Documente Academic
Documente Profesional
Documente Cultură
C H A P T E R
COMPENSATION
Benefits
And
Services
Lecture Outline
213
T h i r t e e n
13
Strategic Overview
The Benefits Picture Today
Pay for Time Not Worked
Unemployment Insurance
Vacations and Holidays
Sick Leave
Parental Leave and the Family and Medical
Leave Act
Severance Pay
Supplemental Unemployment Benefits
Insurance Benefits
Workers Compensation
Hospitalization, Health, and Disability
Insurance
Life Insurance
Benefits for Part-Time and Contingent
Workers
Retirement Benefits
Social Security
Pension Plans
Pension Planning
Pensions and the Law
Pension Alternatives
Personal Services and Family-Friendly Benefits
Personal Services
Family-Friendly Benefits
Executive Perquisites
Flexible Benefits Programs
The Cafeteria Approach
Computers and Benefits Administration
Flexible Work Arrangements
ANNOTATED OUTLINE
I.
The Benefits Picture Today Benefits can be classified by 1) pay for time not
worked; 2) insurance benefits; 3) retirement benefits; and 4) services.
Know Your Employment Law: Benefits There are a myriad of
laws that affect benefits. It is important that expert assistance be
secured when formulating benefits and benefits policies.
II.
The benefits derive from an unemployment tax on employers that can range from
0.1% to 5% of taxable payroll in most states. An employers unemployment tax
rate reflects its rate of personnel terminations.
B.
Vacations and Holidays The number of paid employee vacation days and
holidays varies considerably from employer to employer. Firms have to address
several holiday- and vacation-related policy issues.
C. Sick Leave provides pay to employees when theyre out of work due to illness.
Most sick leave policies grant full pay for a specified number of permissible sick
days. To minimize employees using their sick leave as extensions to their
vacations, some employers are repurchasing unused sick leave at the end of the
year by paying their employees a daily equivalent sum for each sick leave day
not used or creating a leave bank or paid time off (PTO).
D. Parental Leave and the Family Medical Leave Act stipulates that: 1) private
employers of 50 or more employees must provide eligible employees up to 12
weeks of unpaid leave for their own serious illness, the birth or adoption of a
child, or the care of a seriously ill child, spouse, or parent; 2) employers may
require employees to take any unused paid sick leave as part of the 12-week
leave provided in the law; 3) employees taking leave are entitled to receive
health benefits while they are on unpaid leave, and 4) employers must guarantee
employees the right to return to their previous or equivalent position with no loss
of benefits at the end of the leave; however, the law provides a limited exception
from this provision.
E. Severance Pay a one-time payment when terminating an employee, is a
humanitarian gesture, and good public relations. Most managers expect
employees to give them at least one or two weeks notice if they plan to quit; it
therefore seems appropriate to provide at least one or two weeks severance if
an employee is being dismissed.
F. Supplemental Unemployment Benefits supplement the employees
unemployment compensation, and help the person maintain his/her standard of
living for a time while he/she is out of work due to layoffs, reduced workweeks,
and relocations. They are becoming more prevalent in union agreements.
III.
NOTES
Insurance Benefits
A. Workers Compensation refers to the sure, prompt income and medical benefits
provided in work-related accidents to the victims or their dependents, regardless
of fault. Every state has its own workers compensation law and administrative
commission, and some run their own insurance programs. Most states require
employers to carry workers compensation insurance. Neither the state nor the
federal government contributes any funds for workers compensation.
1. How Benefits are Determined Workers Compensation can be monetary or
medical. Monetary awards are based on a formula regarding the disability
involved and the workers average weekly wages. Some disabilities or losses
also receive monetary awards based on a schedule of those losses.
215
New Trends in Health Care Cost Control many employers are changing
their medical plans by: 1) moving away from 100% medical cost payments
and including a deductible; 2) increase annual deductibles; 3) require
medical contributions; 4) use gatekeepers; 5) encourage preventive health
care; 6) form health care coalitions; and 7) manage the cost of aids.
2.
Mental Health Benefits The costs of mental health treatment are rising
because of widespread drug and alcohol problems. There is an increase in
the number of states requiring employers to offer a minimum package of
mental health benefits. The Mental Health Parity Act of 1996 sets minimum
mental health care benefits at the national level.
3.
4.
5.
C. Life Insurance Most employers provide group life insurance plans, which usually
accept all employees, regardless of health or physical condition.
216
D. Benefits for Part-time and Contingent Workers Some firms provide holiday, sick
leave, vacation benefits, and some form of health care benefits for employees
who work less than 35 hours a week.
IV.
NOTES
Retirement Benefits
A. Social Security provides three types of benefits: retirement benefits, survivors
(death) benefits, and disability payments. Retirement benefits provide an income
if you retire at age 62 or thereafter and are insured under the Social Security Act.
