1. Providing Benefits and Services
John D. Blair, PhD
Snyder Professor in Management
MGT 3374 Human Resource Management
PowerPoint 24

2. The Strategic Importance of Providing Employee Benefits and Services
Are in-kind (noncash) payments to employees for their membership or participation in the organization.
Are available on a noncontingent basis—employees receive the same benefits and services regardless of job performance.
Key Strategic Challenge
Offering benefits and services that maximize the return on the employer’s investments. 3

3. The Strategic Importance of Benefits and Services (cont’d)
Improve Retention
Contain Costs
Increase Productivity
Strategic Challenges

4. Objectives of Benefits and Services Plans

5. Contain Costs
In 1929—Total benefits payments averaged 5% of total pay.
In 2010—Benefits were 30% of total pay (about $18,300 per employee).
Rising health care costs are viewed by HR professionals as the most important trend.

6. Improve Retention
Innovative benefits and services packages are important for attracting and retaining employees.
Flexible benefits plan
Provides all employees with a base benefits and services package and then allows employees to choose some additional benefits and services from a wide array of options.
Targeted benefits plan
Provides different types and levels of benefits and services depending on an employee’s location and position in the organization.

7. Employee Benefits and Services Within an Integrated HRM System
Mandatory (Public) Protection Programs
Are required by the federal and state governments
Social Security, unemployment, workers’ compensation
Voluntary Protection Programs
Are offered by employers and are not required by law
Health care, life insurance, disability, retirement

8. Mandatory and Voluntary Benefits and Services

9. EXHIBIT 12.4 Employer Costs for Benefits and Services (Cost per Hour Worked & as Percentage of Total Compensation, Private Industry)

10. The External Environment
Laws and Regulations
Growth in Benefits and Services
Labor Markets
Unions

11. The Organizational Environment
Business Strategy
Design of Employee Benefits and Services
Size of Firm
Company Culture

12. Mandatory Benefits and Services
Social Security Insurance
Unemployment Compensation Benefits
Workers’ Compensation and Disability Insurance
Family and Medical Leave

13. Social Security Insurance
Enacted in 1935 as a forced savings plan intended to provide older Americans with a reliable source of income in retirement.
Medicare provisions were added in 1966.
Federal Insurance Contributions Act (FICA)
6.2% of the first $100,400 income for retirement and disability
1.45% of total income for hospital insurance (Medicare)
Equal payroll tax contributions (7.65%) from the employer and the employee

14. Unemployment Compensation
Is an insurance program that provides unemployment compensation as income for employees who lose their jobs.
Jointly administered by federal and state governments.
Tax rates for employers are based on location and employer history of layoff and dismissals.
Level of benefits ranges 50-70% of base salary.

15. Workers’ Compensation and Disability Insurance
Covers costs and lost income due to injuries or illnesses 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

16. Family and Medical Leave
Family and Medical Leave Act (FMLA)
Covers employers with 50 or more workers
Required to grant up to 12 weeks of unpaid leave annually
For birth/adoption of a child
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.

17. Voluntary Benefits and Services: Retirement Savings Plans and Pensions
Qualified Plan
Covers a broad class of employees
Receives favorable tax treatment from IRS
Nonqualified plan
Covers only select groups of employees (e.g., senior management)
Doesn’t adhere to the strict tax regulations, doesn’t receive favorable tax treatment.

18. Types of Pension Plans Defined Benefit Plans
Benefits are fixed but vary with age and length of service
Require funding to match benefit payouts.
Provide predictable income after retirement
Penalize employee mobility
Are regulated by ERISA
Are being replaced by defined contribution plans

19. Types of Pension Plans (cont’d)
Defined Contribution Plans
Contribution is fixed, payout is variable.
Each employee has separate account.
Employer may agree to match a percentage of employee contributions.
Employer may contribute (contributory plan) or not (noncontributory plan).
401(k)s and 403(b)s
Employer and employee contribute to the fund.
Employee makes investment decisions.

