Human Resource Management TENTH EDITON © 2003 Southwestern College Publishing. All rights reserved. PowerPoint Presentation by Charlie Cook Managing Employee Benefits Managing Employee Benefits Chapter 14 SECTION 4 Compensating Human Resources Robert L. Mathis  John H. Jackson

© 2002 Southwestern College Publishing. All rights reserved. 14–2 Learning Objectives After you have read this chapter, you should be able to: –Define a benefit and identify two strategic reason why employers provide benefits. –Distinguish between mandated and voluntary benefits and list three examples of each. –Describe two security benefits. –List and define at least six pension-related terms. –Explain the importance of health-care cost management and identify some methods of achieving it.

© 2002 Southwestern College Publishing. All rights reserved. 14–3 Learning Objectives (cont’d) –Discuss the growth of family-oriented and time-off benefits and their importance to many employees. –Summarize benefits communication and flexible benefits as considerations in benefits administration.

© 2002 Southwestern College Publishing. All rights reserved. 14–4 BenefitsBenefits  Benefit –An indirect compensation given to an employee or group of employees as a part of organizational membership.  Strategic Perspectives on Benefits –Benefits absorb social costs for health care and retirement. –Benefits influence employee decisions about employers (e.g., recruitment and retirement). –Benefits are increasingly seen as entitlements. –Benefit costs are about 40% of total payroll costs.

© 2002 Southwestern College Publishing. All rights reserved. 14–5 How the Benefit Dollar Is Spent Figure 14–1 Source: Based on information in Employee Benefits, 2000 edition (Washington, D.C.: U.S. Chamber of Commerce, 2000).

© 2002 Southwestern College Publishing. All rights reserved. 14–6 Benefit Needs Analysis  Benefit Needs Analysis –A comprehensive look at all aspects of benefits. How much total compensation? What part of total compensation should benefits comprise? What expense levels are acceptable for each benefit? Which employees should get which benefits? What are we getting in return for the benefit? How will offering benefits affect turnover, recruiting, and retention of employees? How flexible should the benefits package be?

© 2002 Southwestern College Publishing. All rights reserved. 14–7 Types of Benefits Figure 14–2

© 2002 Southwestern College Publishing. All rights reserved. 14–8 Security Benefits  Worker’s Compensation –Benefits provided to persons injured on the job.  Unemployment Compensation –A Federal/state payroll tax that funds state unemployment systems. –Involuntary unemployment and actively seeking work is required for persons to claim benefit.  Supplemental Unemployment Benefits (SUB) –A union-negotiated benefit provision that pays a supplemental amount to laid-off employees who are drawing unemployment compensation.

© 2002 Southwestern College Publishing. All rights reserved. 14–9 Security Benefits (cont’d)  Severance Pay –A security benefit voluntarily offered by employer to employees who lose their jobs. –Payments are determined by the employee’s level within the organization and years of employment. –Other benefits (e.g., outplacement and continued health insurance) may be offered in lieu of cash severance payments.

© 2002 Southwestern College Publishing. All rights reserved. 14–10 Services During Severance Figure 14–3 Source: Linda Jones, “Severance Policies in Place at Most Organizations,” Human Resource Executive, May 1, 2001, 28. Used with permission.

© 2002 Southwestern College Publishing. All rights reserved. 14–11 Median Age at Retirement by Gender Figure 14–4 Source: U.S. Bureau of Labor Statistics. *Projected.

© 2002 Southwestern College Publishing. All rights reserved. 14–12 Retirement Security Benefits  Retirements and Age Discrimination –Age Discrimination in Employment Act (ADEA) prohibits mandatory retirement age provisions.  Social Security Act of 1935 –Established a system providing old age, survivor’s, disability, and retirement benefits. –Federal payroll tax on both the employer and the employee. –Benefit payments are based on employee’s lifetime earnings.

© 2002 Southwestern College Publishing. All rights reserved. 14–13 Pension Plans  Pension Plans –Retirement benefits established and funded by employers and employees.  Traditional Benefit Plans –Defined-benefit plans Employees are promised a definite pension amount based on age and length of service. –Defined-contribution plans Employer makes an annual payment to an employee’s account. Benefit payout is determined by the financial performance of the employee’s retirement.

© 2002 Southwestern College Publishing. All rights reserved. 14–14 Pension Plans  Cash Balance Plans –A hybrid plan that defines retirement benefits in terms of a hypothetical account balance.  Employee Retirement Income Security Act (ERISA) –Regulates pension funds to assure their soundness. –Requires firms to offer retirement plans to all employees if offered to any employees. –Accrued benefits must be paid to departing employees. –Requires minimum funding for IRS approval and purchase of plan termination insurance.

