Chapter 12: Employee Benefits
Chapter 12:
Employee Benefits
Learning Outcomes
After reading this chapter, students should be able to:
1. Explain the elements of an effective benefits program.
2. Outline the legally required benefits that employers must provide.
3. Describe the major types of health insurance options and other voluntary benefits.
4. Discuss the types of retirement programs employers offer and the legal requirements of
the Employee Retirement Income Security Act.
5. Outline the different types of employee leaves and their benefits.
6. Explain the types of benefits offered in a global environment.
Chapter Overview
Pets in the workplace are not appropriate everywhere, but the number of employers utilizing this
inexpensive and popular benefit is increasing. This chapter opener outlines the significant
benefits to employee satisfaction and workplace culture of allowing employees to bring their
dogs to work.
Benefits are generally membership-based rewards which are desirable to employees and which
can be designed to meet the diverse needs of today’s workers. The costs and complexities of
both legally required benefits and voluntary ones, such as health insurance, retirement plans and
time off are presented, as well as current issues, including flexibility of benefits choices and
availability of benefits for families, domestic partners and retirees. Effective benefits
administration allows companies to attract and retain good workers by creatively and
cost-effectively offering employees more than just their paycheck.
Additional features of this chapter:
Exhibits
12 – 1: Total Compensation: Where Does the Money Go?
12 – 2: Benefits Overview
12 – 3: Percent of Private Employers Offering Selected Health – Related Benefits.
12 – 4: Flexible Spending Accounts
12 – 5: Sample Paid Time Off (PTO) Policy
12 – 6: Vacations Improve Productivity
12 – 7: Paid Vacation Mandated in Selected Countries
12 – 8: Global Benefits Around the World
Boxed Features
These features are located within the text and address current issues in HRM within the context
of the relevant learning objectives. They are short and thought provoking with thought questions
at the end providing a great opportunity to provide a break in class lecture to check student
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Chapter 12: Employee Benefits
understanding. Questions may be posed to students individually, in small groups, as quick
cooperative learning assignments or as large group discussions.
Real HR Encounters – Abusing Worker’s Compensation on page 268 emphasizes why
HR has to “play detective” and investigate Worker’s Compensation claims when they
don’t appear to be legitimate.
Real HR Encounters – Whiteboard Puts a Face on the Cost of Health Insurance on
page 312 describes how a superintendent was able to personalize health care costs to a
union representative.
Ethical Issues in HRM: Airline Pensions Crash and Burn on page 276 describes how
airlines are struggling to fund their pension plans and what it means for retirees.
Contemporary Connection – Leaving It Up to You: Paid Time Off (PTO) on page 277
describes the pros and cons of paid time off that many organizations are moving toward.
Ethical Issues in HRM – Making Sick Leave a Required Benefit? on page 279
explores whether or not paid sick leave should be mandatory.
Making Concepts Relevant in Your Classroom
In addition to the activities provided in the lecture notes, these suggested activities help students
apply chapter 12 concepts:
Benefits Bowl. The topic of employee benefits is complex, including lots of detail about
laws, requirements and options. A good way to help the students learn some of the
details, without listening to a dry lecture is to use a contest format. Make up a set of
questions based on the chapter, and give student teams the chance to choose their
questions by number or by picking them out of a hat or bowl. One option is to let each
team have a chance, in turn, to answer a question, but to open it up to the floor if the
designated team cannot get the right answer in one minute. You can keep track of the
number of points earned by each team for correctly answered questions, and either offer
grade points or a prize at the end of the session for the team with the most points. This
activity also illustrates the impact of team rewards on worker behavior.
Writing Assignments and/or Speakers: So much is happening in the benefits area today,
that this is an excellent topic to have students research in current HRM and news sources
or to have speakers who are benefits administrators or vendors (e.g., a representative
from a local HMO).
Students will also benefit from reviewing “real life” benefit packages. Ask students to
bring in their own employer’s benefit packages. If they aren’t eligible, many HR
professionals will give them a packet if they explain the purpose. Companies also include
them on the Careers section of websites. If students are unemployed, encourage them to
research plans on the Internet. The activity also complements “Working with a Team” at
the end of the chapter.
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Chapter 12: Employee Benefits
Chapter Outline And Lecture Suggestions
Introduction Slide 3
Benefits are an important part of the total rewards package offered to employees.
Benefits Planning Slide 4 – 6
Learning Outcome 1: Explain the elements of an effective benefits program
Benefits are the largest employee expense after salary, making the right offerings very
important.
Effective Benefit Programs
Benefits should accomplish the strategic purposes of attracting, motivating and
retaining good employees in a competitive environment.
