Providing Benefits and Services John D. Blair, PhD Snyder Professor in Management MGT 3374 Human Resource Management PowerPoint 24
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.
Contain Costs Improve Retention Strategic Challenges Increase Productivity The Strategic Importance of Benefits and Services (cont’d)
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.
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.
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
Mandatory and Voluntary Benefits and Services
EXHIBIT 12.4 Employer Costs for Benefits and Services (Cost per Hour Worked & as Percentage of Total Compensation, Private Industry)
Labor Markets Unions Growth in Benefits and Services Laws and Regulations The External Environment
Size of Firm Company Culture Design of Employee Benefits and Services Business Strategy The Organizational Environment
Mandatory Benefits and Services • Social Security Insurance • Unemployment Compensation Benefits • Workers’ Compensation and Disability Insurance • Family and Medical Leave
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
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.
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
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.
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.
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
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.
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.
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.
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.
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.
Types of Health Insurance Plans Conventional Insurance Plans Consumer-Driven PlansHealth Savings Accounts (HSAs) Health Maintenance Organizations (HMOs) Preferred Provider Organizations (PPOs) Point of Service Plans (POSs)
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
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
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
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
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. Work-Life Benefits and Services
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.
Determining the Benefits and Services Package Determining the Level of Flexibility Communication 10 L E A R N I N G G O A L Administrative Issues Administering Issues
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.