Survivor (death) benefits provide monthly payments to your dependents
regardless of your age at death if you were insured under the Social Security Act.
Disability payments provide monthly payments to employees who become totally
disabled (and their dependents) if they work and meet certain specified work
requirements. The Social Security system also administers the Medicare
program, which provides a wide range of health services to people 65 or older.
B. Pension Plans There are a variety of pension plans. Defined contribution plans
specify what contributions the employer will make to the employees retirement or
savings fund. 401 (k) plans are where an employee authorizes the employer to
deduct a certain amount of money from his/her paycheck before taxes and to
invest in the 401(k) plan. Many federal laws govern pensions. Employers have
to consider several policy issues in developing pension plans: membership
requirement; benefit formula; plan-funding; and vesting.
1. 401(k) Plans a popular defined contribution plan in which the employee can
have money deducted from his or her paycheck and deposited in the account
before payroll taxes.
2. Other Types of Defined Contribution Plans in a savings a thrift plan,
employees contribute a portion of their earnings to a fund. The employer
usually matches this contribution in whole or in part. In deferred profit
sharing plans, employers contribute a portion of their profits to the pension
fund. An employee stock ownership plan (ESOP) is a tax-deductible stock
bonus plan.
C. Pension Planning The Employee Retirement Income Security Act Income
Security Act (ERISA) restricts what companies can, cannot, and must do in
regards to pension plans. In developing pension plans, employers must
consider: membership requirements, benefit formula, plan funding, and vesting.
D. Pensions and the Law Under the Employee Retirement Income Security Act
(ERISA), participants in pension plans must have a non-forfeitable right to 100%
of their accrued benefits after 3, 5, or 7 years of service. Under the Tax Reform
Act of 1986, an employer can require that an employee complete a period of no
more than 2 years service to the company before becoming eligible to participate
in the plan. If you require more than 1 year of service before eligibility, the plan
must grant employees full and immediate vesting rights at the end of that period.
E. Pension Alternatives
217
1.
Early Retirement Windows mean that the company opens up (for a limited
time only) the opportunity for employees to retire earlier than usual, with a
financial incentive, which is generally a combination of improved or
liberalized pension benefits plus a cash payment.
2.
3.
Cash Balance Pension Plans are defined benefit plans under which the
employer contributes a percentage of employees current pay to the
employees pension plans every year, and employees earn interest on this
amount.
Improving Productivity Through HRIS: Benefits Management
Systems Benefits administration can be an enormously laborintensive and time consuming activity for an HR department. One of
the main ways HR managers are increasing the productivity of their
benefits dollars is by increasing the utilization of technology.
V.
NOTES
218
VI.
NOTES
219
NOTES
DISCUSSION QUESTIONS
1. You are applying for a job as a manager and are at the point of negotiating salary and benefits.
What questions would you ask your prospective employer concerning benefits? Describe the
benefits package you would try to negotiate for yourself.
You should ask sufficient questions
about all aspects of the benefits package such that you will come away knowing exactly what benefits
you will and will not have. These can be phrased in many ways, but should cover all areas important
to the potential employee. Hopefully, students will be far-sighted enough to understand the
importance of benefits that might not appear to be critical at this stage of their lives. For example, if
students are young and single, they should realize the importance of a good family medical plan as
well as a well-funded retirement plan.
2. What is unemployment insurance? Is an organization required to pay unemployment benefits
to all dismissed employees? Explain how you would go about minimizing your organization's
unemployment insurance tax. Unemployment insurance provides benefits to an individual who is
unable to work through some fault other than his/her own. An organization is not required to pay
unemployment benefits to all dismissed employees. You could minimize your organizations
unemployment insurance tax by making sure that all your managers understand the unemployment
insurance code, train managers and supervisors on discipline and discharge, conduct exit interviews,
verify employment claims, file the protest against a former employee's claim on a timely basis, know
your local unemployment insurance official, and audit the annual benefit charges statement.
3. Explain how ERISA protects employees pension rights. Under ERISA, pension rights must be
vested under one of three formulas. Also, ERISA established the Pension Benefits Guarantee
Corporation to help ensure that pensions meet vesting obligations; the PBGC also insures pensions
should a plan terminate without sufficient funds to meet its vested obligations.
220
4. What is "portability"? Why do you think it is (or isn't) important to a recent college graduate?
Portability is the ability of an employee to take his or her retirement income when they leave an
organization and roll it over into a new employer's savings plan or IRA. Today's college graduate may
not think about it, but it is important to consider the question of portability. Most college graduates
can expect to change employers several times during their career. Having portable retirement plans
can help ensure that they end up with a reasonable retirement income. If the plans are not portable,
it will take exceptional planning on the employee's part to ensure adequate retirement income.
5.