Employee involvement in selecting benefits leads to greater satisfaction.
Offering the Right Benefits Slide 7 – 8
A diverse workforce creates demand for diverse benefit packages.
Domestic partner benefits have become one way employers accommodate
diverse employee needs.
Family-friendly and flexible-workplace benefits may include innovative
benefits such as social and recreational events, employee assistance programs,
credit unions, housing, tuition reimbursement, paid jury duty time, uniforms,
military pay, company-paid transportation and parking, free food, childcare
services or referrals, pet health insurance, onsite fitness centers, free massages,
haircuts and on-site health care.
Communicating Benefits to Employees Slide 9
Over 60 percent of employees are not aware of the content of their benefit
packages.
Unused benefits waste money.
Communication is important: meetings, e-mails, social media, employee
handbooks, newsletters, lunch and learn sessions, online benefits information.
Exhibit 12 – 1: Total Compensation – Where Does the Money Go? Page 265 Illustrates
the percentages spent on common benefits.
Legally Required Benefits Slide 10
Learning Outcome 2: Outline the legally required benefits that employers must provide
Legally, U.S. organizations must provide certain benefits to their employees regardless of
whether they want to or not.
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Chapter 12: Employee Benefits
Social Security
Financed by equal employee and employer contributions, based on a percentage
of earnings.
Provides:
Income for retirees, disabled workers & surviving dependents.
Health insurance coverage through Medicare.
It is not intended to be the employee’s sole source of retirement income.
Unemployment Compensation Slide 11 – 12
Funded by employers who pay combined federal and state tax imposed on taxable
wage base; tax varies based on organization’s unemployment experience.
Provides employees with some income continuation during periods of involuntary
unemployment; typical coverage is for 26 weeks.
During long periods of high unemployment, state may run short of funds and have
to borrow from the federal government’s unemployment trust fund.
Excludes self-employed, employees of organizations with fewer than four
individuals, household domestics, farm employees, and state and local
government employees.
Workers’ Compensation Slide 13
Worker’s compensation is paid for by the organization; rates are based on the
likelihood of accidents, past history, and the type of industry.
Benefits pay expenses and/or compensate for losses, based on a fixed schedule of
minimums and maximums, resulting from work-related accidents or illness,
regardless of fault.
Family and Medical Leave Act Slide 14
Requires employers with 50 or more employees to allow up to 12 weeks of unpaid
leave for family or medical reasons. Explained in depth in chapter 3.
Health Insurance Continuation Slide 15
Consolidated Omnibus Budget Reconciliation Act (COBRA) provides for
continuation of benefits for up to three years after an employee leaves a job.
The cost of COBRA is paid solely by the employee.
Real HR Encounters – Abusing Worker’s Compensation page 268 Worker’s
compensation is commonly abused with false claims of illness or injury. One HR
professional shares a couple of examples that would be more humorous if they were not
so frustrating.
The HIPAA Requirement Slide 16
The Health Insurance Portability and Accountability Act of 1996 imposed on
employers and health providers regulations regarding the confidentiality of
employee health information.
This significance of confidentiality is magnified by growing concerns about
identify theft.
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Chapter 12: Employee Benefits
Patient Protection and Affordable Care Act Slide 17 – 20
Was passed by Congress in 2010. It expands the availability and regulation of
health care coverage.
Employers with 50 or more full-time employees working 30 hours or more
each week must offer health insurance or pay a penalty. Employers with over
200 employees must enroll all employees unless they opt out.
Individuals are responsible for purchasing minimum coverage or paying a
fine.
States are required to create Health Insurance Exchanges
Insurance companies must expand coverage and eliminate lifetime limits, end
restrictions on pre-existing conditions and provide coverage for employee’s
children up to age 26.
Voluntary Benefits Slide 21
Learning Outcome 3: Describe the major types of health insurance options and other
voluntary benefits
Competitive benefit packages are essential for talent management and supporting
organizational strategy.
Industries that have trouble recruiting employees with scarce skills may resort to creative
and extravagant benefit packages.
What can be offered is only limited by creativity and budget. Some of the more common
benefits are addressed here.
Exhibit 12 – 2 Benefits Overview page 270 lists benefits common at large
communications companies.
Health Insurance
Health insurance costs are growing faster than wages.
Many organizations are looking at a variety of cost-cutting measures:
Raising deductibles or percentage of premiums that employees pay.
Implementing or strengthening wellness programs.
Adding stronger financial incentives for participation in wellness
programs, such as lower premiums for employees.
Availability of prescription drug mail-order with smaller co-pays or
mandatory generic prescriptions.
