Employee

Benefits
CHAPTER 13

Learning Objectives
1. Discuss growth and its reasons in benefits costs.
2. Explain provisions of employee benefits programs.
3. Describe the effects of benefits management on cost and workforce
quality.
4. Explain how employee benefits in the U.S compare with other countries.
5. Explain the importance of effectively communicating the nature and value
of benefits to employees.
6. Describe the regulatory constraints that affect the way employee benefits
are designed and administered.

Introduction
Benefits are unique because:
more regulation of benefits than
direct pay.
almost obligatory for employers
to provide.
complex for employees to
understand.

Reasons for Benefits Growth

Laws mandating benefits passed during and
after Great Depression
Wage and price controls instituted during
WWII and labor shortages
Tax treatment of benefits programs
Marginal tax rate is % of an additional
dollar of earnings that goes to taxes

Large group V. individual insurance

Organized labor
Employer differentiation

Benefit Programs
Social Insurance

Private Group
Insurance

Family-Friendly
Policies

Pay for Time

Not Worked

Retirement

Social Security
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Sickness
Maternity
Disability
Retirement
Death
Funeral

Unemployment Insurance
Objectives of Unemployment Insurance:
1. offset lost income during involuntary unemployment
2. help unemployed workers find new jobs
3. provide an incentive for employers to stabilize employment
4. preserve investments in worker skills by providing workers with income during
short-term layoffs.
. No state imposes the same tax on every employer.
. Unemployed workers are eligible for benefits if they
1. have a prior attachment to the workforce
2. are available for work
3. are actively seeking work
4. were not discharged for cause, did not quit voluntarily and are not out of work
because of a labor dispute.

Workers Compensation
Workers' compensation laws cover job-related injuries and
death.
Categories of Benefits:
1.
2.
3.
4.

disability income
medical care
death benefits
rehabilitative services.

13th Congress
Senate Bill No. 1979WORKERS' COMPENSATION ACT OF 2005

Private Group Insurance

Offered at employers discretion; plans not legally required.
2 major types: medical insurance and disability insurance.
Medical insurance -most important benefit; most full-time employees get such
benefits.
Disability insurance includes short-term and long-term plans.

Managing Benefits:

Employer Objectives and Strategies

Surveys and Benchmarking
Company should know what competition is doing.
Surveys information is available from private consultants, Bureau
of Labor Statistics (BLS) and Chamber of Commerce.

Cost control
Larger the benefit cost, greater the savings possibility.
Growth rate of may result in serious future costs.
Cost containment efforts work to extent that the employee has
significant direction in choosing how much to spend in a benefit
category.

Healthcare:

Controlling Costs and

Improving Quality
Health-care expenditures have risen from 4.3 % of GDP in 2011 to 4.4 % in 2012
Based on the latest data released by the Philippine Statistic Authority (PSA), social insurance grew
the fastest at 32.3 percent, or from P39.2 billion in 2011 to P51.8 billion in 2012.
In terms of percentage share to the total health expenditures, private sources accounted for the
largest share at 69.6 percent, followed by government with 18.5 percent, social insurance with 11.1
percent, and the rest of the world with a 0.9 percent share.
Cost control attempts by employers such as managed care, fall into six major categories:
1.
2.
3.
4.
5.
6.

plan design
use of alternative providers
use of alternative funding methods
claims review
education and prevention
external cost control systems

Trend - to shift costs to employees through use of deductibles, coinsurance, exclusions and
limitations and maximum benefits.

Healthcare:

Controlling Costs and

Improving Quality
Health Maintenance
Organizations
(HMO)
focus on preventive care and
outpatient treatment.
require employees to use
only HMO services and
provide benefits on a prepaid
basis.
physicians and health-care
workers paid a flat salary to
reduce incentive of raising
costs.

Preferred Provider
Organizations (PPOs)
contract with employers and
insurance
companies
to
provide care at reduced fees.
do not provide benefits on a
prepaid basis.
employees often are not
required to use just PPOs.
less expensive than traditional
health care but more expensive
than HMOs.

Employee Wellness
Programs
Focus on changing behaviors on and off work time that could lead to future health problems.
2 Classes of EWPs:
1. Passive -use little or no outreach to individuals and provide no ongoing motivational
support.
2. Active- assume that behavior change requires not only awareness and opportunity, but
also support and reinforcement.
3 Types of Employee Wellness Designs
1. Health education
2. Physical fitness fitness facilities
3. Follow-up model

2 Phenomena in Cost Control

Efforts
Piecemeal programs
Pareto Group
20 % of employees responsible for generating often
60 to 80 % of health care costs

Staffing Responses
to Control Benefits Cost
Growth
Because benefit costs are fixed, benefits cost per hour can be reduced
by having employees work more hours.
Classify employees as exempt, since they can reduce their
benefit costs per hour without having to pay overtime.
Classify workers as independent contractors rather than
employees, eliminating the employer's obligation
to provide legally required benefits.

Nature of the Workplace

Assessing employee benefits preferences is essential.
Use market research methods to assess employees preferences same way
consumers demand for products and services are assessed.
Care must be taken not to raise employee expectations regarding future
changes.