What are the provisions of the FMLA? The FMLA provides the following: 1) private employers of
50 or more employees must provide eligible employees up to 12 weeks of unpaid leave for their own
serious illness, the birth or adoption of a child, or the care of a seriously ill child, spouse, or parent; 2)
employers may require employees to take any unused paid sick leave or annual leaves as part of the
12-week leave provided in the law; 3) employees taking leaves are entitled to receive health benefits
while they are on unpaid leave, under the same terms and conditions as when they were on the job;
4) employers must guarantee employees the right to return to their previous or equivalent position
with no loss of benefits at the end of the leave; however, the law provides a limited exception from this
provision to certain highly paid employees.
221
4. The HRCI Test Specifications appendix at the end of this book (pages 685-692) lists the
knowledge someone studying for the HRCI certification exam needs to have in each area of
human resource management (such as in Strategic Management, Workforce Planning, and
Human Resource Development). In groups of four to five students, do four things: (1) review
that appendix now; (2) identify the material in this chapter that relates to the required
knowledge the appendix lists; (3) write four multiple choice exam questions on this material
that you believe would be suitable for inclusion in the HRCI exam; and (4) if time permits, have
someone from your team post your teams questions in front of the class, so the students in
other teams can take each others exam questions. The material in this chapter that relates to the
HRCI certification exam includes: unemployment insurance, vacations and holidays, sick leave,
parental leave and FMLA, severance pay, supplemental unemployment benefits, workers
compensation, hospitalization, health, and disability insurance, life insurance, benefits for part-time
workers, social security, pension plans, pension planning, pensions and the law, pension trends,
executive perquisites, and flexible benefits programs. Multiple choice questions should reflect
material in this chapter and should have answer choices which could appear plausible.
EXPERIENTIAL EXERCISES & CASES
Experiential Exercise: Revising the Benefits Package
Students are given a scenario of a small business and its benefits package. Students are to devise a
benefits package in keeping with the size and requirements for this firm. This means that they need to
carefully balance the costs and the administration requirements with the resources that the small firm has.
Application Case: Striking for Benefits
1. Assume you are mediating this dispute. Discuss five creative solutions you would suggest for
how the grocers could reduce the health insurance benefits and the cost of their total benefits
package without making any employees pay more. It is suggested that you consider giving this
exercise as a group assignment. Finding five creative solutions will be challenging, but things that
should be considered include: altering deductibles but providing grandfathered employees extra pay
to compensate; altering the pay schedule by increasing the pay for existing employees to
compensate for additional health care costs passed on to them, but new employees not getting that
pay increase; etc.
2. From the grocery chains point of view, what is the downside of having two classes of
employees, one of which has superior health insurance benefits? How would you suggest
they handle the problem? Morale is a critical problem. Anytime there are two classes, jealousy and
resentment increase and morale decreases. Also, administration costs increase. Some of the
suggestions in question #1 might avoid the two classes.
3. Similarly, from the point of view of the union, what are the downsides of having to represent
two classes of employees, and how would you suggest handling the situation? The lower
class employees will feel that they were sold out by the union and may loose faith in the value of
the union. Initially the union will be safe because of the larger number of employees in the better
group, but eventually that will change.
Continuing Case: Carter Cleaning Company
1. Draw up a policy statement regarding vacations, sick leave, and paid days off for Carter
Cleaning Centers. The students are likely to create different policy statements, which will reflect
their different preferences for benefits.
You should get the students to discuss how
LearnInMotion.com might allow for flexibility in their pay for time not worked.
222
2. What would you tell Jennifer are the advantages and disadvantages to Carter Cleaning
Centers of providing its employees with health, hospitalization, and life insurance programs?
The student should refer to the hospitalization, medical, and disability insurance section of the
chapter to develop their lists of advantages and disadvantages.
3. Would you advise establishing some type of day care center for the Carter cleaning
employees? Why or why not? A better approach for a small company such as Carter would be to
locate a licensed day care provider that would be willing to give a discount to Carter employees.
From that starting point, she could then consider whether to subsidize childcare.
Compensation
KEY TERMS
benefits
supplemental pay
benefits
unemployment
insurance
sick leave
severance pay
supplemental
unemployment benefits
worker's compensation
health maintenance
223
organization (HMO)
preferred provider
organization (PPO)
Provides lower rates for the employer or employee and includes all
employees, including new employees, regardless of health or physical
condition.
Social Security
pension plans
defined benefit
pension plan
defined contribution
plan
401(k) plan
deferred profit-sharing
plan
employee stock
ownership plan (ESOP)
Employee Retirement
Income Security Act
(ERISA)
Signed into law by President Ford in 1974 to require that pension rights
be vested, and protected by a government agency, the PBGC.
vesting
Provision that money placed in a pension fund cannot be forfeited for any
reason.
Pension Benefits
Guarantee Corporation
(PBGC)
early retirement
window
224
job sharing
work sharing
telecommuting
225