1. MGT 430 – Spring 2016 Class 16 - Chapter 12
EMPLOYEE BENEFITS

2. History of Employee Benefits in the US
Employer-sponsored health insurance plans dramatically expanded as a direct result of wage controls imposed by the federal government during WWII
The labor market was tight because of the increased demand for goods and decreased supply of workers during the war.
When the War Labor Board declared that fringe benefits, such as sick leave and health insurance, did not count as wages for the purpose of wage controls, employers responded with significantly increased offers of fringe benefits, especially health care coverage, to attract workers.

3. Why Do Companies Offer Employee Benefits
Some are required by law
Assists in recruiting and retaining quality employees
Some benefits protect employees from risks that could jeopardize their health and/or financial security
Corporate Social Responsibility?
So that employees can focus on their jobs
Other???

4. Employees’Expectations and Values
Employees expect to receive benefits that are legally required and widely and commonly available.
Employees value the benefits they are likely to use.
The value employees place on various benefits is likely to differ from one employee to another, e.g.
Baby Boomers may prefer improvements to pension plans
Gen Y prefer child care & gym memberships
The choice of benefits may influence current employees’ satisfaction and may also affect the organization’s recruiting, in terms of both the ease of recruiting and the kinds of employees attracted to the organization.

5. Whether employee benefits are required by law or optionally provided,
ALWAYS KEEP IN MIND
Whether employee benefits are required by law or optionally provided,
There are always significant $$$$$$ factors to consider
Dirty Secret: The money has to come from somewhere!!!

6. An Overview of Benefits
Employee benefits:
Indirect compensation
Based on group membership
Provide a degree of security for employees and family
Costly and becoming costlier
1929: 3% of payroll
2010: 30.3%
2016: 35-40% of payroll is typical;
Employee benefits are a form of indirect compensation and are typically based on group membership. They are longer term in nature and provide security for employees and family in the way of protecting potential income loss through disability, sickness or death. The last several years benefits have been rising in cost and this is becoming a huge issue of concern for organizations.

7. The Cost of Benefits in the U.S.
Federal tax policy
Employers: cost may be deductible
Employees: many free of taxes—others tax deferred
Cost of benefits impacted by
Federal & state legislation
Union influence
Cost saving of group plans
Competitive and political pressures
Difficulty in getting employees to manage their benefits effectively.
Federal law requires employers to provide Social Security and unemployment insurance benefits, worker’s compensation, and family & medical leave. The costs may be tax deductible for employers and is often tax free or at least deferred for employees. Federal legislation will probably continue to cause significant growth in the cost of benefits as changes in health care and other benefits continue to emerge.
Unions are on the forefront of the movement to expand employee benefits for the last half century and will continue to do so. In recent years, unions have been asking for dental-care coverage, extended vacation periods, and greater unemployment benefits. Once benefit patterns are established in unionized firms, these same benefits tend to spread to nonunionized companies.
Employers can provide benefits for much less money than employees would pay to obtain them on their own. When insurance companies can spread risk over a large group of individuals, they can reduce the cost of benefits per person, which causes employees to put considerable pressure on their employers to provide certain benefits.

8. The HRM Benefits Strategy
Three parts to Benefits Strategy:
Benefits Mix—total package
Compensation strategy
Organization’s objectives
Characteristics of workforce
There are three parts to the benefits strategy: benefits mix, benefit amount and flexibility of benefits.
The Benefits Mix is the complete package of benefits that a company offers its employees. When constructing the package the firm should consider compensation strategy, organizational objectives, and characteristics of the workforce.
The Benefits Amount is the choice of benefits that governs the percentage of the total compensation package that will be allocated to benefits . The choice corresponds to the “fixed versus variable pay” decision as discussed in Chapter 10. Once the amount of money available for benefits determined, management can decide on the level of funding for each part of the benefits program.
Flexibility of Benefits concerns the degree of freedom employees have to tailor the benefits package to their personal needs. This choice corresponds to the “centralization versus decentralization of pay” decision (Chapter 10). The benefits package could be fairly standardized with few options, which works with a fairly homogenous workforce or if the organization cannot develop a “typical” employee profile, they will probably want a decentralized benefits package that emphasizes choice.
In a company who wants to provide the lowest price on their products how do the align their benefits package with that strategy while meeting the needs of their employees.

