EMPLOYMENT

BENEFITS

Employee Benefit Programs

Part of Total Compensation

Some Government Mandated
Some Incentive Related
Part of Cost of Doing Business
Indirect Compensation

Factors Contributing to
Growth of Benefit
Discourage Unions
Benefits not Always
Taxed
Easier to negotiate Than
Wages
Attitude of General Public

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

Basis for Employee Benefits

Organizational
Objectives
Human Resources
Objectives
Employee
Benefit Package
Government
Regulations
Collective
Bargaining

Financial
Resources

Recruiting
Competition

Employee
Participation

Providing Individual
Benefits

Employee
Needs

Communicating
Benefits
EMPLOYEES

Employee Benefits Required by Law

Types of Benefits
Time-off (vacation,
sickness, holidays, etc.)
Legal Social Security
Medical Payments
Retirement
Paid Rest Periods
(breaks)
Life Insurance

Categories of Employee Benefits

BENEFITS REQUIRED BY LAW

Old age and survivors insurance
(OASI)
Unemployment insurance
Workers compensation
Leaves without pay

Categories of Employee Benefits

PAYMENT FOR TIME NOT WORKED
Holidays
Vacations
Sick leave
Supplemental unemployment
benefits (SUB)
Jury duty, military service, and
bereavement leaves

Categories of Employee Benefits

INSURANCE
Group life insurance
Health care insurance
Legal insurance

Categories of Employee Benefits

RETIREMENT BENEFITS
Pension plans
Deferred compensation plans
Pre-retirement counseling

Categories of Employee Benefits

EMPLOYEE SERVICES
Employee assistance program
Counseling services
Educational assistance plans
Child care
Elder care
Food services
Health services
Legal services
Financial planning
Housing and moving expenses
Transportation pooling/parking
Purchasing assistance
Credit unions
Social and recreational services
Awards

Employee Benefit Costs

30-40% of the Annual

Wages
Fastest Growing Part of
Total Compensation

Typical Cost of Benefits

TYPES OF BENEFITS

TOTAL
PERCENTAGE, ALL
COMPANIES

Payments for vacations, sick leave, holidays,

etc.

12.0%

Legally required payments

10.0 %

Medical and medically related benefit payments

10.0 %

Retirement and savings (employers share)

7.0 %

Paid rest periods, lunch periods, etc.

3.0 %

Miscellaneous benefits

1.0%

Life insurance
Total employee benefits as percent of payroll

.5%
43.5%

Health Plan Costs Climb Higher Annually

Average Annual Health Plan Costs Per Employee

COST

$4000

$1500

YEAR

Flexible Benefits Plan

(Cafeteria Plans)
Benefit plan that enable
individual employees to choose
the benefits that are best suited
to their particular needs.

Flexible Benefit Plans

Employees Choose
Cafeteria Plans
Cost Attached
Some Government Requirements

Major Concerns

Rising Costs
Controlling Costs
Legal Concern

Pension Plans:
Provide for Retirement Income
Federal Regulation - Not Total
Coverage
Reward for Long Service
Originally
Now Based on Earnings
Philosophy

Types of Pension Plans

Contributory (joint pay)

Non-Contributory
(employer pays)
Classified by Amount of
Benefits to be Paid

Noncontributory Plan

A pension plan where

contributions are made solely by
the employer.

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

Federal Regulation (ERISA)

Employee Retirement Income

Security Act
Informed About Facts
Benefits Defined
Complex Law

Vesting

A guarantee or accrued benefits

to participants at retirement age,
regardless of their employment
status at that time.

Vesting
Guarantee of Benefits
Paid at Retirement
Regardless of Last
Employment
Non-revokable by
Employer
Vested After XX Years
Complex Rules (ERISA)

Vesting Provisions (General Plans)

General Provisions*
1. 5-Year Vesting: An employee must
receive nonforfeitable rights after five
years of service to all accrued benefits
derived from employer contributions.
2. 3- to 7-Year Vesting: An employee must
receive nonforfeitable rights after three
years of service to 20 percent of
accrued benefits derived from
employer contributions. Nonforfeitable
rights increase 20 percent each year
until the employee is 100 percent
vested in the employer-derived
accrued benefits after 7 years of
service.

Social Security Insurance

Guarantee of Income
Retirement, Disability,
Unemployment
Time Limits
Complex Rules
Dedicated Tax on Earnings

Pension Funds
Privately Managed
$3 Trillion in Assets
Invested in Stocks and
Bonds

Unemployment Insurance
Defined Period (26
weeks)
Register for Work
Requirement
Funded by Payroll Tax
Amount Based on
Wages
Supplemental
Unemployment Benefits
(Private)

Workers Compensation Insurance

Federal-or-state-mandated
insurance provided to workers
to defray the loss of income
and cost of treatment due to
work-related injuries or illness.

Worker's Compensation
Work Related Accident
Compulsory
Complex Law
Based on Wages
Permanent or Partial Disability

Health Care Insurance

Partial Government
Funded
Mostly Private
Insurance

Why Are
Health Care Costs
Skyrocketing?
Federal Regulation
Changes in Pricing
Advances in Medicine
Malpractice Insurance
Labor Costs
Over Utilization of Facilities
Elder Care
Transplants/AIDS/Other

Health Maintenance Organizations

(HMOs)
Organizations of physicians and
health care professional that
provide a wide range of services
to subscribers and dependents
on a prepaid basis.

Cost Containment Vehicles

HMO (Health Maintenance
Organization)
Group of Professionals
Services for Fixed Amounts

PPO (Preferred Provide

Organization)
Group of Professionals
Guarantees Cost Efficiency for Groups
Employer Steers Employees to PPO

Retirement Planning Programs

Company Pension Plans
Social Security/Medicare
Health Care Insurance
Personal Financial Planning
Legal Concerns
Investments/Tax Planning
Volunteerism
Part-Time Employment
Housing Options
Relocation

Silver Handshake

An early-retirement incentive in
the form of increased pension
benefits for several years or a
cash bonus.

Decisions Relating to Pensions

DECISIONS

ALTERNATIVES
Philosophy Earned vs reward

Source of funds Contributory vs non-contributory

Amount of benefits

Defined benefits vs defined

contributions

Custody of pension
Insured vs trusteed plans
funds
Protections against loss of funds
Protection against loss of purchasing
Investment problems
Where and where not to invest
Tax consequences

Benefit Links

Hewitt Associates
UCbencom