PowerPoint Presentation by Charlie Cook The University of West Alabama 1 Human Resource Management ELEVENTH EDITION G A R Y D E S S L E R © 2008 Prentice Hall, Inc. All rights reserved. Benefits and Services Chapter 13 Part 4 | Compensation

© 2008 Prentice Hall, Inc. All rights reserved.13–2 After studying this chapter, you should be able to: 1.Name and define each of the main pay for time not worked benefits. 2.Describe each of the main insurance benefits. 3.Discuss the main retirement benefits. 4.Outline the main employees’ services benefits. 5.Explain the main flexible benefit programs.

© 2008 Prentice Hall, Inc. All rights reserved.13–3 Benefits Supplemental Pay Employee Services Insurance Benefits Retirement Benefits Types of Employee Benefits

© 2008 Prentice Hall, Inc. All rights reserved.13–4 FIGURE 13–1Annual Health Care Cost Increases—National Averages Sources: Eric Parmenter, “Controlling Health Care Costs,” Compensation and Benefits Review, September/October 2002, p. 44; Leah Carlson, “Health Care Cost Increases Easing,” Employee Benefit News, Oct. 1, 2004, Item ; Trevor Thomas, “Studies Hint at Slowing Health Care Cost Increases,” National Underwriter Life & Health, Oct. 24, 2005, vol. 109, p. 8; “Health Care Cost Increases Expected to Slow in 2006,” Managing Benefits Plans, April 2006, p. 9.

© 2008 Prentice Hall, Inc. All rights reserved.13–5 FIGURE 13–2Private-Sector Employer Compensation Costs, December 2006 Source: “Employer Costs for Employer Compensation—December 2006,” Bureau of Labor Statistics, Washington D.C , Accessed May 21, 2007.

© 2008 Prentice Hall, Inc. All rights reserved.13–6 Policy Issues in Designing Benefit Packages Policy Issues Who will be covered Coverage during probation Degree of employee choice Which benefits to offer Whether to include retirees How to finance benefits Cost containment procedures Communicating benefits options

© 2008 Prentice Hall, Inc. All rights reserved.13–7 TABLE 13–1Mandated and Discretionary Benefits *While not required under federal law, all these benefits are regulated in some way by federal law, as explained in this chapter. Benefits Required by Federal or Most State Law Benefits Discretionary on Part of Employer* Social SecurityDisability, Health, and Life Insurance Unemployment InsurancePensions Workers’ CompensationPaid Time Off for Vacations, Holidays, Sick Leave, Personal Leave, Jury Duty, etc. Leaves under the Family Medical Leave Act Employee Assistance and Counseling Programs “Family Friendly” benefits for Child Care, Elder Care, Flexible Work Schedules, etc. Executive Perquisites

© 2008 Prentice Hall, Inc. All rights reserved.13–8 Pay For Time Not Worked Vacations and Holidays Parental Leave Supplemental Unemployment Benefits Supplementa l Pay Benefits Unemployment Insurance Sick Leave Severance Pay

© 2008 Prentice Hall, Inc. All rights reserved.13–9 Pay for Time Not Worked Unemployment InsuranceUnemployment Insurance  Provides for benefits if a person is unable to work through no fault of his or her own.  Is an employer payroll tax that is determined by an employer’s rate of personnel terminations.  Tax is collected and administered by the state. Vacations and HolidaysVacations and Holidays  Number of paid vacation days varies by employer.  Number of holidays varies by employer.  Premium pay for work on holidays.

