CHARACTERISTICS OF EMPLOYEE BENEFITS Overview: This chapter examines both the required benefits that employers must provide,

including Social Security, unemployment insurance and Workers' Compensation, as well as the discretionary employer-provided benefits, such as retirement plans, insurance programs and time off. INTRODUCTION Employee benefits consist of a large number of diverse organizational reward offerings. This diversity makes it difficult to categorize and discuss the characteristics of benefits in general, since each one needs to be dealt with independently. In fact, benefits administration has become a specialized function within organizations that requires specific training and experience.1 This field is changing so rapidly that there will undoubtedly be further changes by the time that you read this material. CONSIDERATIONS IN BENEFIT ANALYSES Although it is hard to distinguish commonalities among benefits, there are a number of factors that need to be considered when discussing any benefit. Those to be examined briefly here are purpose, legal requirements, contributions, and cost. Purpose The central purpose of benefits in the employment exchange is to foster membership and continuity of employment. From the employee's perspective security is a major theme in benefits. Many organizations talk of social concern and the fact that they would not want to see their employees be without insurance protection or suffer in their retirement. The major overall aim of benefits from the employer's standpoint is membership, but some other advantages can occur from granting benefits. In order for employees to concentrate on performing well, they must be able to concentrate upon their job. Having protection from uncertainty provides this ability to concentrate. Benefits provide security in three areas: age, unemployment, and health (sickness or accident). But security is an after-the-fact type of protection. There are also benefits that employers provide with the expectation that their provision will improve or maintain the current level of performance of the employee. These benefits are largely in the form of time off (which is expected to help the employee recuperate or reduce fatigue on the job), programs to improve the health of the employee, and programs to improve the employee's future worth to the organization, such as educational reimbursement.

Legal requirements Laws affect benefits in two ways: through requiring the employer to provide the benefit, and by monitoring and directing the way in which the benefit is offered and administered. First, federal regulations state that employers must provide employees with a series of benefits, as a price of hiring employees. These may or may not be considered benefits by employees, but they are a definite wage cost. These benefits include Social Security, Unemployment Insurance, and Workers' Compensation. All three are based upon laws passed decades ago, but changes both in the law and in society make them problematic today. This chapter begins with a discussion of these required benefits. Second, other laws regulate the way benefits are offered and administered. Employers are not required to offer these benefits but when they do certain laws apply to the way they are structured. ERISA is probably the best example, but many tax laws and codes apply to benefits. These laws will be discussed as the benefit to which they apply is covered. Contributions and Cost The costs of providing a benefit are a major consideration. Most benefit administrators can show that the benefits are cost-effective by the savings that they can attain through proper administration of the particular benefits. Consideration must be given to who should pay for the benefits, or more likely, how much each partner to the employment exchange should contribute to the cost of the benefit. To the degree that the employee pays for the benefit, the employer cannot claim it as his or her contribution to the employment exchange. There are good reasons to share the costs of particular benefits. The employee sees the benefit more clearly as a part of the employment exchange when costs are shared, and the employee has a larger and more direct stake in keeping benefit costs down when both parties are contributing to the cost of the benefit. The rising cost of benefits is illustrated in the graph in Figure given below. Overall the cost of benefits has risen substantially year after year. The main force behind this has clearly been the rise in the cost of health benefits.

Fig-Employment Cost Index, private industry, 12-month percent change, total benefits and health benefits.

Source:

Bureau

of

Labor

Statistics,

National

Compensation

Survey,

http://www.bls.gov/ect/sp/echealth.pdf 202.691.6199, April 30, 2010 (Insurance brokers joke of the amount of time spent discussing group life, vision, dental, long-term disability, accidental death and disability, employee assistance, etc. when medical premiums take 80% of an organization's elective benefit dollars and provide insurance agents 80% of their income.) TYPES OF BENEFITS Although there is no set way of classifying benefits, ERI has been surveying and reporting on benefits for many years and uses the five categories of benefits shown in Figure 2.

Type of Benefit 1. Legally required payments (employer's share only) a. Old-age, survivors, disability, and health insurance (FICA taxes) b. Unemployment compensation c. Workers' Compensation (including estimated cost of selfinsured) d. Railroad retirement tax, railroad unemployment and cash sickness insurance, state sickness benefits insurance, etc. 2. Retirement plan, insurance, and other agreed-upon payments

(employer's share only)

a. Retirement plan premiums and retirement plan payments not covered by insurance-type plan (net) b. Life insurance premiums; death benefits; hospital, surgical, medical, and major medical insurance premiums, vision, dental, etc. (net) c. Salary continuation or long-term disability d. Dental insurance premiums e. Discounts on goods and services purchased from company by employees f. Employee meals furnished by company

g. Miscellaneous payments (compensation payments in excess of legal requirements, separation or termination pay allowances, moving expenses, etc.) 3. Paid rest periods, lunch periods, wash-up time, travel time, clotheschange time, get-ready time, etc. 4. Payments for time not worked a. Paid vacations and payments in lieu of vacation b. Payments for holidays not worked c. Paid sick leave d. Payments for National Guard (or army or other reserve duty); jury, witness, and voting pay allowances; payments for time lost due to death in family or other personal reasons, etc. 5. Other items a. Profit-sharing payments b. Contributions to employee thrift plans c. Christmas or other special bonuses, service awards, suggestion awards, etc. d. Employee education expenditures (tuition refunds, etc.) e. Special wage payments ordered by courts, payments to union stewards, etc. f. Employee assistance programs (drug recovery, alcohol, etc.)

g. Gainsharing