Chapter 14 – Providing Employee Benefits
Chapter Fourteen: Providing Employee Benefits
Welcome to your guide to teaching Chapter Fourteen: Providing Employee
Benefits!
This guide will provide you with a chapter summary, learning objectives, lecture
outlines, solutions to in-chapter case questions and end of chapter discussion questions
and possible responses.
Chapter Fourteen Roadmap
We hope you find each chapter of your Instructor Manual practical and useful, but also,
exciting! You can adapt the chapter text, the PowerPoints, and the video to work in an online
class environment, a guided independent study environment, or a face to face or on-ground
environment.
When presenting Chapter Fourteen, have the students first read the chapter and
encourage them to absorb the “big picture” of “Providing Employee Benefits.”
Use the PowerPoint for Chapter Fourteen frame your lecture.
Have students read and discuss the cases and their respective questions.
Have students validate their knowledge of the chapter by working through the discussion
questions at the end of the chapter.
Lastly, have students review, journal, or discuss the Key Vocabulary Terms at the end of
the chapter.
ROADMAP: THE LECTURE
PROVIDING EMPLOYEE BENEFITS
Chapter Summary
This chapter describes the contents of an employee benefits package and the way
organizations administer employee benefits. The chapter begins by discussing the important
role of benefits as a part of employee compensation. Then, it defines major types of employee
benefits such as benefits required by law, paid leave, insurance policies, retirement plans, and
other benefits. Next, the chapter discusses how to choose which of these alternatives to include
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Chapter 14 – Providing Employee Benefits
in an employee benefits package so that it contributes to meeting the organization’s goals. The
following section summarizes the regulations affecting how employers design and administer
benefits programs. Finally, the chapter explains why and how organizations should effectively
communicate with employees about their benefits.
Learning Objectives
After studying this chapter, the student should be able to:
1. Discuss the importance of benefits as a part of employee compensation.
2. Summarize the types of employee benefits required by law.
3. Describe the most common forms of paid leave.
4. Identify the kinds of insurance benefits offered by employers.
5. Define the types of retirement plans offered by employers.
6. Describe how organizations use other benefits to match employees’ wants and needs.
7. Explain how to choose the contents of an employee benefits package.
8. Summarize the regulations affecting how employers design and administer benefits
programs.
9. Discuss the importance of affectively communicating the nature and value of benefits to
employees.
Introduction
Many state governments are requiring businesses to give paid sick leave. Previously this has
always been an optional benefit and one that companies used to recruit and retain employees.
Some employees see offering sick leave as good business sense and others don’t feel their
employees are loyal enough to use the benefit in an appropriate manner.
Discussion Question and Suggested Response
What are the pros and cons of offering sick leave benefit?
Answers will vary. Pros include an appreciative labor force that will be more productive when
they are at work, a healthier work environment because employees aren’t sharing illnesses, and
the benefit is a way to recruit and retain top talent. Cons include sharing germs at work and
getting more employees sick, lack of productivity in general but also on the day the employee is
sick or would rather be taking care of a sick child, and the extra cost, and burden, to all
employers but especially small businesses.
1. Employee benefits – compensation in forms other than cash.
2. Benefits play an important role as a part of employee compensation.
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Chapter 14 – Providing Employee Benefits
II. The Role of Employee Benefits
1. As part of the total compensation paid to employees, benefits serve functions similar to
pay. Benefits contribute to attracting, retaining, and motivating employees.
2. Different employees look for different types of benefits.
3. Employers need to examine their benefits package regularly to see whether they meet
the needs of today.
4. Employers need to communicate effectively so that the benefits succeed in motivating
employees.
5. Employees have come to expect that benefits will help them maintain economic security.
6. Even though many kinds of benefits are not required by law, they have become so
common that today’s employees expect them.
7. Like other forms of compensation, benefits impose significant costs. On average, out of
every dollar spent on compensation, more than 30 cents or more go to benefits. Figure
14.1 looks at Benefits as a Percentage of Total Compensation.
8. Organizations pay a growing share of compensation in the form of benefits for reasons
that include: the law requires employers to provide certain benefits, tax laws make
benefits favorable, employers (especially large ones) get a better deal on insurance or
other programs than employees can obtain on their own, and employers can assemble
creative benefits packages that set them apart in the competition for talent.
