Copyright © 2017 Pearson Education, Inc.
Part Four
Compensation
Chapter 13
Benefits and Services
Lecture Outline:
Introduction: The Benefits Picture Today
Policy Issues
Pay for Time Not Worked
Unemployment Insurance
Vacations and Holidays
Know Your Employment Law
Sick Leave
Improving Performance: HR as a Profit Center
Leaves and the Family Medical Leave Act
Know Your Employment Law
Severance Pay
Supplemental Unemployment Benefits
Insurance Benefits
Workers’ Compensation
Hospitalization, Health, and Disability Insurance
Know Your Employment Law
Trends in Employer Health-Care Cost Control
Improving Performance: HR as a Profit Center
Long-Term Care
Life Insurance
Benefits for Part-Time and Contingent Workers
Retirement Benefits
Social Security
Pension Plans
Know Your Employment Law
Pensions and Early Retirement
Improved Performance Through HRIS: Online Benefits Management Systems
Trends Shaping HR: Digital and Social Media
Personal Services and Family-Friendly Benefits
Personal Services
Family-Friendly (Work-Life) Benefits
Other Personal Services Benefits
Diversity Counts
Improving Performance: The Strategic Context
Executive Perquisites
Flexible Benefits Programs
Chapter 13: Benefits and Services 13-2
Copyright © 2017 Pearson Education, Inc.
The Cafeteria Approach
Improving Performance: HR Tools for Line Managers and Small Businesses
Flexible Work Schedules
Employee Engagement Guide For Managers
Costco’s Compensation Plan
Chapter Review
Where Are We Now…
The main purpose of this chapter is to explain the third major pay component: employee benefits.
The main topics we discuss are pay for time not worked benefits, insurance benefits, retirement
benefits, and using benefits to improve engagement and performance. This chapter will complete
our discussion on employee compensation.
Interesting Issues:
About 25 years ago, Gary Erickson was biking through California and got an idea that changed his
life—to create tastier and healthier bars than those then available. That was the beginning of Clif
Bar, a company Erickson started as a small bakery and then grew into one with hundreds of
employees selling healthy foods and drinks. He wanted an employee benefits plan for his
employees that highlighted Clif Bar’s healthy/sustainable focus; we’ll see what he did.
Learning Objectives:
13-1: Name and define each of the main pay for time not worked benefits.
13-2: Describe each of the main insurance benefits.
13-3: Discuss the main retirement benefits.
13-4: Outline the main employees’ services benefits.
13-5: Explain the main flexible benefit programs.
13-6: Explain how to use benefits to improve engagement, productivity, and performance.
Annotated Outline:
Introduction: The Benefits Picture Today – benefits are indirect financial and nonfinancial
payments.
A. Policy Issues – the list of policy issues includes what benefits to offer, who receives
coverage, whether to include retirees in the plan, whether to deny benefits to employees
during initial “probationary” periods, how to finance benefits, cost-containment
procedures, and how to communicate benefits’ options to employees. Benefits can be
classified by 1) pay for time not worked; 2) insurance benefits; 3) retirement benefits;
and 4) services. Some benefits are required by law, while others are discretionary.
I. Pay for Time Not Worked – also called supplemental pay benefits; it is a very costly benefit
because of the large amount of time off most employees receive.
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Copyright © 2017 Pearson Education, Inc.
A. Unemployment Insurance – all states have unemployment insurance or compensation
acts (that follow federal guidelines), which provide for weekly benefits if a person is
unable to work through some fault other than his/her own. The benefits derive from an
unemployment tax on employers that can range from 0.1% to 5% of taxable payroll in
most states. An employer’s unemployment tax rate reflects its rate of personnel
terminations.
B. Vacations and Holidays – the number of paid employee vacation days and holidays
varies considerably from employer to employer. Firms have to address several holiday-
and vacation-related policy issues. There are a myriad of laws that affect benefits.
Vacation and holiday pay legal issues are discussed.
