Employee Compensation and Benefits Chapter 9 Employee Compensation and Benefits

Learning Objectives After completing this chapter, you should be able to: • List and describe three federal laws that impact compensation policies and programs. • Explain the types of voluntary benefits that can be included in a compensation package. • Identify and describe three retirement and health benefit laws that impact voluntary benefits. • Describe five employee benefit programs that are mandated by federal laws.

Learning Objectives continued: After completing this chapter, you should be able to: • Explain the procedures that help ensure the correct compensation will be paid to employees. • Explain the basic procedures that can be used to control labor costs.

Legal Aspects of Compensation Fair Labor Standards Act Minimum Wage Tip Credits Overtime Compliance Actions

Consumer Credit Protection Act Equal Pay Act

Employee Benefit Plans Overview of Employee Benefit Plans Types of Benefits

Common Voluntary Benefits Uniform Benefits Meal Benefits Healthcare Plans Employee Assistance Programs Retirement Benefits

Retirement and Health Benefit Laws

The Employee Retirement Income Security Act

The Consolidated Omnibus Budget Reconciliation Act

The Health Insurance Portability and Accountability Act

Ensuring Mandatory Benefits Social Security Unemployment Compensation Workers’ Compensation Family and Medical Leaves of Absence Military Leaves

Ensuring Accurate Compensation Payroll Administrators Payroll Systems Payroll Administration Options

Controlling Labor Costs Set Pay Rates Analyze Total Labor Needs Research Wage Rates Determine Market Position

Control Overtime

1. List and describe three federal laws that impact compensation policies and programs. The Fair Labor Standards Act (FLSA) establishes minimum wage and overtime pay standards. Most hourly positions are entitled to the basic minimum wage, but state and local laws may set a higher minimum, and tipped employees can be paid less when tips bring their wages up to the minimum. Overtime, 1.5 times the normal hourly rate, must be paid when nonexempt employees work more than 40 hours in a week. Managers must monitor compliance with wage and hour requirements. The Consumer Credit Protection Act (CCPA) prohibits employers from terminating or disciplining employees when wages must be paid to a third party via levy or garnishment.

1. List and describe three federal laws that impact compensation policies and programs continued… The Equal Pay Act (EPA) makes it illegal to pay different wages to men and women for equal work in the same workplace. Equal jobs require equal levels of skill, effort, and responsibility under similar conditions.

2. Explain the types of voluntary benefits that can be included in a compensation package. Managers can offer numerous voluntary benefits to employees who meet requirements that they establish. Examples include bonuses, dependent care, death benefits, dental insurance, disability benefits, and educational and professional development support. Other voluntary benefits may include employee assistance programs, flexible spending accounts, funeral leave, health savings accounts, healthcare plans, and life insurance. Long-term care insurance, meals, mental health insurance, paid holidays and vacation, and pension and retirement plans may also be available. Still other benefits may include personal time off, profit-sharing plans, religious holiday time off, stock option plans, uniforms, and vision care.

3. Identify and describe three retirement and health benefit laws that impact voluntary benefits. The Employee Retirement Income Security Act (ERISA) protects employee pensions and healthcare plans from incompetent, unethical, and unfair administration. The Consolidated Omnibus Budget Reconciliation Act (COBRA) extends healthcare coverage for people who would otherwise lose it. The Health Insurance Portability and Accountability Act (HIPAA) helps ensure people do not lose access to healthcare because of limits on plan enrollment periods, preexisting conditions, or other health status factors.

4. Describe five employee benefit programs that are mandated by federal laws. Social Security is a federal program that includes benefits for retirement, survivors, disabilities, and Medicare insurance. Employers and employees pay for benefits through a payroll tax, and the value of the benefit depends, in part, on how much the employee earned and when the payment begins. Unemployment compensation temporarily provides a reduced income to employees who lose their job involuntarily. Each state has its own rules for the amount of benefits to be paid and for how long. Workers’ compensation is a system for providing financial compensation to employees or their survivors when an employee is injured, becomes sick, or dies as a result of a workplace situation. These programs differ from state to state.