Adding a smoker surcharge.
Access to online doctors.
Availability of Employee Assistance Programs.
Onsite clinics.
Health Maintenance Organizations (HMOs) Slide 23
Strive to provide quality care at a lower cost for their members.
Health care choices significantly limited.
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Chapter 12: Employee Benefits
Primary Care Physician must be selected.
Employee pays small co-pay.
Full coverage is provided only at providers belonging to the HMO
Preferred Provider Organizations (PPOs) Slide 24
Employer or insurer agrees to use provider’s network of doctors, hospitals and
medical service facilities in exchange for reduced cost.
Primary Care Physician is selected.
Point of Service Plans (POS)
Similar to HMOs and PPOs.
Requires employees to select a primary physician, but allows greater flexibility
for using out-of-network services.
High Deductable Health Plan (HDHP) Slide 25 – 26
Employer provides a plan with low monthly premiums and high deductibles.
Less expensive for employer, but more expensive for employee.
Consumer Driven Health Plans (CDHP)
Similar to HDHP, but more popular with employees because it includes a Health
Savings Account (HSA). Usually includes:
HDHP
Health savings account with tax advantages
Decision support and counseling for health expense decisions.
Exhibit 12 – 3 Percent of Private Employers Offering Selected Health-Related
Benefits page 271 illustrates several types of insurance options and the percent of
employers that offer them.
Disability Insurance Programs Slide 27
Provides salary continuation for short-term disabilities (sick leave) and long-term
disabilities (coverage usually effective after 6 months).
Short-Term Disability Plans
A plan that provides a percentage of an employee’s income if the
employee must be absent from work due to an illness or injury.
This is used when an employee has no sick leave time left.
Long-Term Disability Plans
Provides replacement income for an employee who cannot return to work
and whose short-term disability coverage has expired.
Usually effective after 6 months.
Average replacement salary is 60 percent.
Group Term Life Insurance Slide 28
Coverage is usually equal to the employee’s salary, however, many employers
allow the employee to pay for increased coverage of between two and five times
the employee’s salary.
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Chapter 12: Employee Benefits
Many employers allow employees buy coverage for a spouse and children.
Other Popular Benefits Slide 29
Although the potential is endless, here are a few of the most popular benefits
employers extend to employees:
Travel Insurance – Not just for unexpected travel expenses or lost baggage.
Air ambulance service and additional life insurance are options.
Dental and Vision Insurance – Employers may pay all of the premium,
split the premium with employees or just offer group rates to employees
with no contribution at all.
Tuition Reimbursement – Supports employee development efforts and
reduces turnover.
Employee Assistance Programs – Counseling and referral services for a
variety of life and work problems such as substance abuse, gambling,
financial problems, family issues, stress management, childcare and elder
care referrals, retirement planning. Also assists managers in retaining
employees going through a rough time in their lives.
Wellness Programs – Often work in tandem with health insurance
providers to reduce premiums. Benefits could include education,
health-risk assessment, healthy eating and living coaching, chronic illness
prevention, exercise classes and fitness club memberships.
Offering Choices to Employees Slide 30
Flexible Spending Accounts
Employees set aside money before payroll taxes to use for dependent care
or healthcare expenses.
Substantially reduces cost of qualified expenses.
IRS guidelines have softened a bit in regard to the requirement that
participants forfeit any balance at the end of the year. Plans may offer a
grace period for medical expenses or allow carry-over of part of the
balance.
Exhibit 12 – 4 Flexible Spending Accounts page 274 demonstrates how flexible
spending accounts reduce employee out-of-pocket expenses.
Real HR Encounters – Whiteboard Puts a Face on the Cost of Health Insurance page
274 An HR professional relates how a school superintendent brought the cost of health
insurance to a personal level during contract negotiations.
Retirement Benefits Slide 31
Learning Outcome 4: Discuss the types of retirement programs employers offer and the
legal requirements of the Employee Retirement Income Security Act
College debt, Social Security uncertainty and flat wage growth create concern for
millenials and others for retirement income.
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Chapter 12: Employee Benefits
Employer sponsored retirement plans can provide some financial security while
decreasing turnover.
Employee Retirement Income Security Act (ERISA) of 1974
Created to protect employees from losing the pensions earned from employers:
Requires Summary Plan Description (SPD), an explanation of benefits in
“plain” language, be given to employees.
Defines employee vesting rights, which is the right to pension benefits
even if one leaves the company.
Enables pension rights to be portable, so a worker who changes employers
will not lose benefits.
Sets guidelines for the termination of a pension plan.
