Chapter 13: Providing Benefits and Services Jackson and Schuler © 2003 South-Western College Publishing. All rights reserved. Eighth edition

© 2003 South-Western College Publishing. All rights reserved.13–2 Chapter Outline  Employee Benefits and Services Within an Integrated HR System  The Strategic Importance of Employee Benefits & Services  Public Protection Programs  Private Protection Programs  Health Care Benefits & Services  Paid Leave  Work-Life Balance  Other Benefits & Services  Administrative Issues

© 2003 South-Western College Publishing. All rights reserved.13–3 TerminologyTerminology  Benefits and Services  In-kind payments to employees  For membership or participation in the organization  Public Protection Programs  Legally required  Social Security, unemployment, workers’ compensation  Private Protection Programs  Voluntary for employers  Health care, life insurance, disability, retirement

© 2003 South-Western College Publishing. All rights reserved.13–4 Benefits and Services within an Integrated HR System Other HR Activities Fairness/Legal Recruitment Compensation Safety/Health Global Environment Organizational Environment Objectives for Total Compensation Communicate Values Support Objectives Attract, Retain Motivate Contain Costs Total Compensation Monetary….Nonmonetary Provide Mandatory Benefits & Services Social Security Unemployment/Wkrs Comp Provide Voluntary Benefits and Services Retirement, Medical Paid Leave, Life Cycle Communicate and Administer Monitor Health and Safety

© 2003 South-Western College Publishing. All rights reserved.13–5 External Influences EmployeeBenefitsEmployeeBenefits Wage controls Health care costs Union bargaining Federal tax policies InflationInflation CompetitionCompetition Social legislation Expansion of social security

© 2003 South-Western College Publishing. All rights reserved.13–6 Internal Influences Human resource philosophy philosophy Business strategy and objectives Business strategy and objectives Employee wants EmployeeBenefitsEmployeeBenefits

© 2003 South-Western College Publishing. All rights reserved.13–7 Average Annual Monetary Benefits and Earnings

© 2003 South-Western College Publishing. All rights reserved.13–8 Percentage of Who Rank Each Benefit Most Important

© 2003 South-Western College Publishing. All rights reserved.13–9 The Strategic Importance of Benefits and Services  Benefits and Services May:  Attract good employees  Increase employee morale  Reduce turnover  Increase job satisfaction  Enhance the organization’s image

© 2003 South-Western College Publishing. All rights reserved.13–10 Benefits, Services and Business Strategy  Are generally not considered motivators  Benefits and services are not contingent on performance  Innovative packages may attract and retain employees  Communication is important  Many employees don’t know the worth of benefits they receive  Employees may view benefits as entitlement  Employees differ on the relative value they place on particular benefit

© 2003 South-Western College Publishing. All rights reserved.13–11 Business Objectives Addressed by Benefits and Services  Objective: To unify a company acquired from a merger  Benefits Response: Analyze immediate versus gradual transfer of subsidiary employees into corporate benefits plan.  Objective: To cut accident rates 10% by year end  Benefits Response: Establish employee assistance program. Set up literacy training to ensure employees can read safety signs.

© 2003 South-Western College Publishing. All rights reserved.13–12 Benefits Costs  In 1929, total benefits averaged 5% of total pay, in 2000: 30% of  Wages and salaries are 40 times greater than 60 years ago  Benefits and services are 500 times greater

© 2003 South-Western College Publishing. All rights reserved.13–13 Public Protection Programs  Social security system  Unemployment compensation benefits  Workers’ compensation and disability

© 2003 South-Western College Publishing. All rights reserved.13–14 Social Security  Social Security Act of 1935; Medicare was added in 1966  Federal Insurance Contributions Act (FICA)  6.2% of the first $68,400 income for retirement and disability  1.45% of total income for hospital insurance (Medicare)  Equal contributions from the employer and the employee

© 2003 South-Western College Publishing. All rights reserved.13–15 Unemployment Compensation  Jointly administered by Federal and State governments  Tax rates for employers vary based on number of people using benefits  Level of benefits ranges 50-70% of base salary

© 2003 South-Western College Publishing. All rights reserved.13–16 Workers’ Compensation  Covers costs and lost income due to injury or illness that result from on-the-job events  Administered by states  Fully financed by employers  Managing workers’ compensation costs:  Use health care cost-containment strategies (audit bills, develop preferred providers, etc.)  Implement job safety programs  Combine with disability management

© 2003 South-Western College Publishing. All rights reserved.13–17 Relevant Laws  Pregnancy Discrimination Act of 1978  Pregnancy is defined as a disability.  Female employees (and spouses) must receive same benefits for pregnancy as for other disabilities.

