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EMPLOYEE BENEFITS

Chapter 14

Human Resource Management

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Benefit Plan Objectives• What proportion of total compensation should be given as pay or benefits?• What is the total cost the organisation is prepared to pay for a benefits

program?• What benefits are to be included in the organisation’s benefit program?• Are they benefits that employees want?• What is the purpose of the benefits? • Do they satisfy the organisation’s strategic business objectives? • Will they help attract, motivate and retain the right mix of employees? • Will they reinforce the desired organisational culture?

Benefits: All financial rewards that are not paid directly in cash to the employees, e.g. annual and maternity leave, life insurance, medical/dentist/education subsidies

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Growth Of Employee Benefits

Fringe Benefits:Fringe Benefits:

Indirect or non cash compensation items such as life insurance, medical benefits, sick leave…

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2. Union Pressure• Unions always seek new and improved benefits for their

members. Annual leave, sick leave, maternity leave, long-service leave, payment of union dues, provision of uniforms and safety clothing and retirement benefits are all examples of benefits sought by unions.

3. Status• Some fringe benefits are highly prized as status symbols

and can act as powerful motivators. However, in response to competitive pressures, some companies are beginning to ask, ‘Does this add value?’

1. Taxation• Employers have felt pressure to introduce more and more

‘tax-free’ benefits such as family holidays, improved sick leave, private school fees, home mortgage repayments, fully maintained cars and non-contributory superannuation, and to package these in the most tax effective way for the employee.

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Flexible Benefit Plans• Most organisations have a varied employee population.

Differences in age, sex, marital status, number of dependants, financial position and personality make for different benefit needs.

• To address this, some organisations offer a system of flexible or cafeteria-style benefits.

• Such programs allow employees to select the particular benefits that match their individual needs.

• Each employee is allocated a sum of money that can be used to purchase specific benefits from among those provided by the organisation.

• This enables employees to develop benefit plans that suit their lifestyle.

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Types of Employee Benefits

1. Group Life Insurance

• The purpose of group life insurance is to provide financial protection for the employee’s dependants upon his or her death.

2. Health Care Insurance

• Although Medicare provides basic health protection, some organisations offer supplementary health benefits.

• Some employer initiatives in health promotion include on-site exercise facilities, health risk appraisals (questionnaires about health hazards) and health risk assessments.

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3. Payment For Time Not Worked• Annual leave loadings, long-service leave, paternity leave,

sick leave, maternity leave, jury duty, military service, bereavement leave, compassionate leave, public holidays, education leave and leave for trade union training.

• Although taken for granted by most employees, payments for time not worked constitute a significant proportion of the total cost of employee benefits.

4. Workers’ Compensation Insurance• All organisations in Australia are legally obliged to have

their employees covered by workers’ compensation insurance to give them protection against the costs of medical care and loss of income caused by a workplace injury or illness.

• It accounts for about 3 per cent of total labour costs.

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5. Total And Permanent Disability Insurance• Some organisations provide benefits in the event

of the employee’s total and permanent disability.

6. Child-care• Advantages of providing child-care benefits:

– aids recruitment

– reduces absenteeism

– increases employee loyalty

– improves productivity

– reduces labour turnover

– improves the organisation’s image

– enhances employee morale.

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7. Elder-care• An Australian study found that for every employee with

elder-care responsibilities, an average of three days were lost and another four days disrupted.

• Although little has been done in Australia, some companies such as Lend Lease, Sydney Water Corporation and Colgate Palmolive have elder-care programs.

8. Employee Assistance Programs• Traditional services offered by EAPs include counselling on

drug and alcohol abuse, marital and family problems, financial problems and time management.

• Newer services include counselling on mental health problems, dependant care, bereavement, stress management, community services referral, weight control, health education, smoking cessation and adoption assistance programs.

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9. Preventative Health Programs• Many organizations now realise that healthy employees

are more productive• Programs designed to promote employee health and

fitness, e.g. physical fitness, stress reduction, weight loss and smoking cessation.

• Advantages for health promotion include:– decreased absenteeism– improved morale– decreased workers’ compensation claims– improved image of the organisation as a concerned and caring

employer.

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10. Flexible Work Schedules • Variable day: an employee may vary the number of hours worked in

a day, so long as he or she works the required 40 hours (or whatever the award states) in a full week.

• Flexitime: Employees are allowed to choose their own starting and finishing times within a broad range of available hours.

• Variable week: an offspring of the variable day where the employee must complete the award-set hours in a fortnight and be in the office every day from Monday to Friday each week. However, the employee chooses the hours worked.

• Maxiflex: employees can work the hours required for the week in less than five days and take a three-day weekend.

• Job sharing: one job is split between two workers. The employees work on alternate weeks, or split days, for example three days for one employee and two for the other; or some other variation.

• Permanent part-time: workers choose to work less than full-time (for example, three or four hours a day) and receive partial benefits afforded full-time workers

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11.Miscellaneous Benefits

• Include share plans, profit sharing, savings and thrift plans, travel insurance, frequent flyer points, tuition refund, study leave, sabbatical leave, employee discounts, payment of union dues, paid rest periods, free clothing, travel time, wash-up time, canteens and free parking.

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Retirement Benefits• Superannuation:Benefit paid as a pension/lump sum to help employees to meet their financial needs in retirement.• Government objectives for superannuation:

– to encourage employees to provide for their own retirement rather than rely on the age pension

– to minimise the losses of tax revenue brought about by the concessional treatment of superannuation.

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Types Of Retirement Plans

1. Defined Benefit Plans• Defined benefit plans pay out a predetermined amount either as a

lump sum or as a monthly pension on the employee’s retirement. These plans give employees certainty as to their precise entitlement on retirement.

2. Defined Contribution Plans• Also called accumulation plans, calculate the employee’s

retirement benefit on the basis of the accumulated contributions and superannuation fund earnings at the time of retirement.

• The benefit may be paid in the form of a lump sum or a pension (via the purchase of an annuity).

• Defined contribution plans are fully funded while defined benefit plans require actuarial calculations to determine the amount required to meet promised benefit levels.

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Issues In Superannuation

1. Retirement age

2. Size of benefits

3. Early retirement

4. Vesting

5. Occupational superannuation

6. Aids and superannuation

7. Women and superannuation