C. Sick Leave – provides pay to employees when they’re out of work due to illness. Most
sick leave policies grant full pay for a specified number of permissible sick days. To
minimize employees using their sick leave as extensions to their vacations, some
employers are repurchasing unused sick leave at the end of the year by paying their
employees a daily equivalent sum for each sick leave day not used or creating a leave
bank or paid time off (PTO).
D. Cost-Reduction Tactics – employers use several tactics to reduce excessive sick leave
absence. Some repurchase unused sick leave at the end of the year by paying their
employees a sum for each unused sick day. The problem is that legitimately sick
employees may come to work. Many employers use pooled paid leave plans (or
“banks”). These plans lump together sick leave, vacation, and personal days into a single
leave pool.
E. Improving Performance: HR as a Profit Center
F. Leaves and the Family Medical Leave Act – the law stipulates that: 1) private employers
of 50 or more employees must provide eligible employees up to 12 weeks of unpaid
leave for their own serious illness, the birth or adoption of a child, or the care of a
seriously ill child, spouse, or parent; 2) employers may require employees to take any
unused paid sick leave as part of the 12-week leave provided in the law; 3) employees
taking leave are entitled to receive health benefits while they are on unpaid leave; and 4)
employers must guarantee employees the right to return to their previous or equivalent
position with no loss of benefits at the end of the leave; however, the law provides a
limited exception from this provision. Vague interpretations of the law have resulted in
leaves sometimes being approved even when they were not legitimate.
G. Know Your Employment Law
H. Severance Pay – a one-time payment when terminating an employee, severance is
considered a humanitarian gesture and good public relations. Most managers expect
employees to give them at least one or two weeks’ notice if they plan to quit; it therefore
seems appropriate to provide at least one or two weeks’ severance if an employee is
being dismissed. A severance plan may be subject to ERISA if the employer has a legal
obligation to make severance payments, as is the case under some union contracts. Even
voluntary plans could become subject to ERISA if the employer identifies it as a plan
established or maintained by the employer in employee handbooks.
I. Supplemental Unemployment Benefits – these benefits supplement the employee’s
unemployment compensation and help the person maintain his/her standard of living for
a time while he/she is out of work due to layoffs, reduced workweeks, and relocations.
They are becoming more prevalent in union agreements.
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Copyright © 2017 Pearson Education, Inc.
II. Insurance Benefits
A. Workers’ Compensation – refers to the sure, prompt income and medical benefits
provided in work-related accidents to the victims or their dependents, regardless of fault.
Every state has its own workers’ compensation law and administrative commission, and
some run their own insurance programs. Most states require employers to carry
workers’ compensation insurance. Neither the state nor the federal government
contributes any funds for workers’ compensation.
1. How Benefits Are Determined – workers’ compensation can be monetary or medical.
Monetary awards are based on a formula regarding the disability involved and the
worker’s average weekly wages. Some disabilities or losses also receive monetary
awards based on a schedule of those losses.
2. Controlling Workers’ Compensation Costs – the costs of insurance premiums depend
on the number and dollar amount of claims, thus minimizing such claims is
important. Some ways to reduce such claims is to screen out accident-prone workers,
reduce accident-causing conditions in facilities, institute effective safety and health
programs, and comply with government standards on these matters. Many firms
institute rehabilitation programs to get injured employees back on the job as fast as
possible, since workers’ compensation costs accumulate as long as the person is out
of work.
B. Hospitalization, Health, and Disability Insurance – these benefits are aimed at providing
protection against hospitalization costs and loss of income arising from accidents or
illness occurring from off-the-job causes. They are offered by most employers because
medical care and insurance are so expensive. Employer health and hospitalization plans
must comply with the Americans with Disabilities Act. Accidental death and
dismemberment coverage provides a lump-sum benefit in addition to life insurance
benefits when death is accidental. Disability insurance provides income protection for
loss of salary due to illness or accident.
1. A health maintenance organization (HMO) is a medical organization consisting
of several specialists operating out of a community-based health-care center.
2. Preferred provider organizations (PPOs), a cross between HMOs and the
traditional doctor/patient arrangement, are groups of health care providers that
contract to provide medical care services at a reduced fee. The costs of mental
health treatment are rising because of widespread drug and alcohol problems.
