Chapter 13: Managing Employee Benefits
tax. If the premium cost for the benefit plan exceeds federal limits the employer would
pay additional taxes.
D. Controlling Health Care Benefit Costs
Employers offering health care benefits are taking a number of approaches to control
and reduce their costs. The most frequently used strategies include the following:
• Increasing deductibles and copayments
• Instituting high-deductible plans
Increasing Employee Cost Sharing
A deductible is paid by an insured individual before the medical plan pays any
expenses. Employers who raise the per-person deductible from $50 to $250 realize
E. Increasing Employee Contributions
Employees are usually required to pay a portion of the monthly premium to maintain
health care insurance. On average, single employees pay 18% of premiums, while
employees with family coverage pay 28% of premiums.
Using Managed Care
Several types of programs attempt to reduce health care costs paid by employers.
Chapter 13: Managing Employee Benefits
Managed care consists of approaches that monitor and reduce medical costs through
Spousal Exclusions
Spousal exclusion provisions limit access to a company’s health plan when an
F. Consumer-Driven Health Plans
Some employers are turning to employee-focused health benefits plans where the
G. Dental and Vision Coverage
Additional health benefits frequently include coverage for dental and vision care
H. Improving Health through Wellness Initiatives
Preventive and wellness efforts can occur in a variety of ways. Many employers offer
programs to educate employees about health care costs and how to reduce them.
Chapter 13: Managing Employee Benefits
Incentives are a more positive approach. Creating a “culture of health” and involving
workers’ family members in wellness efforts can go a long way toward lowering health
care costs and improving their lives.
I. Health Care Legislation
The importance of health care benefits to employers and employees has led to a variety
COBRA Provisions
The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires that most
employers with 20 or more full-time and/or part-time employees offer extended
health care coverage to certain groups of plan participants. The different groups are
as follows:
• Employees who voluntarily quit or are terminated
A qualifying event is an event that causes a plan participant to lose group health
benefits. Typically, reduction in work hours or loss of employment constitutes a
qualifying event for employees. Divorce or death of an employee constitutes a
qualifying event for covered family members. When a qualifying event occurs, a
Chapter 13: Managing Employee Benefits
with the law can lead to lawsuits and substantial penalties. Consequently, COBRA
requirements often mean additional paperwork and related costs for many employers.
HIPAA Provisions
The Health Insurance Portability and Accountability Act (HIPAA) of 1996 allows
employees to switch their health insurance plans when they change employers and to
VIII. Financial Benefits
Companies may offer employees a wide range of special benefits that provide financial
support to employees. Figure 13-14 illustrates some common financial benefits. Employers
find that such benefits can be useful in attracting and retaining employees. Workers like
receiving these benefits, which often are not taxed as income.
A. Insurance Benefits
In addition to health care insurance, some companies provide other types of insurance.
These benefits offer major advantages for employees because many employers pay
some or all of the costs. The most common types of insurance benefits are the
following:
• Life insurance—a typical level of coverage is one and one-half or two times an
employee’s annual salary.
Chapter 13: Managing Employee Benefits
B. Financial Services
Financial benefits include a wide variety of items. A credit union sponsored by the
employer provides saving and lending services for employees. Purchase discounts
allow employees to buy goods or services from their employers at reduced rates; often
in a “company store”. Discount programs and club memberships may also be offered to
allow employees to purchase goods from local vendors or “club” stores at lower rates.
Relocation Assistance
Relocation benefits are offered by many firms. Companies may pay for temporary
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HR Perspective: Helping Employees Realize the American Dream
Among the list of creative benefits that some companies offer, a few have
implemented programs that help their employees realize the dream of home
ownership. These programs are a low-cost, high-reward way to increase employee
commitment and retention.
The city of Chicago is a hotbed of this activity because of a program started by the
Metropolitan Planning Council several years ago to offer free real estate and credit
counseling to employees of local firms. The program was so successful that the
state of Illinois now offers tax credits and matches incentives paid by companies to
help with employee home purchases.