9. Mandated Employee Benefits
Social Security Worker’s Compensation Unemployment Insurance Patient Protection and Affordable Care Act (ObamaCare) Family Medical Leave Act

10. Mandated Employee Benefits Social Security Act of 1935 (FDR)
Old Age, Survivors, and Disability Insurance Federal program (OASDI)
Employer/employee funded 50/50 (7.65%/7.65) = 15.30% of payroll
6.2% funds = retirement % funds = Medicare
Maximum employment taxable income for 2016 = $118,500
Raising the Social Security eligibility age is a hot political issue

11. Social Security
Retirement age for full benefits Born = 66 years Early retirement at 62 years = 75% Born 1960 and later = 67 years Early retirement at 62 = 70% Social Security benefits are not subject to New York’s state or local taxes and generally are not taxable at the federal level. Additional Social Security benefit entitlements: Widow(er) Children Disability

12. Social Security Debate
Long term funding challenges, e.g.
Aging Baby Boomers (ca. 78 million)
Continuing lower birth rate
Increasing life expectancy
Unfunded obligations = $8.6 trillion over 75 years
Considering a combination of government funded accounts and private accounts
# workers paying into S.S. vs. number of citizens receiving benefits

13. Mandatory Benefits Unemployment Insurance
State run – with federal assistance – through payroll taxes
HRM incentives to keep employment stable
Typically authorized for up to 6 months
Based upon salary/wages prior to termination
Maximum UI rates by states
NY = $420 CT = $590 NJ = $624 ME: $372
CT = $590 VT = $425 RI = $566 NH: $427
Highest = MA - $674 (674 x 26 = $17,524) or (674 x 52 = $35,048)
Lowest = AZ - $240 (240 x 26 = $6,240) or (240 x 52 = $12,480)

14. Benefits Required by Law: Unemployment Insurance
Size of unemployment tax imposed on each employer depends on the employer’s experience rating:
Number of employees a company has laid off in the past and cost of providing them with unemployment benefits.
Careful HR workforce planning can minimize layoffs and keep their experience rating favorable.
Employers with a history of laying off a large share of their workforces pay higher taxes than those with fewer layoffs. Use of experience ratings gives employers some control over the cost of unemployment insurance. Careful HR planning can minimize layoffs and keep their experience rating favorable. Employers with a history of laying off a large share of their workforces pay higher taxes than those with few layoffs. In some states, an employer with very few layoffs may pay no state tax. In contrast, an employer with a poor experience rating could pay a tax as high as 5.4 to percent, depending on the state.

15. Benefits Required by Law: Unemployment Insurance
To receive benefits, workers must meet four conditions:
They meet requirements demonstrating they had been employed.
They are available for work.
They are actively seeking work.
They were not discharged for cause, did not quit voluntarily, and are not out of work because of a labor dispute.
Workers who meet these conditions receive benefits at the level set by the state – typically about half the person’s previous earnings – for a period of 26 weeks. All states have minimum and maximum weekly benefit levels.

16. Benefits Required by Law: Workers Compensation
State programs that provide benefits to workers who suffer work-related injuries or illnesses, or to their survivors.
Operate under a principle of no-fault liability:
Employee does not need to show that the employer was grossly negligent in order to receive compensation.
Employer is protected from lawsuits.
WC laws intended to eliminate the need for litigation by having employees give up the potential for pain- and suffering-related awards in exchange for not being required to prove legal fault on the part of their employer.
Designed to ensure that employees who are injured or disabled on the job are not required to cover medical bills related to their on-the-job injury, and are provided with monetary awards to cover loss of wages directly related to the accident, as well as to compensate for permanent physical impairments.
Prior to workers’ compensation laws, employees who suffered work-related injury or illness had to bear the cost unless they won a lawsuit against their employer. Those who sued often lost the case because of the defenses available to employers. Employees are not eligible if their injuries are self-inflicted or if they result from intoxication or “willful disregard of safety rules.

17. Benefits Required by Law: Workers’ Compensation
Four major categories of benefits:
Disability income
Medical care
Death benefits
Rehabilitative benefits
About 9 out of 10 U.S. workers are covered by state workers’ compensation laws; amount of benefits income varies among states.
Generally it is two-thirds of the worker’s earnings before the disability.
Benefits are tax free.
The cost of workers’ compensation is borne by the employer. The states differ in terms of how they fund workers’ compensation insurance. Some states have a single state fund. Most states allow employers to purchase coverage from private insurance companies. Most also permit self-funding by employers. Organizations can minimize the cost of this benefit by keeping workplaces safe and making employees and their managers conscious of safety issues.