There is an increase in the number of states requiring employers to offer a
minimum package of mental health benefits.
3. The Mental Health Parity Act of 1996 sets minimum mental health care benefits
at the national level.
C. Know Your Employment Law
D. Trends in Employer Health-Care Cost Control – many employers are changing their
medical plans and using cost-containment specialists to reduce health-care costs. Also,
consumer education is among the most important initiatives in health administration.
Employees must know the costs of health choices in order to make better decisions.
More employers are requiring employees to pay higher premiums and co-payments.
Clinical prevention programs include mammograms, immunizations, and routine
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checkups. Wellness programs, claim audits, as well as other cost-control options are
discussed.
E. Improving Performance: HR as a Profit Center
F. Long-Term Care – is a new benefit aimed at supporting people in their old age. The
Health Insurance Portability and Accountability Act (HIPAA), enacted in 1996, lets
employers and employees deduct the cost of long-term care insurance premiums from
their annual income taxes.
G. Life Insurance – most employers provide group life insurance plans, which usually
accept all employees, regardless of health or physical condition. Accidental death and
dismemberment coverage provides a lump-sum benefit in addition to life insurance
benefits when death is accidental.
H. Benefits for Part-Time and Contingent Workers – some firms provide holiday, sick
leave, vacation benefits, and some form of health-care benefits for employees who work
less than 35 hours a week.
III. Retirement Benefits
A. Social Security – provides three types of benefits: retirement benefits, survivor’s (death)
benefits, and disability payments. Retirement benefits provide an income if you retire at
age 62 or thereafter and are insured under the Social Security Act. Survivor’s (death)
benefits provide monthly payments to your dependents regardless of your age at death if
you were insured under the Social Security Act. Disability payments provide monthly
payments to employees who become totally disabled (and their dependents) if they work
and meet certain requirements. The Social Security system also administers the
Medicare program, which provides a wide range of health services to people 65 or older.
B. Pension Plans – there are a variety of pension plans. Defined contribution plans specify
what contributions the employer will make to the employee’s retirement or savings fund.
In a 401(k) plan, an employee authorizes the employer to deduct a certain amount of
money from his/her paycheck before taxes and to invest it in the 401(k) plan. Many
federal laws govern pensions.
1. 401(k) Plans – this is a popular defined contribution plan in which the employee can
have money deducted from his or her paycheck and deposited in the account before
payroll taxes.
2. Other Plans – in a savings thrift plan, employees contribute a portion of their earnings
to a fund. The employer usually matches this contribution in whole or in part. In
deferred profit sharing plans, employers contribute a portion of their profits to the
pension fund. An employee stock ownership plan (ESOP) is a tax-deductible stock
bonus plan.
3. Cash Balance Pension Plans – these are defined benefit plans for federal tax purposes,
but have the portability advantages of defined contribution plans. Defined benefit
plans are most advantageous to older employees with long service terms. Younger
employees, or those who want to change jobs, usually prefer defined contribution
plans. The cash balance plan has both portability and predictable benefits.
C. Know Your Employment Law
D. Pensions and Early Retirement – the company opens up (for a limited time only) the
opportunity for employees to retire earlier than usual, with a financial incentive, which
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is generally a combination of improved or liberalized pension benefits plus a cash
payment.
E. Improving Performance Through HRIS: Online Benefits Management Systems –
benefits administration can be an enormously labor-intensive and time-consuming
activity for an HR department. One of the main ways HR managers are increasing the
productivity of their benefits dollars is by increasing the utilization of technology.
F. Trends Shaping HR: Digital and Social Media
IV. Personal Services and Family-Friendly Benefits
A. Personal services are being provided by many companies. Options may include credit
unions, legal services, and counseling.
1. Employee Assistance Programs – EAPs provide employees with counseling and/or
treatment for problems such as alcoholism, gambling, or stress.
B. Family-Friendly (Work-Life) Benefits – there are more families in which both adults work,
more one-parent households, more women working, and more people over 55 working. On-
site child care, fitness and medical facilities, flexible work scheduling, telecommuting,
occasional sabbaticals, loan programs for home computers, stock options, concierge
services, and even insurance for the family pet are all part of the compensation package in
the new workplace. Employers are increasingly granting fathers time off, or flexible
schedules, to take care of the kids.