III. Benefits Required By Law
1. The federal and state governments require various forms of social insurance to protect
workers from the financial hardships of being out of work. Social Security,
unemployment compensation, and workers’ compensation are examples. Employers
must provide unpaid leave for certain family and medical needs.
2. Table 14.1 summarizes legally required benefits.
A. Social Security
1. In 1935 the federal Social Security Act established old-age insurance and
unemployment insurance. Congress later amended this act. Together, the law and
its amendments created what is now the Old Age, Survivors, Disability, and Health
Insurance (OASDHI) program known as Social Security.
2. Social Security covers over 90 percent of U.S. employees. The main exceptions are
railroad and federal, state, and local government employees, who often have their
own plans.
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Chapter 14 – Providing Employee Benefits
3. Workers who meet eligibility requirements receive the retirement benefits according
to their age and earnings history. Benefits may start at age 62, but they are at a
reduced level.
4. Benefits may be reduced if the worker is still earning wages above a maximum called
the exempt amount. In 2014, the exempt amount was $15,480 for beneficiaries
under the full retirement age. The amount of reduction is $1 for every $2 the person
earns above the exempt amount.
5. Social Security benefits are free from federal income taxes and free from state taxes
in about half the states.
B. Unemployment Insurance
1. The Social Security Act of 1935 established a program of unemployment
insurance. This program has four objectives related to minimizing the hardships of
unemployment. The four objectives include:
a. Provides payments to offset lost income during involuntary unemployment
b. Helps unemployed workers find new jobs
c. Payment of unemployment insurance taxes gives employers an incentive to
stabilize employment
d. Providing workers with income during short-term layoffs preserves investments
in worker skills
2. Most of the funding for unemployment insurance comes from federal and state
taxes on employers. Employers who pay their state taxes current pay a federal tax
of 0.6% of the first $7,000 of each employee’s wages. The state tax varies. Rates
range from less than 1.0 percent to more than 15 percent, and the taxable wage
base ranges from $7,000 to 41,300, so the amount paid depends a great deal on
where the company is located.
3. Companies have therefore redoubled efforts to improve their experience ratings and
control future costs for unemployment insurance. For example, helping laid-off
workers find a new job can shorten the time in which they are receiving benefits.
Some states allow shared-work arrangements, in which companies reduce wages
and hours, and employees receive partial unemployment benefits, rather than laying
off workers.
4. The size of the unemployment insurance tax imposed on each employer depends
on the employer’s experience rating. This is the percentage of employees the
company laid off in the past. The use of experience ratings gives employers some
control over the cost of unemployment insurance.
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Chapter 14 – Providing Employee Benefits
5. To receive benefits, workers must meet four conditions:
a. They meet requirements demonstrating they have been employed for often 52
weeks or four quarters of work at a minimum level of pay.
b. They are available for work.
c. They are actively seeking work.
d. They were not discharged for cause, such as willful misconduct, did not
voluntarily quit, and are not out of work because of a labor dispute, such as a
union member on strike.
6. Workers who meet these conditions receive benefits at the level set by state –
typically about half the person’s previous earnings – for a period of 26 weeks.
C. Worker’s Compensation
1. States have passed workers’ compensation laws, which help workers with the
expenses resulting from job-related accidents and illnesses. These laws operate
under a principle of no-fault liability meaning that an employee does not need to
show that an employer was grossly negligent in order to receive compensation and
the employer is protected from lawsuits.
2. About 9 out of 10 workers are covered by state workers’ compensation laws, with
the level of coverage varying from state to state. The benefits fall into four major
categories:
a. Disability income
b. Medical care
c. Death benefits
d. Rehabilitative services
3. The amount of income varies from state to state but is typically two-thirds of the
worker’s earnings before disability. The benefits are tax-free.
4. The states differ in terms of how they fund workers’ compensation insurance. Some
states have a single state fund. Most states allow employers to purchase coverage
from private insurance companies. Most states also permit self-funding by
employers.
5. The cost of workers’ compensation insurance depends on the kinds of occupations
involved, the state where the company is located, and the employer’s experience
rating. Organizations can minimize the cost of this benefit by keeping workplaces
safe and making employees and their managers conscious of safety issues.