© 2002 Southwestern College Publishing. All rights reserved. 14–15 Pension Terms and Concepts  Contributory Plan –Both employer and employee pay money into the retirement fund.  Non-contributory Plan –All pension benefits funding is paid by the employer.  Vesting –The right of employees to receive benefits from their pension plans.  Portability –A pension plan feature that allows employees to move their benefits from one employer to another.

© 2002 Southwestern College Publishing. All rights reserved. 14–16 Individual Retirement Keogh Plans Individual Retirement Accounts (IRAs) 401(k) and 403 (b) Plans Individual Retirement Options

© 2002 Southwestern College Publishing. All rights reserved. 14–17 401(k) for Small Business Figure 14–5 Source: Based on data in Virginia Munger Kahn, “Pension Plans for Everyone,” Business Week Small Biz, July 16, 2001, 22.

© 2002 Southwestern College Publishing. All rights reserved. 14–18 Controlling Health-Care Benefits Costs  Co-Payment –Employees are required to pay a portion of the cost of both insurance premiums and medical care.  Defined Contribution Plans for Health Benefits –Employer provides a set amount that the employee may spend on health-care coverage benefits.

© 2002 Southwestern College Publishing. All rights reserved. 14–19 Controlling Health-Care Costs (cont’d)  Managed Care –Approaches that monitor and reduce medical costs using restrictions and market system alternatives.  Preferred Provider Organization –A health-care provider that contract with an employer group to provide health-care services to employees at a competitive rate.  Health Maintenance Organization (HMO) –A managed care plan that provides services for a fixed period on a prepaid basis.

© 2002 Southwestern College Publishing. All rights reserved. 14–20 Increases in Health-Care Benefits Costs to Employers Figure 14–6 Source: U.S. Bureau of Labor Statistics, U.S. Department of Labor, 2002.

© 2002 Southwestern College Publishing. All rights reserved. 14–21 Health-Care Legislation  COBRA Provisions –Former employees, their spouses, and eligible dependents are covered for 18 to 36 months –Up to 102% of group premium costs paid by the former employee.  HIPPA Provisions –Allows employees to switch their health insurance plan from one company to another, regardless of pre-existing health conditions. –Health plans must continue to cover sick employees.

© 2002 Southwestern College Publishing. All rights reserved. 14–22 U.S. Population Lacking Health Insurance Figure 14–7 Source: U.S. Census Bureau, 2002.

© 2002 Southwestern College Publishing. All rights reserved. 14–23 Other Benefits BenefitsBenefits Relocation Expenses Life, Disability, Legal Insurances Educational Assistance Social and Recreational Family-Oriented Benefits Family-Care Benefits Credit Unions Purchase Discounts Stock Investment

© 2002 Southwestern College Publishing. All rights reserved. 14–24 Family Medical Leave Act (FMLA)  Coverage –Employers with 50 or more employees  Requirements –Employers must allow eligible employees to take up to a total of 12 weeks of unpaid leave to attend to a family or serious medical condition. –Employees have the right to continued health benefits and the right to return to their job.

© 2002 Southwestern College Publishing. All rights reserved. 14–25 Most Common Paid Holidays in the U.S. Figure 14–8

© 2002 Southwestern College Publishing. All rights reserved. 14–26 Companies Offering Different Types of Paid Time Off Figure 14–9 Source: “Employee Benefits Survey Technical Note,” Compensation and Working Conditions (Washington, DC: U.S. Bureau of Labor Statistics), Fall 2000.

© 2002 Southwestern College Publishing. All rights reserved. 14–27 Time-Off Benefits  Holiday Pay –Eligibility  Vacation Pay  Leaves of Absence –Family Leave –Medical and Sick Leave –Paid Time-Off (PTO) Plans –Military Leave –Election Leave –Jury-duty Leave –Funeral Leave

© 2002 Southwestern College Publishing. All rights reserved. 14–28 Benefits Administration  Benefits Communication –Benefits Statements Annual “personal statement of benefits” that translates the benefits into dollars to show their worth. –HRIS and Benefits Communication HRIS information allows employees to obtain benefits information on-line.

© 2002 Southwestern College Publishing. All rights reserved. 14–29 Typical Division of HR Responsibilities: Benefits Administration Figure 14–10

© 2002 Southwestern College Publishing. All rights reserved. 14–30 Flexible Benefits  Flexible Benefit Plan –A plan (flex or cafeteria) that allows employees to select the benefits they prefer from groups of benefits established by the employer.  Flexible Spending Accounts –An account that allows employees to contribute pre-tax dollars to buy additional benefits (e.g., life insurance).  Problems with Flexible Plans –Inappropriate benefits package choices –Adverse selection and use of specific benefits by higher-risk employees

© 2002 Southwestern College Publishing. All rights reserved. 14–31 Pension and Retirement Functions on the Internet Figure 14–11