18. Benefits Required by Law: Workers Compensation
Cost of Workers Compensation insurance depends on:
Kinds of occupations involved
State where company is located
Employer’s experience rating
Unfavorable experience ratings lead to higher insurance premiums
Very similar to automobile insurance policies
Companies have therefore redoubled efforts to improve their experience ratings and control future costs for unemployment insurance. For example, helping laid-off workers find a new job can shorten the time in which they are receiving benefits. Some states allow shared work arrangements, in which companies reduce wages and hours, and employees receive partial unemployment benefits, rather than laying off workers. U.S. economic recession that began in 2008 put quite a strain on the country’s unemployment insurance system. Although the economy seems to be on the rebound, unemployment levels have been slow to recede.

19. Workers Compensation Claims and premiums steadily rising
Employers “fighting back” with smarter HRM practices
Run by state WC boards
Funded by payroll tax based upon experience
48 out of 50 states (except NJ & TX)
Typically 2-4% per $100 of payroll – Higher in certain industries, e.g. construction;
Premiums based upon experience
Workers’ Compensation is another legally required benefit. It provides for the medical care & income continuation for those injured on the job.
Over the last several years the costs continue to arise because claims are on the rise. The premiums are based on three factors: risk of injury for an occupation, company’s injury experience rating (the frequency and severity of the injuries sustained by the company’s workforce), and the level of benefits provided for specific injuries within the state where the company is located.
Small companies forming self-insurance pools to fight back against the high premium rate.
HR plays a critical role in the management of worker’s compensation. They are responsible for stressing safe work procedures to limit the number of workers’ compensation claims. They also audit all the claims to make sure they are legitimate and to watch for trends. The HR department will work on coordinate workers’ compensation and health insurance benefits to make sure there are not double payments.
Also HR will try to find ways to bring employees back on modified duties so they can work part time in a way that accommodates for their disability and to decrease the workers’ compensation claim. -

20. Role of HRM and Workers Compensation
Workers Compensation rates are based upon a company’s experience. Thus, HRM stresses safety by:
Auditing workers compensation claims for potential fraud
Coordinating workers compensation and health insurance benefits
Encouraging those partially disabled to return under a modified duty plan
Conducting training classes on safe procedures
Making safety a performance appraisal metric

21. FLMA – Family and Medical Leave Act of 1993 (Clinton)
Up to 12 weeks unpaid leave
For following reasons:
Birth of a child
Adoption of a child
Care for sick spouse, child or parent
Employee’s own serious health needs
Amended to give up to 26 weeks leave to family of injured military personnel
Employers must guarantee these employees same or comparable job when they return to work.
The Family and Medical Leave Act (FMLA) applies to businesses with 50 or more employees. It provides up to 12 weeks unpaid leave for the birth of a child, adoption of a childe, care for an immediate family member or to recover from their own health issues.
This act was amended in 2008 to give a spouse, son, daughter, parent, or next of kin up to 26 work weeks to care for a member of the Armed Forces undergoing medical treatment, recuperation, or therapy.
What message has society sent with these “required” benefits?

22. Problems with FMLA Cost of doing business (passed along to consumers?)
Can you go 12 weeks without a paycheck?
Do you want your boss to know that he/she can get along without you for 12 weeks?
Potential for sex discrimination
Pressures on partner or tenure-track employees or high intensity career tracks

23. TEACHER STUMPER
Should the FMLA program be a paid entitlement or remain an unpaid entitlement?

24. Test Your Knowledge
XYZ company has determined that they will have to reduce their benefits costs to stay competitive. Which of the following solutions is not a choice for XYZ?
Eliminate health coverage
Reduce the percentage of employees’ Social Security insurance they pay.
Reduce their unemployment insurance costs by managing their workforce to avoid layoffs.
Institute a safety program to minimize workers compensation costs.
XYZ company evaluated their benefits costs and determined they will have to reduce their costs to stay competitive. Which of the following solutions is not a choice for XYZ?
Eliminate health coverage
Reduce the percentage of employees’ Social Security insurance they pay.
Reduce their unemployment insurance costs by managing their workforce to avoid layoffs.
Institute a safety program to minimize worker’s compensation costs.
Answer: B

25. The Health Insurance Portability and Accountability Act of 1996 (Clinton) It also bars health benefit plans from certain types of discrimination on the basis of health status, genetic information, or disability. Makes it easier for workers to maintain their health care coverage when they change employers because it specifies that coverage under a previous employer’s health plan counts for meeting a pre-existing condition required under the new plan.

26. Overview of the Privacy Rule
HIPAA & Privacy
Overview of the Privacy Rule
Gives patients control over the use of their health information
Defines boundaries for the use/disclosure of health records by covered entities
Strictly investigates compliance-related issues and holds violators accountable with civil
or criminal penalties for violating the privacy of an individual's Protected Health Information (PHI)
Supports the cause of disclosing PHI without individual consent for individual healthcare needs, public benefit and national interests