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Chapter 8: Employee Benefits and Services. Benefits.

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Chapter 8: Employee Benefits and Services

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Chapter 8:

Employee Benefits and Services



Indirect financial compensation is called Benefits and services. It represents an important part of just about every employees ‘pay. Benefits are generally available to all the firms and include such things as time off with pay, health and life insurance, retirement, etc.



Before 1970, benefits were usually called “fringed benefits “suggesting that these nonwage benefits represented a small addition to the regular pay to make the compensation package more attractive. In recent years, to word “fringe” has been dropped because benefits no longer represents a small addition to compensation. As a percentage of the total payroll costs, benefits have increased significantly. To add, the concept of giving employee benefits voluntarily has changed in recent years when the government through legislation required private firms to give certain benefits to their employees. These benefits have even expanded in scope, by means of including the members of the employees ‘families.


Today, employee benefits fall under two categories:

  • Those granted by management at its own initiative or through collective bargaining negotiations.
  • Those required by government legislation

Tax Advantages of Benefits

One of the major driving forces behind the growth of employee benefits was their tax advantages benefits were not taxed. BIR rules that employers could deduct the costs of benefits as a business expense and the employees’ don’t need to include the value of health benefits in their taxable income. Hence, employer provided benefits are much less costly than the benefits workers could purchase on their own with after tax.


Justification in Giving Benefits

For employees ‘Welfare

For many years, employers provided benefits chiefly for humanitarian reasons. Experience demonstrated that most employees would not provide their own medical and accident insurance if the costs of these benefits were added in their pay checks. Consequently, employers provided benefits because they believed the welfare of their employees would be enhanced by the benefits. Employers found that any assistance given to the employee to meet his contingent personal needs and problems such as sickness, accident or death in the family, could increase his efficiency. To add, with the protection accorded by the government to existing labor union, employees are now able to demand, through collective bargaining, various kinds of benefits in addition to their basic pay. Benefits not mandated by law are now being demanded by labor unions as workers ‘rights.

Some employers provide benefits to keep the organization competitive in recruiting and retaining employees with the belief that this will increase employee performance.


Benefits programs are based primarily on a three-point philosophy:

  • Sharing the risk of accident and illness. It provides a dignified way for employees to receive a relatively secure and constant level of income regardless of illness, accident or time away from work.
  • Forced savings for retirement or bad times. This viewed as a reasonable inducement to save for the future.
  • Sharing the costs of special services

Computing the Costs of Benefits

Since employee benefits represent a major cost item for most companies, efforts to analyze and control benefit costs have become increasingly important.


Four Methods to Analyzed Benefits Costs

  • Annual cost Method – Simply reports the total annual cost for each benefit.
  • Cost per employee per year – Computed by dividing the total cost of each benefits by the number of employees receiving the benefit. The result, showing the total cost per employee is especially meaningful when communicating with the employees because most employees don’t appreciate how much employers spend on benefits for each employee.
  • Percent of Payroll - Shows the costs of benefits relative to the amount spent for wages and salaries. The result is especially useful in making comparisons between the benefits costs of different companies. It is calculated by dividing the total annual cost of benefits by the total payroll costs.
  • Cents per hour figure – Shows the costs of benefits per employee per hour. The result is frequently used in expressing the costs of benefits especially during contract negotiations between unions and employers.

Classification of Employee Benefits and Services

  • Mandated Benefits Program/Legally Required Benefits
  • Voluntary Benefits or Received through Collective Bargaining Negotiations
  • Employee Services

Mandated Benefits Program/Legally Required Benefits

  • 1. Social Security – Through SSS for employees in private companies and GSIS for government employees. The Social Security System of the Philippines created by R. A. No. 1161 as amended was established on September 1, 1957. It’s purpose is to render assistance to employees and their income is terminated, reduce, or interrupted because of sickness, disability, death. or old age. The SSS grant retirement benefits, maternity, disability, sickness, funeral, housing, production, and salary loans to all members... Aside from this, the employees as well as his immediate family are also protected against the hazards of hospitalization under Medical Care Law.

2. Employees’ Compensation – who incur expenses as a result of work connected injury, sickness, disability or death receives financial protection, medical or related benefits and rehabilitation services through employment tax exempt program created by the government. Employers pay the entire cost of this employment compensation insurance and this is compulsory to all employers regardless of capitalization and the type or nature of the business.


3. 13th month Pay – Another legally required benefit which was designed to give additional compensation to employees during the holiday season.

  • 4. Paid Vacation and Paid Holidays – The Labor Code now requires private firms to grant paid vacation leave of at least 7 working days each year and this is called service incentive leave.