1. Subsidized child care is an increasingly desirable benefit, which tends to improve
recruiting results, lower absenteeism, improve morale, garner favorable publicity, and
lower turnover.
2. Sick Child Benefits – unexpected absences due to last-minute child-care emergencies can
be problematic for employers, who then need to hire temporary help or cope with reduced
productivity. Emergency child-care benefits are being offered by more employers.
3. Elder Care – programs are being offered to employers to help employees who must care
for elderly who can’t fully care for themselves.
4. Educational Subsidies – the percentage of employers offering education benefits is
diminishing. It’s expensive and the employer may be paying its best employees to leave.
C. Other Personal Services Benefits – employers often provide services for on site programs
such as ATMs, mobile libraries, car washes, oil changes, dry cleaning, haircuts, and organic
grocery delivery as just a few options to help boost employees’ efficiency by reducing the
need for them to seek services off-site. Non-monetary benefits such as schedule flexibility
and additional training and development are also offered.
D. Diversity Counts: Domestic Partner Benefits
E. Improving Performance: The Strategic Context
F. Executive Perquisites – perks include management loans, salary guarantees, protection for
executives if their firms become targets of acquisitions or mergers, financial counseling,
relocation benefits, time off with pay, outplacement assistance, company cars, chauffeured
limousines, security systems, company planes and yachts, executive dining rooms, physical
fitness programs, legal services, tax assistance, liberal expense accounts, club memberships,
season tickets, credit cards, and children’s education.
V. Flexible Benefits Programs – when given the opportunity to choose, employees do prefer
flexibility in their benefits plan.
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A. The Cafeteria Approach – a cafeteria benefits plan, which is generally synonymous with a
flexible benefits plan, is where each employee is given a benefits fund budget to spend on
whichever benefits he/she wants once the employer limits the total cost for each benefits
package and includes certain non-optional items. Flexible spending accounts let employees
pay for certain benefits expenses with pretax dollars. Core plus option plans establish a core
set of benefits, which are usually mandatory for all employees; then the employees can
choose from various benefits options.
B. Improving Performance: HR Tools for Line Managers and Small Businesses
C. Flexible Work Schedules
1. Flextime – is an arrangement by which employees have flexibility in scheduling their
workday around core hours.
2. Telecommuting – telecommuters work at home and use phones and the Internet to
conduct business.
3. Compressed Workweeks – May consist of four 10-hour days, three 12-hour days, or
other such combinations.
4. Other Flexible Work Arrangements – there are many other arrangements that employers
may offer. Job sharing is when two people share one full-time job. Job sharing can be
useful for retirement-aged employees, allowing the company to retain the employee,
who experiences reduced hours. Work sharing is when a whole group reduces its hours
to prevent layoffs
5. Effectiveness of Flexible Work Schedule Arrangements – studies indicate that they
increase employee satisfaction and productivity. Some critics are concerned that fatigue
and accidents may increase.
VI. Employee Engagement Guide for Managers
1. Costco’s Compensation Plan – the HR strategy is to deflect Walmart’s famously low
costs and wages by paying employees more, and thereby producing improved employee
engagement, productivity, and customer service. Costco’s employee benefits are also
highly competitive, particularly when compared with the typically sparse offerings in
the retail industry. Costco doesn’t directly measure employee engagement; it says it
tracks engagement by “byproducts,” such as turnover and productivity. Costco, like
other large chains with traditionally excellent customer service like Nordstrom and the
Container Store, also do well financially, in part by treating employees well and
keeping engagement up.
Chapter Review
Chapter Section Summaries:
13-1: Employers provide numerous pay for time not worked benefits.
13-2: Most employers also provide required or voluntary insurance benefits.
13-3: Retirement benefits are important to employees today.
13-4: Most employers also provide various personal services and family-friendly benefits.
13-5: Employees prefer choice in their benefits plans, so flexible benefits programs are important.