Employee Benefits The Challenges of Human Resources Management
Employee Benefit Programs • Part of Total Compensation • Some Government Mandated • Some Incentive Related • Part of Cost of Doing Business • Indirect Compensation
Factors Contributing toGrowth of Benefit • Discourage Unions • Benefits not Always Taxed • Easier to negotiate Than Wages • Attitude of General Public • Decrease in the last few years because of the Great Recession
Objectives of Benefit Programs • To Improve Morale • To Meet Health and Safety Needs • To Attract Good Employees • To Reduce Turnover • To Reduce Unionism • To Maintain a Competitive Position • To Enhance the Organization's Image
Percentage of Full-Time Workers withAccess to Selected Benefit Programs
Some Required and Discretionary Benefits * While not required under federal law, all these benefits are regulated in some way by federal law.
Benefits Required by Law:Social Security • The federal Old Age, Survivors, Disability, and Health Insurance (OASDHI) program which combines: • Old age (retirement) insurance • Survivor’s insurance • Disability insurance • Hospital insurance (Medicare Part A) • Supplementary medical insurance (Medicare Part B)
Benefits Required by Law:Social Security(continued) • Employers and employees share the cost of Social Security through a payroll tax. The percentage is set by law. • In 2009, employers and employees each paid a tax of 7.65% on the first $106,800 of the employee’s earnings • 6.2% of earnings goes to OASDHI • 1.45% of earnings goes to Medicare (Part A) • For earnings above $106,800 only the 1.45% for Medicare is assessed
Benefits Required by Law:Unemployment Insurance • A federally mandated program administered by the states. • Focuses on minimizing the hardships of unemployment: • Payments to unemployed workers. • Help in finding new jobs. • Incentives to stabilize employment. • Most funding comes from federal and state taxes on employers.
Benefits Required by Law:Unemployment Insurance(continued) • The size of the unemployment tax imposed on each employer depends on the employer’s experience rating: • The number of employees a company has laid off in the past and the cost of providing them with unemployment benefits. • Careful human resource planning can minimize layoffs and keep their experience rating favorable.
Benefits Required by Law:Unemployment Insurance(continued) To receive benefits, workers must meet four conditions: • They meet requirements demonstrating they had been employed. • They are available for work. • They are actively seeking work. • They were not discharged for cause, did not quit voluntarily, and are not out of work because of a labor dispute.
Benefits Required by Law:Workers’ Compensation • State programs that provide benefits to workers who suffer work-related injuries or illnesses, or to their survivors. • They operate under a principle of no-fault liability: • An employee does not need to show that the employer was grossly negligent in order to receive compensation. • The employer is protected from lawsuits.
Benefits Required by Law:Workers’ Compensation(continued) • Major categories of benefits: • Disability income • Medical care • Death benefits • Rehabilitative benefits • The amount of benefits income varies from state to state. It is generally two-thirds of the worker’s earnings before the disability. • The benefits are tax free.
Benefits Required by Law:Workers’ Compensation(continued) • The cost of the workers’ compensation insurance depend on the: • Kinds of occupations involved • State where the company is located • Employer’s experience rating • Unfavorable experience ratings lead to higher insurance premiums.
The Family and Medical Leave Act (FMLA) • Provisions: • An employer must grant an eligible employee up to 12 workweeks of unpaid leave in a 12-month period for the following reasons: • Birth of and care for a newborn child. • Adoption or foster care placement of a child. • Care for an immediate family member • Serious health condition of the employee. • Employees retain their health benefits and have the right to return to their job or an “equivalent job.” • Those caring for service members are entitled to up to 26 weeks of unpaid leave
COBRA and HIPAA • The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) • Mandates that employers make health coverage—at the same rate the employer would pay—available to employees, their spouses, and their dependents on termination of employment, death, or divorce. • The coverage must be offered for between 18 and 36 months depending on qualifying guidelines. • Health Insurance Portability and Accountability Act (HIPAA) of 1996 • Grants employees the right to switch medical insurance between former and present employers with no gap in coverage regardless of preexisting health condition once the employees have earned twelve service credits at the former employee
Which benefits to offer Who will be covered Whether to include retirees Coverage during probation Policy Issues How to finance benefits Degree of employee choice Cost containment procedures Communicating benefits options Policy Issues in Designing Benefit Packages
Who Will Be Covered? • Defense Secretary Chuck Hagel blasts states on same-sex benefits policy • The Pentagon has cited nine states that are defying policy on same-sex benefits: Florida, Georgia, Indiana, Louisiana, Mississippi, Oklahoma, South Carolina, Texas and West Virginia.
Competitive Benefits Information • Competitive Benefits Information • Chamber of Commerce • Bureau of Labor Statistics • Society of Human Resource Management • HR Consulting Firms • Competitors Web Sites • Internal Information • Health Exchanges
Flexible Benefits for a Diverse Workforce • Flexible Benefits Plans (Cafeteria Plans) • Benefit plans that enable individual employees to choose the benefits that are best suited to their particular needs. • A basic or core benefits package of life and health insurance, sick leave, and vacation ensures that employees have a minimum level of coverage. • Employees use “credits” to “buy” whatever other benefits they need.
Administering Benefits • Administering an organization’s benefits program can be both costly and time-consuming • Fortunately, online employee benefit systems have become mainstream for both large and small employers. • Often referred to as employee self-service (ESS) systems. • They can result in a significant cost savings in benefits administration.