© 2008 Prentice Hall, Inc. All rights reserved.13–10 TABLE 13–2An Unemployment Insurance Cost-Control To-Do Checklist Cause—Do You: 1.Keep documented history of lateness, absence, and warning notices 2.Warn chronically late employees before discharging them 3.Have policy that three days’ absence without calling in is reason for automatic discharge 4.Request doctor’s note on return to work after absence 5.Make written approval for personal leave mandatory 6.Stipulate date for return to work from leave 7.Obtain a signed resignation statement 8.Mail job abandonment letter if employee fails to return on time 9.Require new employees to stipulate in writing their availability to work overtime, night shifts, etc. 10.Set probationary periods to evaluate new employees 11.Conduct follow-up interviews one to two months after hire 12.Document all instances of poor performance, recording when and how employees did not meet job requirements 13.Require supervisors to document the steps taken to remedy the situation 14.Require supervisors to document employee’s refusal of advice and direction 15.Make sure all policies and rules of conduct are understood by all employees 16.Require all employees to sign a statement acknowledging acceptance of firm’s policies and rules 17.File the protest against a former employee’s unemployment claim on time (usually within 10 days) 18.Use proper terminology on claim form and attach documented evidence regarding separation 19.Attend hearings and appeal unwarranted claims 20.Check every claim against the individual’s personnel file 21.Routinely conduct exit interviews to produce information for protesting unemployment claims 22.Hold periodic workshops with supervisors to review procedures and support effort to reduce turnover costs 23.Identify turnover problems as they occur by a. location b. department c. classification of employee

© 2008 Prentice Hall, Inc. All rights reserved.13–11 Pay for Time Not Worked (cont’d) Sick LeaveSick Leave  Provides pay to an employee when he or she is out of work because of illness.  Costs for misuse of sick leave  Pooled paid leave plans Parental LeaveParental Leave  The Family Medical Leave Act of 1993 (FMLA)  Up to 12 weeks of unpaid leave within a one-year period.  Employees must take unused paid leave first.  Employees on leave retain their health benefits.  Employees have right to return to job or equivalent position.

© 2008 Prentice Hall, Inc. All rights reserved.13–12 Pay for Time Not Worked (cont’d) Severance PaySeverance Pay  A one-time payment when terminating an employee.  Reasons for granting severance pay:  Acts as a humanitarian gesture and good public relations.  Mirrors employee’s two week quit notice.  Avoids litigation from disgruntled former employees.  Meets Worker Adjustment and Retraining Notification (“plant closing”) Act requirements.  Reassures employees who stay on after the employer downsizes its workforce of employer’s good intentions.

© 2008 Prentice Hall, Inc. All rights reserved.13–13 Pay for Time Not Worked (cont’d) Supplemental Unemployment Benefits (SUB)Supplemental Unemployment Benefits (SUB)  Payments that supplement the laid-off or furloughed employee’s unemployment compensation.  The employer makes contributions to a reserve fund from which SUB payments are made to employees for the time the employee is out of work due to layoffs, reduced workweeks, or relocations.  SUB payments are considered previously earned compensation for unemployment calculation purposes.

© 2008 Prentice Hall, Inc. All rights reserved.13–14 FIGURE 13–3 Your Rights Under the Family and Medical Leave Act of 1993

© 2008 Prentice Hall, Inc. All rights reserved.13–15 FIGURE 13–4 University Family Illness Leave Request

© 2008 Prentice Hall, Inc. All rights reserved.13–16 Insurance Benefits Workers’ CompensationWorkers’ Compensation  Provides income and medical benefits to work- related accident victims or their dependents, regardless of fault.  Death or disability: a cash benefit based on earnings per week of employment.  Specific loss injuries: statutory list of losses.  Controlling workers’ compensation costs  Screen out accident-prone workers.  Make the workplace safer.  Thoroughly investigate accident claims.  Use case management to return injured employees to work as soon as possible.

© 2008 Prentice Hall, Inc. All rights reserved.13–17 Insurance Benefits (cont’d) Hospitalization, Health, and Disability InsuranceHospitalization, Health, and Disability Insurance  Provide for loss of income protection and group-rate coverage of basic and major medical expenses for off-the-job accidents and illnesses.  Accidental death and dismemberment  Disability insurance

© 2008 Prentice Hall, Inc. All rights reserved.13–18 FIGURE 13–5 Access to and Participation by Workers for Selected Benefits, Private Industry, March 2006 Source: “National Compensation Survey: Employee Benefits in Private Industry in the United States, March 2006,” U.S. Department of Labor, U.S. Bureau of Labor Statistics, August Note: The access rate represents the percent of employees offered the benefit and the participation rate represents the percent of employees that receive the benefit.