CVS employees typically earn between $30,000 and $50,000 and are therefore very
grateful for the counseling and financial help extended by the company. CVS uses a
learning center staffed by a local faith-based organization. At Loyola University,
employees must live near specific mass transit lines because the university has a
green initiative to reduce reliance on cars for commuting
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C. Education Assistance
Another benefit that is popular with employees is education assistance and tuition aid,
which pays some or all of the costs associated with formal education courses and degree
D. Severance Pay
Companies may provide severance pay to individuals whose jobs are eliminated or who
leave the company by mutual agreement. While the Worker Adjustment and Retraining
IX. Family-Oriented Benefits
The composition of families in the U.S. has changed significantly in the past few decades.
Two-earner families and single-parent households are now the norm. Workers therefore,
Medical Leave Act (FMLA) which provides for unpaid leaves of absence.
A. Family and Medical Leave Act
The FMLA was enacted in 1993 and amended several times. It covers all federal, state,
and private employers with 50 or more employees who live within 75 miles of the
workplace. Only employees who have worked at least 12 months and 1,250 hours in the
previous year are eligible for leave under the FMLA.
FMLA Leave Provisions
The law requires that employers allow eligible employees to take a maximum of 12
weeks of unpaid, job-protected leave during any 12-month period for the following
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situations:
• Birth of a child and care for the newborn within one year of birth
duty
A serious health condition is an illness or injury that requires inpatient care or
continuing treatment by a health care provider for medical problems that exist
beyond three days. An employer may require a medical certificate from the health
care provider to support the reason for the employee’s leave. The Department of
Labor has issued many guidelines regarding FMLA employee leaves (Figure 13-15).
Impact of the FMLA
B. Family-Care Benefits
Family issues are important for many organizations and for many workers. Companies
may offer work–life balance options to all employees regardless of family status. A
variety of family benefits are available in many organizations.
Adoption Benefits
Child-Care and Elder-Care Assistance
Balancing work and family responsibilities is a major challenge for many. Whether
they are single parents or dual-career couples, employees often experience difficulty
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X. Paid Time-Off Benefits
Time-off benefits represent a significant portion of total benefits costs. Employers give
employees paid time off for a variety of circumstances. Paid lunch breaks and rest periods,
holidays, and vacations are common. But time off is given for a number of other purposes
as well, including various leaves of absence.
A. Vacation Pay
Paid vacations are a common benefit and over 90% of companies provide some form of
B. Holiday Pay
Most employers provide pay for a variety of holidays. Employers in the United States,
commonly offer fewer paid holidays than those in many other countries. The number of
paid holidays can vary depending on state/provincial laws and union contracts.
C. Leaves of Absence
Employers grant leaves of absence, taken as time off with or without pay, for a variety
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Family Leave
FMLA guarantees unpaid leave for certain family and medical reasons. Even though
paternity leave for male workers is available under the FMLA, a relatively low
Sick Leave
Many employers allow employees to miss a limited number of days because of
illness without losing pay. The majority of U.S. workers receive paid sick leave, but
workers in other countries typically receive more generous benefits.
Paid-Time-Off Plans
A growing number of employers have made use of a paid-time-off (PTO) plan,
which combines all sick leave, vacation time, and holidays into a total number of
Employee-Paid Group Benefits
To combat the high cost of benefit programs, some companies offer employees the
opportunity to purchase benefits through payroll deductions. The cost for these
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Critical Thinking Challenges
1. Why are benefits strategically important to employers, and what are some key
strategic considerations?
The linkage of employee benefits to organizational strategic goals stems in large part
from changing demographics affecting organizations and their implications in
2. Discuss the following statement: “Health care costs are out of control in the United
States, and increasing conflicts between employers and employees are likely as
employers try to reduce their health-benefits costs.”
