13 Providing Employee Benefits What Do I Need to Know Chapter What Do I Need to Know 1. Discuss the importance of benefits as a part of employee compensation.  2. Summarize the types of employee benefits required by law.  3. Describe the most common forms of paid leave.  4. Identify the kinds of insurance benefits offered by employers.  5. Define the types of retirement plans offered by employers.  6. Describe how organizations use other benefits to match employees’ wants and needs.  7. Explain how to choose the contents of an employee benefits package.  8. Summarize the regulations affecting how employers design and administer benefits programs.  9. Discuss the importance of affectively communicating the nature and value of benefits to employees.

The Role of Employee Benefits Employee benefits are compensation received in forms other than cash. Benefits contribute to attracting, retaining, and motivating employees. Organizations pay a growing share of compensation in the form of benefits for reasons that include: Required by law Favorable tax laws Employers can secure a better deal Can set employers apart in the competition for talent McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Benefits as a Percentage of Total Compensation McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Benefits Required By Law 4 of 21 Benefits Required By Law Federal and state governments require various forms of social insurance to protect workers from the financial hardships of being out of work such as: Social Security OASDHI Covers 90 percent of employees Unemployment compensation Four primary objectives Employer’s experience rating To receive benefits, workers must meet four conditions Workers’ compensation Benefits fall into four major categories Employers must provide unpaid leave for certain family and medical needs: Family and Medical Leave Act (FMLA) McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Benefits Required By law 5 of 21 Benefits Required By law McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Optional Benefit Programs 6 of 21 Optional Benefit Programs Other types of benefits are optional for the employer such as: Insurances Life Term life policies Medical COBRA HMO PPO Flexible spending accounts Employee Wellness Programs (EWP) Long-term care Disability Short-term Long-term McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Health Care Costs In Various Countries 7 of 21 Health Care Costs In Various Countries McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Optional Benefit Programs 8 of 21 Optional Benefit Programs Other types of benefits are optional for the employer such as: Retirement plans Contributory plans Noncontributory plans Defined benefit plan ERISA PBGC Defined contribution plans Cash balance plans Paid leave Vacations Holidays Sick leave Personal days McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Sources of Income For Persons 65 and Older McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Value of Retirement Savings Invested at Different Ages McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

11 of 21 Percentage of Full-Time Workers Who Participate in Selected Benefit Programs McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Government Requirements for Vesting and Communication 12 of 21 Government Requirements for Vesting and Communication Vesting rights: Earn a right to a pension upon retirement Two standard schedules Exceptions: Top-heavy pension plan Multi-employer pension plans Summary plan description McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

“Family-Friendly” Benefits 13 of 21 “Family-Friendly” Benefits Family-friendly benefits include: Family leave Child care College savings 529 savings plans Elder care Information and support McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Percentage of Employers Offering Various Levels of Child-Care Benefits McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Selecting Employee Benefits 15 of 21 Selecting Employee Benefits Employers have wide latitude in creating the total benefits package they offer employees. Decisions about which benefits to include should take into account: The organization’s goals The organization’s budget The expectation of the organization’s current employees and those it wishes to recruit in the future A logical place to begin selecting employee benefits is to establish objectives for the benefits package. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

An Organization’s Benefits Objectives 16 of 21 An Organization’s Benefits Objectives McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Cafeteria-Style Benefits 17 of 21 Cafeteria-Style Benefits Cafeteria-style plans offer employees a set of alternatives from which they can choose the types and amounts of benefits they want. Advantages include: Employees become more aware of the value of the benefits Employees can match their needs to the benefits Avoids the cost of non-valued benefits Disadvantages include: Higher administrative costs Selection of frequently used benefits McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Costs of Employee Benefits McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Legal Requirements for Employee Benefits 19 of 21 Legal Requirements for Employee Benefits Organizations looking for ways to control staffing costs may look for ways to structure the workforce so as to minimize the expense of benefits such as: Requiring overtime rather than hiring new employees Hiring part-time workers Using independent contractors Other legal requirements involve: Tax treatment of benefits Qualified plans Antidiscrimination laws PDA ADEA ADA Accounting requirements FASB McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Communicating Benefits to Employees 20 of 21 Communicating Benefits to Employees Organizations must communicate benefits information to employees so they will appreciate the value of their benefits. Communication is essential so that the benefits can achieve their objective of attracting, motivating, and retaining employees. An investment of creativity in employee communication can reap great rewards in the form of committed, satisfied employees. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Techniques for Communicating Employee Benefits 21 of 21 Techniques for Communicating Employee Benefits McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.