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Chapter 18

Chapter 18 . Other Nonretirement Benefits. Can Be Divided in Three Categories. Payments for time not worked Extra payments to employees Services to employees. Meaning of Highly Compensated Employee. Any employee who is

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Chapter 18

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  1. Chapter 18 Other Nonretirement Benefits

  2. Can Be Divided in Three Categories • Payments for time not worked • Extra payments to employees • Services to employees

  3. Meaning of Highly Compensated Employee • Any employee who is • A 5-percent owner of the firm or was a 5 percent owner during the previous year • Had compensation from the employer in excess of $90,000 (subject to indexing) during the previous year

  4. Meaning of Highly Compensated Employee (cont.) • The following benefits in chapter are subject to nondiscrimination rules and cannot discriminate in favor of highly compensated employees • Educational assistance • Service awards • Safety achievement and productivity awards • No-additional-cost services • Employee discounts • Dependent-care assistance • Employee assistance • Adoption-assistance programs

  5. Vacations • Designed to fit employer objectives and competition • Usually a waiting period for new employees • Usually an increase in benefit for length of service • Carryover of unused days may or may not be allowed • Taxed as regular income

  6. Table 18.1

  7. Holidays • Number varies by employer • Marketing factors and state laws may influence actual holidays taken

  8. Personal Time Off With Pay • Common reasons include • Reserve/National Guard duty • Jury duty • Funeral (bereavement) leave • Sabbatical leave • Observation of religious holidays

  9. Personal Time Off without Pay • Employers may voluntarily allow this for activities such as honeymoons, extended vacations, education leaves

  10. Personal Time Off without Pay (cont.) • Federal legislation • Applies to any employer with more than 50 employees within a 75-mile radius • Allows employees to take up to 12 weeks leave for the following • Birth or adoption of a child • Care for ill family member • The employee’s own illness • Health coverage must be continued during leave as if the worker were still employed • Upon return, employee must get old job back or be given an equivalent job • Specific requirements about notification and guidance

  11. State laws • More than half the states require employers (other than small employers) to allow leave for reasons such as birth or adoption of a child and the illness of a family member • Must comply with these in addition to federal law

  12. Uniformed Services Employment and Reemployment Rights Act • Gives specific rights to an employee who leaves a civilian job for active military duty

  13. Supplemental Unemployment Benefit Plans • Most common in industries with cyclical unemployment • Supplement state unemployment benefits • Usually a result of collective bargaining • Benefits usually prefunded through a trust financed by employer contributions

  14. Educational Assistance • First $5,250 of benefits can be received tax free each year • Eligible expenses are tuition, fees, and books; meals and transportation costs cannot be received tax free nor can assistance for graduate-level courses • No tax-free benefits for courses involving sports, games or hobbies

  15. Moving-Expense Reimbursements • Benefits may be for expenses associated with: • Moving personal possessions • Travel and lodging while searching for and moving to a new home • Employer-provided benefits are taxable income but employee who itemizes may take a corresponding deduction

  16. Suggestion Awards • For suggestions that improve firm’s operating efficiency • Amount often a function of savings to firm • Taxed as regular income

  17. Service Awards • For length of service • Usually not of great value (for example: flowers, pens) • Not taxable if de minimis

  18. Productivity and Safety Achievement Awards • Productivity awards are taxable income • Safety awards are tax free within limits to some employees

  19. Holiday Bonuses and Gifts • Usually small amounts • Gifts are tax free if value is small

  20. No-Additional-Cost Services • Services like lodging and transportation that are sold to public in ordinary course of business • Not taxable to employees if • Nondiscriminatory • No significant additional cost or lost revenue to employer • Services are in employer’s line of business in which employee works

  21. Employee discounts • Generally not taxable if provided on nondiscriminatory basis • Not allowed on tax-free basis for purchases of investment property such as securities or real estate

  22. Dependent-Care Assistance • Increase in use and very popular among employees with children • Most plans cover child care • Some plans cover eldercare

  23. Dependent-Care Assistance (cont.) • Tax-free within limits • $5,000 for single person and married persons filing jointly; $2,500 for married person filing separately • Only for children under 13 or for dependent who is unable to care for himself or herself • Only for dependent care; not for school costs above kindergarten • Special rules apply to highly compensated employees; if not met, they cannot get benefits, but other employees are unaffected

  24. Adoption Assistance • Covers various costs associated with adoption • Up to $10,390 per child (subject to indexing) can be received tax free under a qualified program • Tax-free benefit is phased out at higher income level • Qualified expenses include adoption fees, court and attorney’s costs, and travel and other expenses related to adoption • Expenses paid to adopt a spouse’s child or for surrogate parenting arrangements are not qualified expenses nor are expenses to adopt a child with special needs unless the adoption becomes final

  25. Wellness Programs • Purpose is to promote well-being of employees and dependents • Medical screening programs • Sometimes limited to select groups of employees, possibly in form of complete physical • Most often in form of screening for conditions that an be discovered in a cost-effective manner (for example: blood pressure, cholesterol, breast cancer); however, programs may also focus on back problems and drug and alcohol abuse

  26. Wellness Programs (cont.) • Lifestyle management programs • Aimed at encouraging persons to change behavior and lead more healthy lives • Many programs aimed primarily at minimizing cardiovascular conditions; these programs focus on fitness, weight reduction, nutrition, smoke cessation, and stress management • Most effective if designed to also include family members

  27. Employee-Assistance Programs • Aimed at helping employees with specific problems (for example: alcohol or drug abuse, marital, and financial difficulties, legal problems) • Treatment can minimize ultimate medical costs as well as missed work • Proper treatment should be provided by a skilled professional • Employee will have taxable income if treatment is for a nonmedical condition

  28. Financial-Planning Programs for Executives • Traditionally for top executives but being expanded to middle management • Usually done on individual employee basis • Components, one or more of which may be provided • Compensation planning • Preparation of tax returns • Estate planning • Investment planning • Insurance planning • May be provided by outside firm or employees of the employer • Generally taxable income to employee but some offsetting deductions may be allowed for tax and investment advice

  29. Preretirement-Counseling Programs • Focus is on group, not individual, counseling • Types • Financial planning • Other aspects of retirement such as living arrangements, health, and leisure time • May be provided by employer, but often provided by outside organizations • Tax-free to employees as long as no specific services provided on an individual basis

  30. Transportation/Free Parking • Forms • Free parking • Reimbursement for commuting expenses • Van pooling • Favorable tax treatment is available within limits if certain requirements are met

  31. Company Cars • Tax free if used for business use • Personal use results in taxable income, but there are alternatives for determining value

  32. Subsidized Eating Facilities • Can minimize prolonged lunch periods • Free meals are tax free if provided for convenience of employer

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