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Chapter 14 – Providing Employee Benefits
D. Unpaid Family and Medical Leave
1. Unpaid leave is required by law for certain family needs. Specifically, the Family
and Medical Leave Act (FMLA) of 1993 requires organizations with 50 or more
employees within a 75-mile radius to provide as much as 12 weeks of unpaid leave
after childbirth or adoption, to care for a seriously ill child, spouse, or parent, or for
an employee’s own serious illness.
2. Employers must guarantee employees the same or a comparable job when they
return to work. The law does not cover employees who have less than one year of
service, work fewer than 25 hours per week, or are among the organization’s 10%
highest paid.
3. The 12 weeks of unpaid leave amount to a smaller benefit than is typical of Japan
and most countries in Western Europe. These nations typically require paid family
leave.
4. According to one report, about half took 10 days or fewer, and 80 percent took noe
more than 40 days of leave. The most common reason for taking a leave was the
employee’s own serious illness.
5. When employees experience pregnancy and childbirth, employers must also comply
with the Pregnancy Discrimination Act.
IV. Health Care Benefits
1. In 2010, Congress passed the Patient protection and Affordable Health Care Act, a
complex package of changes in how health care is to be paid for, including:
a) requirements for insurance companies, b) incentives and penalties for employers
providing health insurance as a benefit, c) expansion of public funding including
Medicaid and community health centers, and d) creation of health insurance
exchanges as an option for the sale of health insurance.
2. HR departments must educate themselves about the requirements and communicate
with employees.
3. A useful starting point is the government’s health reform website, www.healthcare.gov.
4. The law requires medium and large companies to either offer health insurance or pay a
penalty beginning 2015.
5. Employers with less than 50 employees are not subject to the Employer Shared
Responsibility Payment. However, the ACA tries to encourage them to offer health
insurance through tax credits and credits for premium payments.
HR How To
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Chapter 14 – Providing Employee Benefits
V. Optional Benefit Programs
1. Other types of benefits are optional. These include various kinds of insurance,
retirement plans, and paid leave.
2. The most widely offered benefits are paid leave for vacations and holidays, life and
medical insurance, and retirement plans.
3. Benefits such as health insurance often extend to employees’ dependents. Today, many
employers also cover domestic partners, defined either by local law or by the companies
themselves. Typically, a domestic partner is an adult nonrelative who lives with the
employee in a relationship defined as permanent and financially interdependent.
4. Benefits provided to domestic partners do not have the same tax advantages as benefits
provided to spouses. The partner’s benefits are taxed as wages of the employee
receiving the benefits.
A. Paid Leave
1. The major categories of paid leave are vacation, holidays, and sick leave.
2. Some organizations provide for other paid leave including time off to vote or to
donate blood.
3. Figure 14.2 looks at the Percentage of Full-Time Workers with Access to Selected
Benefit Programs
4. Establishing policies communicates the organization’s values, clarifies what
employees can expect, and prevents situations where unequal treatment leads to
claims of unfairness.
5. Paid holidays are time off on specified days in addition to vacation time. The most
common paid holidays in the United States are New Year’s Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
6. Sick leave programs pay employees for days not worked because of illness. The
amount of sick leave is often based on length of service so that it accumulates over
time.
7. Policies for time off may include other forms of paid and unpaid leave. For a
workforce that values flexibility, paid personal days – days off that employees may
schedule according to their personal needs, with the supervisor’s approval – may be
offered. Other benefits include floating holidays, which are paid holidays that vary
from year to year. Organizations may give employees discretion over the
scheduling of floating holidays.
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Chapter 14 – Providing Employee Benefits
8. The most flexible approach to time off is to grant each employee a bank of paid time
off, in which the employer pools personal days, sick days, and vacation days for
employees to use as the need or desire arises.
9. Employers should establish policies for leave without pay. Unpaid leave is an
employee benefit because the employee usually retains seniority and benefits
during the leave.
B. Group Insurance
1. Rates for group insurance are typically lower than for individual policies. Insurance
benefits are not subject to income tax, as wages and salaries are. The most
common types of insurance offered as employee benefits are medical, life, and
disability insurance.
2. Medical Insurance: Although few employees fully appreciate what health insurance
costs the employers, most value this benefit and look for it when they are
contemplating a job offer. The policies typically cover three basic types of medical
expenses: hospital expenses, surgical expenses, and visits to physicians. Some
employers offer additional coverage, such as dental care, vision care, birthing
centers, and prescription drug programs.