© 2003 South-Western College Publishing. All rights reserved.13–18 Family and Medical Leave Act of 1993  Covers employers with 50 or more workers  Required to grant up to 12 weeks of unpaid leave annually  For birth/adoption  To care for immediate family member with serious health condition  For employee with serious health condition  Employee keeps preexisting health coverage and must be allowed to return to same or equivalent job

© 2003 South-Western College Publishing. All rights reserved.13–19 Relevant Laws (cont’d)  Economic Recovery Tax Act of 1981  Employees allowed to make tax deductible contributions to employer-sponsored plan or individual retirement account (IRA)  Encouraged employee stock ownership  Health Insurance Portability and Accountability Act of 1996  Facilitates employees’ transfer of coverage when they change jobs

© 2003 South-Western College Publishing. All rights reserved.13–20 Economic Growth and Tax Relief Reconciliation Act of 2001  Raises contribution limits for IRAs and employer- sponsored retirement plans  Reduces (to 3 yrs) length of service before employer contributions to retirement programs must be available  Shortens pension vesting waiting periods  Eliminates federal taxes on withdrawals from college savings plans

© 2003 South-Western College Publishing. All rights reserved.13–21 Private Protection Programs  Are not required by law  Include  Retirement income plans  Capital accumulation plans  Savings and thrift plans  Supplemental unemployment  Guaranteed pay

© 2003 South-Western College Publishing. All rights reserved.13–22 Pension Plans  Qualified Plan:  Covers broad class of employees  Receives favorable tax treatment  ERISA (Employee Retirement Income Security Act of 1974)  Protects benefits for workers covered by private pension plans; prohibits unfunded plans  Specifies provisions for vesting (time when employer’s contribution belongs to employee)

© 2003 South-Western College Publishing. All rights reserved.13–23 Types of Pension Plans  Defined Benefit Plan  Benefits vary with age and length of service  Provides predictable income after retirement  Penalizes employee mobility  Regulated by ERISA  Cash Balance Plan  Pays a lump sum upon employees’ departure  Has become more popular as employee mobility has increased

© 2003 South-Western College Publishing. All rights reserved.13–24 Types of Pension Plans (cont’d)  Defined Contribution Plans  Each employee has separate account  Employer may contribute (contributory) or not (noncontributory)  Money purchase plans Employer makes regular contributionsEmployer makes regular contributions  Tax-deferred profit-sharing plans Employees share profits and investment riskEmployees share profits and investment risk

© 2003 South-Western College Publishing. All rights reserved.13–25 Supplemental Plans  401K Plans  Employer and employee contribute to fund  Employee makes investment decisions  Employee stock and stock option plans  Recent trend is to offer to all employees

© 2003 South-Western College Publishing. All rights reserved.13–26 Health Care Benefits and Services  Medical Coverage  Wellness Programs  Employee Assistance Programs  Disability Insurance

© 2003 South-Western College Publishing. All rights reserved.13–27 Medical Care  Most employees underestimate cost and view medical care as an entitlement  Companies that provide health insurance spend more than 13 cents of every dollar they make to pay for coverage.

© 2003 South-Western College Publishing. All rights reserved.13–28 Medical Care Approaches  Insurance Companies  Provider Organizations  Health Maintenance Organizations (HMOs)  Preferred Provider Networks  Self-Funded Plans

© 2003 South-Western College Publishing. All rights reserved.13–29 Medical Cost Containment Strategies  Hospital utilization programs  Coordination of benefits  Data analysis  Case management  Cost sharing with employees  Incentives to promote employee health

© 2003 South-Western College Publishing. All rights reserved.13–30 Wellness Programs  Proactive programs to prevent health problems  May include:  On-site exercise programs  Stress-management training  Assistance to stop smoking  Weight-loss programs

© 2003 South-Western College Publishing. All rights reserved.13–31 Employee Assistance Programs  Assist employees with chronic personal problems that hinder job performance and attendance  Employees referred to confidential counseling services  Includes help with alcohol and drug dependencies, domestic problems, mental disorders, financial problems

© 2003 South-Western College Publishing. All rights reserved.13–32 Paid Leave  Off the job:  Vacations and holidays  Paid absences  On the job  Lunches, rest periods

© 2003 South-Western College Publishing. All rights reserved.13–33 Managing Absenteeism  In U.S., average daily absenteeism rate 2-3% of payroll.  Programs that reward attendance may be more effective than disciplinary approaches.  Personal Time Off (PTO) benefits may prevent unscheduled absenteeism.

© 2003 South-Western College Publishing. All rights reserved.13–34 Work-Life Balance  Child Care Services  Dependent care reimbursement accounts  Resource and referral programs  On-site care facilities  Flexible scheduling  Backlash from child-free workers tends to be limited in scope

© 2003 South-Western College Publishing. All rights reserved.13–35 Work-Life Balance  Elder Care Services  Information and referral programs  Long-term care insurance 28% of employees over 30 spend an average of 10 hours a week giving care to an older relative

© 2003 South-Western College Publishing. All rights reserved.13–36 Work-Life Balance (cont’d)  Other Life Cycle and Life Style Benefits  Benefits for spousal equivalents  Educational expense allowances  Relocation and housing assistance

© 2003 South-Western College Publishing. All rights reserved.13–37 Administrative Issues Determining the benefits packageDetermining packageProvidingbenefitsflexibilityProvidingbenefitsflexibility Communicating packageCommunicating package Managing & reducing benefitscostsManaging benefitscosts

© 2003 South-Western College Publishing. All rights reserved.13–38 Determining the Benefits and Services Package  Employee preferences vary considerably and are difficult to predict, based on demographic characteristics.  Corporate size, ability to pay, strategy and culture affect benefits decisions.  Flexible plans, which allow employee choice of benefits, are very effective.

© 2003 South-Western College Publishing. All rights reserved.13–39 Communicating the Benefits and Services Package  Most companies use passive, impersonal techniques  New approaches include:  Voice response systems (call centers)  Intranet web sites