The costs of health-care insurance have indeed escalated at a rate well in excess of
inflation for several years. A most potent motivating force to “take control” over
medical costs exists in the mind of the person paying the bill—the employer. This is
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3. Assume that as an HR staff member, you have been asked to research consumer-
driven health plans because your employer is considering implementing one. Go to a
leading benefits information resource, Employee Benefit News, at
examples of firms that use such a plan.
Many employers are turning to employee-focused health benefit plans. The most
common is a consumer-driven health (CDH) plan, which provides employer financial
contributions to employees to cover their own health-related expenses. In these plans,
which are also called defined contribution health plans, an employer places a set
4. Based on the information discussed in the chapter, how would you oversee the design
(or redesign) of a benefits program in a large organization? What issues would you
consider?
Benefit plans can provide flexibility and choices for employees, or can be standardized
for all employees. However, the more choices available, the more administrative
Chapter 13: Managing Employee Benefits
5. Your company now has more than 60 employees. The controller has been handling all
of the HR functions including administration of the company’s benefits. You are
considering outsourcing the benefits administration function to enable the controller to
focus more on the company’s accounting needs. Information to assist you in
determining the type of services to best meet the company’s needs can be found at
A. What are the differences between the services offered by an HRO, ASO, and
PEO?
Human Resource Outsourcing (HRO) refers to the practice where a company
B. Based upon the company’s size and the types of benefits offered, which service
will best meet the needs of the company?
Students’ answers will vary but with 60 employees certainly a PEO is an option
Case
Creative Benefits Tie Employees to the Company
1. What are the advantages and disadvantages of offering unique and creative benefits to
employees?
A unique and creative benefits package helps in attracting the best employees,
Chapter 13: Managing Employee Benefits
2. How would an organization determine the types of benefits that employees might
want? What methods of collecting this information would you recommend a company
use if the goal is to enhance the employer’s ability to attract and retain high-quality
talent?
Students’ answers will vary. An organization can start with strategic planning,
compare their benefits to a wide range of competitors, hire a benefits consultant,
3. What are the pros and cons of allowing individual managers to design and offer
creative benefits to their employee group? How would it impact overall company
morale if the benefit offerings are not universal?
Student answers will vary. Individual managers can give complete attention to their
employee group members. They have time–to-time interactions with their team
Supplemental Cases
Delivering Benefits
Chapter 13: Managing Employee Benefits
This case explores how FedEx provides benefits to its employees. (For the case, go to
Questions
1. Why is having multiple health-care plans important for FedEx in slowing down
increases in the cost of benefits?
Having multiple healthcare plans gives employees many more choices for their
2. Discuss how the availability of disease management, training programs, and a nursing
hotline might help with health benefits costs.
By establishing services to help employees improve their overall health, employees
Benefiting Connie
This case describes the problems that can occur when trying to coordinate time-off leaves
Questions
1. What problems exist with the benefits program offered by the employer, as described
in the case?
Student answers will vary. Some of the problems that exist with the benefits program
offered by the employer include:
• The employer provides solutions based on the Connie’s complaints without
Chapter 13: Managing Employee Benefits
2. What can be done to deal with Connie and to prevent similar problems from arising
with other employees in the future?
Student answers will vary. Some of them may say that when managers receive
Comments
Several problems exist in this firm. First, benefits and the policies associated with them
have not been communicated well. The policies on sick leave obviously are loosely
administered and subject to individual interpretations.The solution to the problems must be
addressed by the director who must identify the actual policies to be followed. Then these
policies must be communicated to all employees, not just the supervisors and managers.
Strategic Benefits at KPMG Canada
This case explores how KPMG Canada updated its benefit program by involving
employees in the design process. (For the case, go to
1. Why is having a competitive benefits package important for KPMG Canada?
A competitive benefits package is important for KPMG Canada because it can help
2. In your opinion, did top leadership at KPMG Canada manage the benefits redesign
effort well? What else could the company have offered its employees to keep them
satisfied?
Students’ answers will vary, but most students will probably think that KPMG
managed the benefits redesign effort well. They started with strategic planning,