5. Retirement Benefits – In addition to the retirement benefits under SSS and GSIS, the law provides that a retiring employee, upon reaching the early retirement age of 65, or upon completion of 30 years of service whichever is preferred by both the employer and the employee, shall be entitled to all the retirement benefits provided therein or to termination pay equivalent to at least one month salary for every year of service, a fraction of at least months being considered as one whole year.


6. Pag-Ibig Fund Benefits – Pag-Ibig is a housing and provident-fund where member employees may avail of a multi-purpose or housing loan. It is likewise a savings program where the employees ‘contribution is matched by an equal contribution from employer earning dividends and collectible upon maturity, retirement at age 65 or in case of total disability, insanity or permanent departure from the country

  • 7. Sickness / Medical Care Program (MEDICARE) - Being an SSS or GSIS member, an employee is automatically covered by the Medicare Program, the premiums of which is shared by the employer and the employee.

8. Paternity Leave – The newest legally mandated benefits in the Philippines is the Paternity leave which became effective last July 5, 1996. It provides 7 days leave with full pay to all married male employees in the private and public sector for the first four deliveries of the legitimate spouse with whom he is cohabiting.


Voluntary Benefits or Received through Collective Bargaining Negotiations

  • 1. Compensation for Time off or Time Not Worked – Common time off with pay periods include holidays, vacations, funeral leave, sick leave, maternity leave, paternity leave, emergency leave, sabbatical leave, break time/coffee breaks, paid lunch break, and rest periods.

2. Group Life Insurance – Provides lower rates for both the employer and employee than if they bought such insurance as individuals. It usually contains a provision for including all employees regardless of health or physical condition.

  • 3. Hospital, Medical and Disability Insurance – Many employees provide health insurance plans that covers at a minimum, basic hospitalization, surgical, and medical insurance for all eligible employees as a group. Some even offer membership in a health maintenance organization like PHILAMCARE, AYALA Health Care, Excel, etc., This is a prepaid health care system that generally provides routine round the clock medical services as well as preventive medicine whether in patient.

4. Pension Plans. – Refers to the periodic payment to workers who are retired from the company because of old age, illness, or for other reasons as determined by the employer and as provided for in the plan.... Pension plans are either contributory or non-contributory. Contributory plans require workers to put in part of their earning s while employed at the same time the company contributes to a fund which accumulates and defrays the cost of the pension.


Employee Services – While an employer’s time off and insurance and retirement benefits account for the main part of its benefits costs, most employers also provide a range of services including personal services, executive perquisites & the like:

  • Personal Services Benefits
  • Credits unions – are usually separate businesses established with the assistance of the employer. This provides loans at a lower rate of interests plus other benefits for all eligible members.
  • Counselling service – these include family counselling for marital problems and the like, career counselling in terms of analyzing ones’ aptitudes and interest, legal counselling etc.
  • Other personal services – Such as social and recreational opportunities including company sponsored athletic clubs, Christmas party, annual summer picnics etc.

2. Job related Services Benefits

  • Free Uniform
  • Subsidized or free employee transportation
  • Food service/cafeteria – are provided by many employers, usually at relatively, low prices.
  • Educational subsidies/grant – this is in the form of scholarships or tuition fee refund depending on the agreement of the employer and the employee.
  • Stockownership plans – Encourage employee to purchase company stock at a lower price to increase employee’s incentive to work. This is based on the belief that if employees become partners in the business, they work harder.

3. Executive perquisites – perquisites or perks for short are usually given to only a few top executives. These may include free use of company cars or chauffeured limousines, security systems, company yachts and planes, executive dining rooms, club membership, credit cards, expense account for household expenses and entertainment, travel expenses, a condo unit, and so on depending on the company. This is the company’s way of making their hard-working executives ‘lives pleasant life as possible and to be able to retain the best executives.


Managing an Effective Benefits Program

  • Set objectives and strategy for benefits
    • Pacesetter strategy – Be first with the newest benfits employees desire.
    • Comparable benefits strategy – Match the benefits program similar organizations offer.
    • Minimum benefits strategy –Offer the mandatory benefits and those that are most desired and least costly to offer.

2. Involve employees and unions rather than just the top managers alone judge which benefits the employee prefer. It is wise to permit or encourage employee participation in decision making on benefits and services. It is also useful to involve the union leadership in preference studies so that all parties involved are seeking benefits desired by the employees.


3. Communicate benefits – How can benefits and services affect the satisfaction and performance of employees if they don’t know about the benefits or understand them. Communication media such as employee handbooks, company newsletters, bulletin boards, and employee reports can be used.


4. Monitor costs clearly – It is vital that mangers make sure the programs are administered correctly. More efficient administration procedures using computerized methods can also lead to greater savings and more satisfied employees.


....Thank you....

Prepared By;

Arcega, June Russel M.

thank you
….Thank you.…

“GOD Bless”