Communicating Employee Benefits Information • Methods to communicate benefits to employees • In-house publications (employee handbooks, organizational newsletters, and postings on bulletin boards) • Brochures and enrollment information mailed to employees • Employee meetings and information sessions • Employee meetings with benefits providers such as the representatives of health care companies, the investment company that manages a firm’s pension, and so forth. • E-mails with benefit information and enrollments reminders • Blogs • Social media • Payroll inserts and pay stub messages • Benefits hotlines
Communicating Employee Benefits Information (cont.) • Pointers for designing benefits information • Avoid complex language when describing benefits. Clear, concise, and understandable language is a must. • Explain the purpose behind a benefit and the value it offers employees. Be up front about the pros and cons of different benefit plans. • Use graphics whenever possible to make the information understandable at a glance. • Provide numerous examples to illustrate how a benefit choice might affect different types of employees, depending upon their personal circumstances.
Why AreHealth Care CostsSkyrocketing? • Federal Regulation • Changes in Pricing • Advances in Medicine • Malpractice Insurance • Labor Costs • Over Utilization of Facilities • Elder Care • Transplants/AIDS/Other
Essential Health Benefits UnderThe Affordable Care Act http://www.forbes.com/sites/investopedia/2013/10/11/essential-health-benefits-under-the-affordable-care-act/
Sticker shock often follows insurance cancellation • http://money.msn.com/business-news/article.aspx?feed=AP&date=20131102&id=17064818
Healthcare Cost Containment • Health Maintenance Organizations (HMOs) • Organizations of physicians and health-care professionals that provide a wide range of services to subscribers and dependents on a prepaid basis. • Preferred Provider Organization (PPO) • Is a group of physicians establish an organization that guarantees lower healthcare costs to the employer. • Allows employees to select their doctor of choice from a list of participating physicians.
Optional Benefits Programs:Paid Time Off • Vacation • Holidays • Sick Leave • Personal Days • Floating Holidays • Jury Duty • Funerals • Military Duty • Time Off to Vote • Sabbaticals • Paid Time Off (PTO) Bank • Most flexible approach • Employer pools personal days, sick days, and vacation days for employees to use as the need arises
U.S. and Japanese Workers Take Short Vacations • On average, workers in the United States take 11 of their 13 vacation days. • Japanese workers , on average, receive 15 vacation days but only take 7.
Karōshi Karōshi (過労死) “death from overwork“ Enters OED in 2002! TetsuUehata occupational sudden death Major medical causes of Karōshi are heart attack & stroke First case of Karōshi in 1969 death from a stroke of a 29-year-old married male worker shipping department of Japan’s largest newspaper company.
Karōshi 1987- Jap Ministry of Labour began statistical recording of deaths Japan's rise from the devastation of WWII to economic prominence regarded as “trigger” for this epidemic Employees cannot work for up to twelve hours a day six or seven days a week continuously without suffering physically as well as mentally. Japanese worker has approximately two hours overtime a day on average, mostly always unpaid The Ministry of Labour compensates for 20 to 60 deaths each year, but critics suggest the real figure is nearer 10,000. 143 deaths in 2001 – all time high
Commuter Hell Cause of Karoshi not justworking hours Commuting very stressful One-way commute of 1 hour not unusual Housing market means 3 hours round-trip is common 250 workdays/year = 750 hrs/year on trains! Usually 7:00pm before earliest leavers get home
Other Major Discretionary Benefits • Life Insurance • Long-Term Care Insurance • Retirement Programs • Preretirement and Phased Retirement Programs • Pension Plans • 401(k) Savings Plans • Cash Balance Pension Plans • Federal Regulation of Plans • Domestic Partner Benefits
Contributory plan Contributions to a plan are made jointly by employees and employers. Noncontributory plan Contributions to a plan are made solely by the employer. Defined-benefit plan The amount an employee is to receive upon retirement is specifically set forth. Defined-contribution plan The basis (amount) an employer contributes to the pension fund is specified. Types of Pension Plans
Defined Benefit Plan • Amount is Specifically Defined • Years of Service Required • Average Earnings During Certain Years • Age at Retirement “Example: Average Annual Salary of Last 3-5 years x number of years of service”
Defined Contribution Plan • Basis Upon Which the Employer Pays • Paid to Thrift Plan, IRA, etc. • Benefits Depends Upon Accumulation
Pension Funds • Privately Managed • $3 Trillion in Assets • Invested in Stocks and Bonds
401(k) Savings Plans A tax-deferred savings plan. Employees save through payroll deductions. Employers may match a portion of employee savings. Cash-Balance Pension Plans Employer contributes a percentage of employee’s pay each year. Account balance earns interest each year. Experts predict it will replace traditional pension plans. Types of Pension Plans (cont.)
Increasing Savings Plan Participation • Use the status quo bias for the default option • Default 1; employee has to take steps to enroll in program at firm because the default position is that they are not enrolled in savings plan • Default 2; employee has to take steps to unenroll in program at firm because the default position is that they are enrolled in savings plan (automatic enrollment) • Provide limited choices (more choice is not better) • We choose not to choose even when it goes against our self-interest. • Iyengar and 401k plans (a negative correlation between the number of funds and the plan participation rate) -
A Way to Decrease SavingsPlan Participation • An unscrupulous company may give lots of choices to employees in the hopes that employee 401(k) participation rates will fall and therefore the company will not have to match employee contributions (up to a certain limit, e.g., 3.7). • How Much Choice is Too Much?: Contributions to 401(k) Retirement Plans