Chapter 12 Employee Benefits

Learning Objectives Discuss the history and trends of employee benefits management Explain the rationale and tax implications of offering benefits in addition to compensation and why benefits are critical to the recruitment and retention of healthcare workers Describe a variety of benefits that may be offered with employment and relate the management implications of offering each Relate the knowledge of employee benefits to selected human resources management issues and systems development Make suggestions for design and communication of benefits plan

Brief Historical Background Employee benefits can be traced back to 1636. 1800 – Employers started hiring physicians as a result of increase in worker injuries. 1929 – Baylor established the first pre-payment plan for Dallas area teachers. 1929 – The great Depression help to establish the Social Security Act. A wage freeze during WWII prompted employers to offer healthcare benefits in lieu of pay increases.

Major Federal Legislation Employee Retirement Income Security Act of 1974 (ERISA) Consolidated Omnibus Budget Reconciliation Act of 1986 Health Insurance Portability and Accountability Act of 1996 (HIPAA) Employee Retirement Income Security Act of 1974 (ERISA) Administered by the DOL Establishes guidelines for the management of pensions and health plans Consolidated Omnibus Budget Reconciliation Act of 1986 Allows qualified employees to continue their benefits after employment Applies to any employer with 20 or more employees Health Insurance Portability and Accountability Act of 1996 (HIPAA) Designed to assist employee with preexisting conditions Does not allow waiting periods between employment Imposes confidentiality rules

Overview of Employment Benifits Mandatory Benefits Social Security and Medicare Part A Unemployment Compensation Workers’ Compensation Voluntary Benefits Leave Benefits Health and Welfare Benefits Retirement Plans Other Mandatory Benefits Social Security and Medicare Part A FICA authorizes payroll tax deduction Employers must match the deducted amounts Unemployment Compensation Amount varies by state Voluntary separation or termination for cause is typically not covered Workers’ Compensation Implemented to protect employers from litigation Many employers self insure to save on administrative cost. Voluntary Benefits Leave Benefits Vacation Sick Leave FMLA – employers must offer 12 weeks of unpaid leave. Health and Welfare Benefits Health Insurance – comes in many forms (see page 328 Table 12.2) Wellness and Fitness Programs – used to manage healthcare costs Dental Insurance – Cost is rising. Some employers are contracting with dental schools directly Hearing insurance – may be helpful depending on workforce demographics. Prescription Drug Benefits – Very costly for both the employer and employee. Flexible Spending Accounts- tax deferred amounts to be used to cover healthcare costs. IRS sets the standard for what is a covered expense. Long Term Disability – provides income ins the event of a long term disability. This is valuable to healthcare workers who may sustain an injury that prevents them from practicing. Short Term Disability – Covers a percentage of salary for the short term Life Insurance – Covered only while employed in the organization. See Table 12.4 Retirement Plans Qualified Retirement Plan – strict eligibility and vesting requirements. Receive more tax benefits. Nonqualified Retirement Plans – Used to meet the need of executives. Less regulation. Defined Contribution Plans – Employer determines the rate of contribution and has discretion of the methodology to calculate the rate. Defined Benefit Plans – Group plans, not individual. Tax Deferred Plans – Staff contribute to their own plan. Employers match the amount the employee puts in to the account. Other

Designing a Benefits Plan Demographics of the workforce should be considered. Budgetary issues should be considered. Cost shifting to the employee should be monitored. Consider Section 125 Plans Self Insurance may help reduce administrative costs. Consult with a persons who are certified employee benefits specialist.