Created the Pension Benefit Guaranty Corporation (PBGC) must be
notified if an employer is voluntarily terminates a pension plan. PBGC
can lay claims on corporate assets to cover inadequately funded
pension plans.
The 1984 Retirement Equity Act
Decreases the retirement plan participation age from 25 to 21.
Eliminates gender discrimination for those women of child-bearing age who
do not have 10 years of consecutive employment.
Requires plan participants provide written approval from a spouse before the
participant can waive survivor benefits for the spouse.
Defined Benefit Plans Slide 32
Plan specifies the dollar benefit workers receive at retirement
Benefit is based on a formula that takes into account:
Years of service
Life expectancy
Life-time earnings
Investment return on the trust portfolio
Plans are scarce in private industry, but common in state and local governments or
highly unionized industries.
Class Activity: Ethical Issues in HRM – Pensions Crash and Burn page 276 It isn’t
just airlines. Many employers have chosen to give up the financial liability of their
defined benefit pension funds and turn them over to The PBGC, leaving retirees with a
fraction of the retirement benefits they were planning to retire on. Ethical questions go on
to ask whether retirees should be insulated from the financial problems of former
employers or face the same consequences as the current employees.
Defined Contribution Plans Slide 33 – 34
Employee and employer may contribute to account based on rules established for
contribution.
Amount of benefits depends on success of account investments.
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Chapter 12: Employee Benefits
Money Purchase Pension Plans
Type of defined contribution plan; organization commits to depositing fixed
amount of money or percentage of employee’s pay annually.
Amount of contribution is regulated by IRS
Profit-Sharing Plans
Variation of defined contribution plan.
Company amount contributed depends on profit level in the organization.
Contribution is optional, not required.
Individual Retirement Accounts (IRAs)
Currently designed for lower-income workers who don’t have pension programs
at work
Can defer taxes on amount deposited and interest earned in retirement account.
401(k)s
Permit workers to set aside specified amount of income on tax-deferred basis;
employers may match employee contribution.
Leave Benefits Slide 35
Learning Outcome 5: Outline the different types of employee leaves and their benefits
Although U.S. employers are not required to provide any time off with pay. Many
understand that it is a highly desirable benefit for employees and have several different
ways to provide it.
Paid Time Off
Employees earn paid time off to use for any reason, including illness, vacation,
personal time or holidays.
Exhibit 12 – 5 Sample Paid Time Off (PTO) Policy page 278 explains how employees
at a large medical center earn PTO.
Class Activity: Contemporary Connection – Leaving It Up To You: Paid Time Off
Leave page 277 explains the pros and cons of PTO policies. Students are asked about
unintended consequences of PTO.
Vacation and Holiday Leave Slide 36
Vacation pay is usually awarded after a certain amount of time worked.
No paid vacation days are required in the U.S., but on the average, employees
earn 10 days after one year on the job.
Time off the job results in reduced stress and improved productivity.
70 percent of U.S. workers don’t take all vacation time. Reasons include:
Worries about job security.
Heavy workloads.
Culture that discourages taking time off.
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Chapter 12: Employee Benefits
Exhibit 12 – 6 Vacations Improve Productivity page 279 takes a comical look at
vacation time.
Exhibit 12 – 7 Paid Vacations Mandated in Selected Countries page 279 lists the
number of paid vacation days ranging from 38 days each year in Austria to none in the
U.S.
Sick Leave
Earned after a specific number of days or hours are worked.
Accumulates to a maximum number of days or hours.
Employers have a variety of tactic and policies to prevent misuse.
Class Activity: Ethical Issues In HRM: Making Sick Leave a Required Benefit? Page
279 explains the movement to require employers to provide paid sick days, with a few
ethical questions to answer.
Benefits in a Global Environment Slide 37
Learning Outcome 6: Explain the types of benefits offered in a global environment
Benefit packages need to consider strategy and talent management plus a variety of other
factors unique to each country:
Customs
Culture
Competition for employees
Government benefits offered or required.
Popular Categories of Benefits: Slide 38
Leaves provide some of the biggest differences in benefits that governments
require employees to offer.
Healthcare is a government provided benefit in many countries.
Pension Plans, similar to defines benefit plans or Social Security in the U.S. are
provided by many governments.
Other Benefits may be provided to stay competitive are to provide tax relief for
workers.
Exhibit 12 – 8 Benefits Around the World page 280. Some of the benefits commonly
provided in Canada, China and Germany seem quite generous.
HRM Workshop
The HRM Workshop includes several different types of activities requiring students to apply
chapter concepts aligned with the learning objectives. Suggested answers are provided.
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