3. Under the Mental Health Parity and Addiction Equity Act of 2008, if health insurance
plans for employees include coverage for mental health care, that care must include
the same scope of financial and treatment coverage for treatment for other illnesses.
This law exempts companies with fewer than 50 employees. In the past, many
health insurance policies limited payments for treating mental illness, so the law
could have the effect of making health insurance a more expensive benefit.
4. Employers that offer medical insurance must meet the requirements of the
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985. This
federal law requires employers to permit employees to extend their health insurance
coverage at group rates for up to 36 months following a “qualifying event.” These
events include: termination except for gross misconduct, a reduction in hours that
leads to loss of health insurance, and the employee’s death in which case the
surviving spouse or dependent child would extend the coverage. To extend the
coverage, the employee or the surviving spouse or dependent must pay for the
insurance, but the payments are at the group rate.
5. Health insurance is a significant and fast-growing share of benefits costs at U.S.
organizations. Figure 14.3, Health Care Costs in Various Countries, shows that
the United States spends much more of its total wealth on health care than other
countries do.
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Chapter 14 – Providing Employee Benefits
6. Most Western European countries have nationalized health care, but the majority of
Americans with coverage for health care expenses get it through their own or a
family member’s employer.
7. A growing number of employees whose employers cannot afford this benefit are left
without insurance to cover health care expenses.
8. Managed care is where the insurer plays a role in decisions about health care,
aimed at avoiding unnecessary procedures. Managed care may include claims
review, may require patients to obtain approval before hospital admission, or may
require alternatives to hospital stays. Managed care often involves two variations on
the design of health insurance: health maintenance organizations and preferred
provider organizations.
9. A health maintenance organization (HMO) is a health care plan that requires
patients to receive their medical care from the HMO’s health care professionals who
are often paid at a flat salary and provides all services on a prepaid basis.
10.A preferred provider organization (PPO) is a health care plan with health care
professionals to provide services at a reduced fee.
11.Flexible spending accounts are another alternative to traditional employer-
provided insurance. With this, employees may set aside a portion of earnings to pay
for eligible expenses. In particular, a medical savings account lets employees use
their pretax savings to pay for qualified health care expenses. Contributions to this
account may not exceed $5,000 per year and must be designated in advance. The
major advantage of flexible spending accounts is that the money in the account is
not taxed, so employees will have more take-home pay.
12. A form of flexible savings accounts is one part of a recent approach to provide
health coverage in the form of consumer-driven health plans (CDHPs), which are
intended to provide health coverage in a way that gets employees involved as
consumers making decisions to lower costs.
13. Wellness programs provide another way to reduce the cost of health insurance by
reducing the employees’ need for health care services. Employers may try to do
this by offering an employee wellness program (EWP), which is a set of
communications, activities, and facilities designed to change health-related risks,
such as high-blood pressure, high cholesterol levels, smoking, and obesity, by
encouraging preventive measures like exercise and good nutrition.
14. EWPs are either passive or active. Passive programs provide information and
services, but no formal support or motivation to use the program. Active programs
assume that behavior change requires support and reinforcement along with
awareness and opportunity. These programs provide for outreach and follow-up.
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
Chapter 14 – Providing Employee Benefits
15. Life Insurance: Employers may provide life insurance to employees or offer the
opportunity to buy coverage at low group rate. With a term life insurance policy, if
the employee dies during the term of the policy, the employee’s beneficiaries receive
a payment called the death benefit. Policies may provide additional benefits for
accidental death and dismemberment. The employer may give the employee the
option of purchasing additional coverage, usually at a nominal cost.
14. Disability Insurance: Employees risk losing their income if a disability makes them
unable to work. Disability insurance provides protection against this loss of income.
Short-term disability insurance provides benefits for six months or less. Long-
term disability insurance provides benefits after that initial period, potentially for
the rest of the disabled employee’s life. Disability payments are a percentage of the
employee’s salary – typically 50 to 70 percent.
15.In planning an employee benefits package, the organization should keep in mind
that Social Security includes some long-term disability benefits. To manage benefits
costs, the employer should ensure that the disability insurance is coordinated with
Social Security and any other programs that help workers who become disabled.
16.Long-Term Care Insurance: Today, with more people living to an advanced age,
many people are concerned about affording long-term care. Some employers
address this concern by offering long-term care insurance. These policies provide
benefits toward the cost of long-term care and related medical expenses.
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.