© 2008 Prentice Hall, Inc. All rights reserved.13–19 Insurance Benefits (cont’d) Health Maintenance Organization (HMO)Health Maintenance Organization (HMO)  A medical organization consisting of specialists operating out of a health care center.  Provides routine medical services to employees who pay a nominal fee.  Receives a fixed annual contract fee per employee from the employer (or employer and employee), regardless of whether it provides that person with service.

© 2008 Prentice Hall, Inc. All rights reserved.13–20 Insurance Benefits (cont’d) Preferred Provider Organizations (PPOs)Preferred Provider Organizations (PPOs)  Groups of health care providers that contract to provide services at reduced fees.  Employees can select from a list of preferred individual health providers.  Providers agree to discount services and to submit to utilization controls.  Employees using non-PPO-listed providers may pay all costs or only costs above the reduced fee structure for services.

© 2008 Prentice Hall, Inc. All rights reserved.13–21 Trends in Health Care Cost Controls Communication, Involvement, and Empowerment Health Savings Accounts Premiums and Co-Pays Cost-Control Trends Prevention Programs Claim Audits

© 2008 Prentice Hall, Inc. All rights reserved.13–22 Other Cost-Control Options Automating health care plan administration Defined contribution health care plans Eliminating retiree health care coverage Benefits purchasing alliances Controlling Health Care Costs Outsourcing health care plan administration

© 2008 Prentice Hall, Inc. All rights reserved.13–23 Insurance Benefits (cont’d) Laws Influencing Health Care Benefits IssuesLaws Influencing Health Care Benefits Issues  Retirement and Pension Plans  Employee Retirement Income Security Act of 1974 (ERISA)  Mental Health Benefits  Mental Health Parity Act of 1996  Family Leave  Family Medical Leave Act  The Newborn Mother’s Protection Act of 1996  Health Insurance  COBRA requirements  Health Insurance Portability and Accountability Act of 1996 (HIPAA)

© 2008 Prentice Hall, Inc. All rights reserved.13–24 FIGURE 13–6 COBRA Record- Keeping Compliance Checklist Source: Reprinted from with permission of the publisher Business and Legal Reports, Inc., 141 Mill Rock Road East, Old Saybrook, CT © 2004.

© 2008 Prentice Hall, Inc. All rights reserved.13–25 Other Benefits Issues Life InsuranceLife Insurance  Types  Group life insurance  Accidental death and dismemberment  Personnel policies  Benefits-paid schedule  Supplemental benefits  Financing Benefits for Part-Time and Contingent WorkersBenefits for Part-Time and Contingent Workers  Leave and health benefits are now more commonly available to part-time workers.  Benefits for long-term independent contractors.

© 2008 Prentice Hall, Inc. All rights reserved.13–26 Retirement Benefits Social Security (Federal Old Age and Survivor’s Insurance)Social Security (Federal Old Age and Survivor’s Insurance)  A federal payroll tax (7.65%) paid by both the employee and the employer on the employee’s wages  Retirement benefits at the age of 62  Survivor’s or death benefits paid to the employee’s dependents  Disability payments to disabled employees and their dependents  The Medicare program

© 2008 Prentice Hall, Inc. All rights reserved.13–27 Retirement Benefits (cont’d) Membership Requirements Vesting Benefit Formula Plan Funding Policy Issues In Pension Planning

© 2008 Prentice Hall, Inc. All rights reserved.13–28 Retirement Benefits (cont’d) Defined Benefits Plans Defined Contribution Plans Qualified Plans Nonqualified Plans Types of Pension Plans

© 2008 Prentice Hall, Inc. All rights reserved.13–29 Retirement Benefits (cont’d) 401(k) Plans Employee Stock Ownership Plans (ESOPs) Savings and Thrift Plans Types of Defined Contribution Plans Deferred Profit-Sharing Plans Cash Balance Pension Plans

© 2008 Prentice Hall, Inc. All rights reserved.13–30 Retirement Benefits (cont’d) Employee Retirement Income Security Act (ERISA) of 1974Employee Retirement Income Security Act (ERISA) of 1974  Established guidelines for “qualified” pension plans.  Requires fiduciary responsibility. Pension Benefits Guarantee Corporation (PBGC)Pension Benefits Guarantee Corporation (PBGC)  Insures plans that terminate without sufficient funds to meet obligations.  Guarantees only defined benefit plans.  Pays individual pensions up to $49,000 per year.