4. Describe five employee benefit programs that are mandated by federal laws continued… The Family and Medical Leave Act (FMLA) gives qualified employees the right to take up to 12 weeks of continuous or intermittent unpaid leave in a rolling 12-month period for certain medical or family care situations. The Uniformed Services Employment and Reemployment Rights Act (USERRA) protects employees from workplace discrimination based on military service. It ensures that military personnel are not penalized when they return from duty.

5. Explain the procedures that help ensure the correct compensation will be paid to employees. Payroll administrators must deliver accurate employee paychecks on time. A payroll system tracks work times and issues paychecks. These systems may be manual or automated but require that supervisors review and sign employee time records to confirm that they are correct. Many managers outsource payroll administration. In smaller operations, a part-time bookkeeper may handle these tasks. Software is also available.

6. Explain the basic procedures that can be used to control labor costs. A four-step process can be used to establish pay levels. First, establish pay rates and, second, analyze total labor needs. Third, research competitors’ wage rates. This will enable managers to determine market position so pay ranges can be determined, which is the fourth step. Overtime cost control requires a policy of approval before overtime is incurred. It is also important to review time records at the end of each shift to reduce the likelihood that employee’s hours could lead to overtime.

Key Terms: Beneficiary Someone who is entitled to receive a benefit under an insurance or retirement plan because of his or her relationship with the plan’s participant. Deductible The amount of money an insured party must pay before the insurance company’s coverage plan begins. Defined benefit (DB; retirement) A retirement benefit in which an employee is guaranteed certain payments on retirement. Defined contribution (DC; retirement) A retirement program that guarantees certain payments will be made into an account owned by an employee, such as a 401(k) plan. Employee assistance program (EAP) A program that provides counseling and other services to help employees deal with a wide range of problems that hinder their ability to function effectively at work.

Key Terms continued: Employee benefit plan A program of nonwage compensation that an employee is eligible for and the situations under which the employee will receive the benefits. Enrollment The signing up of an employee for a benefit plan. Exclusion period The exclusion of coverage for preexisting conditions for a certain time after enrollment in an insurance plan; it is allowable as long as it is applied equally to all plan participants. Exempt employee An employee who is not required to receive extra pay for overtime. Garnishment Payments ordered by a court that are directly deducted from an employee’s earnings. Group plan (benefits) A plan that provides essentially the same benefit to multiple people, such as a life insurance plan offered to all employees.

Key Terms continued: Individual plan (benefits) A plan that provides a benefit for one person or family. Levy Payments taken by a government agency such as the IRS from an employee’s earnings. Medicare A federally insured healthcare plan for people aged 65 or older. Nonexempt employee An employee paid an hourly wage who is entitled to overtime pay when working more than 40 hours in a week. Open enrollment period (benefits) A limited time period during which employees are typically able to change benefit plans and coverage and add or remove family members. Participant Someone who is a member of a benefit plan. Payroll administrator The person, department, or external company that ensures paychecks are issued.

Key Terms continued: Plan administrator (benefits) A designated person, department, or company that is responsible for handling administrative tasks for group plans. Preexisting condition A medical condition for which a person has sought medical treatment before applying to join a healthcare plan. Premium (healthcare) The monthly insurance fee; in most cases both employers and employees share its cost. Self-insured A situation in which some very large employers pay all covered healthcare costs with their own funds. Social Security A federal government program that provides retirement and disability income and other financial benefits to those who qualify. Subminimum wage A wage below the minimum wage that employers may pay certain people, such as students placed in a job as part of a vocational or other educational program.

Key Terms continued: Summary plan description (SPD) An explanation of a retirement or healthcare plan’s benefits and participants’ rights and responsibilities. Tip credit (FLSA) The choice given to operations that employ tipped employees to pay the basic minimum wage or to pay a reduced cash wage and use a tip credit. Tipped employee An employee who may be paid a lower cash wage when his or her tips are enough to ensure that the basic minimum wage is met. Youth minimum wage A wage that employees younger than 20 years of age may be paid, of not less than $4.25 an hour, which is lower than the basic minimum wage, during their first 90 consecutive days of employment.

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