Providing Benefits and Services

John D. Blair, PhDSnyder Professor in Management

MGT 3374 Human Resource ManagementPowerPoint 24

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The Strategic Importance of Providing Employee Benefits and Services

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.

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Improve RetentionImprove RetentionContain CostsContain Costs

Increase ProductivityIncrease Productivity

Strategic ChallengesStrategic

Challenges

The Strategic Importance of Benefits and Services (cont’d)

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Objectives of Benefits and Services Plans

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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.

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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.

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Employee Benefits and Services Withinan 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

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Mandatory and Voluntary Benefits and Services

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

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The External Environment

Laws and Regulations

Laws and Regulations

Growth in Benefits

and Services

Growth in Benefits

and Services

Labor Markets

Labor Markets UnionsUnions

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The Organizational Environment

Business Strategy

Business Strategy

Design of Employee

Benefits and Services

Design of Employee

Benefits and Services

Size of FirmSize of Firm Company Culture

Company Culture

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Mandatory Benefits and Services

Social Security Insurance

Unemployment Compensation Benefits

Workers’ Compensation and Disability Insurance

Family and Medical Leave

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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

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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.

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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

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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.

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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.

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Types of Pension Plans

Defined Benefit Plans Benefits are fixed but vary with age and

length of serviceRequire funding to match benefit payouts.Provide predictable income after retirementPenalize employee mobilityAre regulated by ERISAAre being replaced by

defined contribution plans

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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.

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Types of Retirement Plans Offered

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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.

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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.

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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.

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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.

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Types of Health Insurance PlansConventional

Insurance Plans

Conventional Insurance Plans

Health Maintenance Organizations

(HMOs)

Health Maintenance Organizations

(HMOs)

Point of Service Plans (POSs)

Point of Service Plans (POSs)

Preferred Provider

Organizations (PPOs)

Preferred Provider

Organizations (PPOs)

Consumer-Driven Plans

Health Savings Accounts (HSAs)

Consumer-Driven Plans

Health Savings Accounts (HSAs)

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Wellness Programs

Wellness Programs Proactive programs to prevent health

problems May include:

On-site exercise programs

Stress-management training

Assistance to stop smoking

Weight-loss programs

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Wellness Benefits and Services

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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

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Paid Leave Off-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

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Other Popular Off-the-Job Paid Leaves

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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

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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.

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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.

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Other Benefits and Services

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Administering Issues

Administrative Issues

Administrative Issues

CommunicationCommunicationDetermining the Level of Flexibility

Determining the Level of Flexibility

Determining the Benefits and

Services Package

Determining the Benefits and

Services Package

L E A R N I N G G O A L

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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.