© 2008 Prentice Hall, Inc. All rights reserved.13–31 Retirement Benefits (cont’d) Employees’ Vesting Rights under ERISAEmployees’ Vesting Rights under ERISA  Cliff vesting  Gives participants full right to the employer’s matching contribution after three years of service.  Graded vesting  Gives participants an increasing right to the employer’s matching contribution over a six year schedule of 20% after two years of service and 20% for each succeeding year thereafter.

© 2008 Prentice Hall, Inc. All rights reserved.13–32 Retirement Benefits (cont’d) Early Retirement WindowsEarly Retirement Windows  Specific employees (often age 50-plus) are offered an incentive to voluntarily retire earlier than usual.  The incentive is a combination of improved or liberalized pension benefits plus a cash payment. Older Workers’ Benefit Protection Act (OWBPA)Older Workers’ Benefit Protection Act (OWBPA)  Imposes limitations on waivers that purport to release a terminating employee’s potential claims against the employer based on age discrimination.

© 2008 Prentice Hall, Inc. All rights reserved.13–33 Personal Services Credit UnionsCredit Unions  Separate businesses established with the employer’s assistance to help employees with their borrowing and saving needs. Employee Assistance Programs (EAPs)Employee Assistance Programs (EAPs)  Provide counseling and advisory services:  Personal legal and financial services  Child and elder care referrals  Adoption assistance  Mental health counseling  Life event planning

© 2008 Prentice Hall, Inc. All rights reserved.13–34 Personal Services (cont’d) 1 Be aware of legal issues. Ensure professional staffing. Steps for Launching an EAP Program Develop a policy statement. Maintain confidential record-keeping systems. 234

© 2008 Prentice Hall, Inc. All rights reserved.13–35 Family-Friendly Benefits Subsidized child careSubsidized child care Sick child benefitsSick child benefits Elder careElder care Time offTime off Subsidized employee transportationSubsidized employee transportation Food servicesFood services Educational subsidiesEducational subsidies Fitness and medical facilitiesFitness and medical facilities Flexible work schedulingFlexible work scheduling

© 2008 Prentice Hall, Inc. All rights reserved.13–36 FIGURE 13–7 Sample Survey of Employee Needs Source: Michelle Buckley, “Checkup for Health Benefit Offerings,” Compensation and Benefits Review, September/October 2000, p. 43. Reprinted by permission of Sage Publications, Inc.

© 2008 Prentice Hall, Inc. All rights reserved.13–37 Flexible Benefits Programs Cafeteria (Flexible Benefits) ApproachCafeteria (Flexible Benefits) Approach  Each employee is given a limited benefits fund budget to spend on preferred benefits.  Types of plans  Flexible spending accounts  Core plus option plans Flexible Work ArrangementsFlexible Work Arrangements  Flextime schedules  Compressed workweek schedules  Job sharing  Work sharing  Telecommuting

© 2008 Prentice Hall, Inc. All rights reserved.13–38 K E Y T E R M S benefits supplemental pay benefits unemployment insurance sick leave severance pay supplemental unemployment benefits workers’ compensation case management health maintenance organization (HMO) preferred provider organizations (PPOs) group life insurance Social Security pension plans defined benefit pension plan defined contribution pension plan portability 401(k) plan savings and thrift plan deferred profit-sharing plan employee stock ownership plan (ESOP) cash balance plans Employee Retirement Income Security Act (ERISA) Pension Benefits Guarantee Corporation (PBGC) vested funds early retirement window employee assistance program family-friendly benefits flexible benefits plan/cafeteria benefits plan flextime compressed work week job sharing work sharing telecommuting