20. Types of Retirement Plans Offered

21. Pension Plans (cont’d)
Employee Stock Option and Profit Sharing Plans
Ties value of plan to firm’s financial performance; violates sound financial principles for spreading risk by investing in a more diversified portfolio.
Cash Balance Plan
Pays a lump sum upon employees’ retirement or departure.
Has become more popular as employee mobility has increased.

22. Legal Considerations
Employee Retirement Income Security Act of 1974 (ERISA)
Protects benefits for workers covered by private pension plans; prohibits unfunded plans
Specifies provisions for vesting (time when employer’s contribution belongs to employee)
Portability: transfer of retirement funds to IRAs
Pension Benefit Guaranty Corporation (PBGC)
Administers an insurance program guaranteeing payment of retirement benefits if a plan is terminated.

23. Other Laws Related to Retirement Plans
Economic Recovery Tax Act of 1981
Allows tax deductible contributions to employer-sponsored plan or individual retirement account (IRA).
Encouraged employee stock ownership.
Economic Growth and Tax Relief Reconciliation Act of 2001
Raised employer-sponsored retirement plan contribution limits and shortened vesting periods.
Pension Protection Act of 2006
Made it easier for people to participate in defined contribution plans like IRAs and 401(k)s.

24. Health Care Benefits and Services
Medical Care Costs
Most employees underestimate the medical benefit’s cost to the employer and view medical care as an entitlement.
Employers pay an average of $13,400 for a health insurance plan that covers a family of four.

25. Types of Health Insurance Plans
Conventional Insurance Plans
Consumer-Driven Plans Health Savings Accounts (HSAs)
Health Maintenance Organizations (HMOs)
Point of Service Plans (POSs)
Preferred Provider Organizations (PPOs)

26. Wellness Programs Wellness Programs May include:
Proactive programs to prevent health problems
May include:
On-site exercise programs
Stress-management training
Assistance to stop smoking
Weight-loss programs

27. Wellness Benefits and Services

28. Employee Assistance Programs (EAPs)
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

29. Paid Leave Off-the-Job Paid Leave On-the-Job Paid Leave
Holidays and Vacations
Vacation pay or payment in lieu of vacation
Deferral of vacation (banking) or loss of vacation days
Mandated vacations in other countries
Other Paid Leaves
Volunteering, adoption, paternity and maternity leave, a day off for an employee’s birthday, and sabbaticals
On-the-Job Paid Leave
Rest periods, lunch periods, wash-up times, and clothes-changing and getting-ready times
Use of onsite physical fitness facilities 4

30. Other Popular Off-the-Job Paid Leaves

31. Work-Life Benefits and Services
Flexible Work Arrangements
Empower employees to decide how, when, and where to get their jobs done.
Flextime
Compressed workweeks
Telecommuting
Job sharing

32. Work-Life Benefits and Services
Child Care Benefits and Services
Scholarships for children of employees
Subsidized tutoring
Care for sick children
Subsidized college educations
On-site or subsidized child care
Child care referrals
Extended leaves
Benefits for employees with special needs children
Workplace schools
Employer-sponsored summer camps
Elder Care Services
Elder care referral services
Extended leaves beyond the mandated FMLA requirement.
Emergency elder care services
Subsidies to help cover the cost of elder care
Long-term care insurance.

33. Work-Life Benefits (cont’d)
Domestic Partner Benefits and Services
Employers provide domestic partner benefits and services to attract and retain talent, comply with the company’s nondiscrimination policy, and comply with local laws.
Federal laws do not require employers to provide domestic partner benefits and services.

34. Other Benefits and Services

35. Administering Issues Administrative Issues
Communication
Determining the Level of Flexibility
Determining the Benefits and Services Package
L E A R N I N G G O A L 10

36. Current Issues Controlling the Escalating Cost of Health Care
Medical cost control tactics:
Shift health care costs to employees
Hospital utilization programs
Coordination of benefits
Data analysis
Prescription drug management
Case management
Auditing employee usage
The Patient Protection and Affordable Care Act of 2010 (PPACA)
PPCA is a comprehensive health care reform bill that mandates health insurance for individuals and reforms insurance practices.