Growth *Why do employees choose to channel a significant portion of the compensation dollar away from cash (wages and salaries) into benefits? Economic theory tells us that people prefer a dollar in cash over a dollar’s worth of any specific commodity because the cash can be used to purchase the commodity or something else. Thus cash is less restrictive. Factors contributing to the tremendous growth of benefits 1. Laws mandating benefits passed during and after the Great Depression: The Social Security Act and other legislation established legally required benefits (such as the Social Security retirement system) and modified tax structure in such a way as to effectively make other benefits-such as workers’ compensation and unemployment-mandatory. 2. Wage and price controls instituted during WWII combined with labor shortages: forced employers to think of new ways to attract and retain employees 3. The tax treatment of benefits programs: is often more favorable for employees than the tax treatment of wages and salaries. The marginal tax rate is the percentage of an additional dollar of earnings that goes to taxes. No such taxes are paid on most employee benefits. 4. Large group v. individual insurance: the cost advantage that groups typically realize over individuals. (economies of scale) 5. The growth of organized labor: unions 6. Employer differentiation: employers may also provide unique benefits as a means of differentiating themselves in the eyes of current or prospective employees Benefits Programs Social Insurance (Legally Required ) Social Security: includes provision for old-age insurance, unemployment insurance, survivors' insurance, disability insurance, hospital insurance, and supplementary medical insurance. *the largest single component of the elderly’s overall retirement income o Social Security retirement benefits for fully insured workers begin at age 65 and six months or a reduced benefit can begin at age 62. The full retirement age now rises with birth year, reaching age 67 for those born in 1960 or later. o Social Security retirement benefits are free from federal tax and free from state tax in some states. o
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Mgmt HR ch13 - Chapter 13 8 questions Reasons for benefits...

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