EMPLOYEE BENEFITS
This chapter should enable students to recognize the changes occurring in the types and value
of benefits employees receive as part of their total compensation. It also should make students
aware of current benefit trends and the significant cost of these benefits to the employer as a
CHAPTER LEARNING OUTCOMES
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Explain why companies offer their employee’s benefits and are
concerned about their costs.
LEARNING OUTCOME 1
LECTURE OUTLINE
I. STRATEGIC BENEFITS PLANNING
Benefits can represent more than 40 percent of the total payroll costs an employer pays,
depending upon the types of benefits it offers. Some benefits are legally required, whereas
others are voluntarily granted by employers. To put the cost of benefits in perspective,
suppose you accept a job that pays a salary of $45,000 a year. What this means is that in
A. Elements of a Successful Benefits Program
• Many forces must be weighed and kept in balance for a benefits program to
succeed. For example, a firm’s managers must consider how to fund its benefits
program and sustain it, as well as the tax consequences related to it. The needs of
a company’s employees also must be considered because they can differ
significantly from firm to firm. If the firm’s industry is unionized, this will also
Describe benefits that involve payment for time not worked.
LEARNING OUTCOME 5
Chapter 11: Employee Benefits 145
1. Competitive Benefits Information
• The Chamber of Commerce, the Bureau of Labor Statistics (BLS), and the
Society of Human Resources Management are good sources of competitive
benefits information. Annually the BLS publishes a “National Compensation
2. Allowing for Employee Involvement—Before new benefits are introduced,
employees should be consulted. Opinion surveys are useful as are employee
focus groups.
3. Flexible Benefits for a Diverse Workforce
• As social conditions change, employee benefits should be modified. Note that
there is no longer a “typical” employee. Variety in lifestyles demands a
4. Administering Benefits
• With the wide variety of benefits offered to employees today, administering
an organization’s benefits program can be both costly and time-consuming.
B. Communicating Employee Benefits Information
• For an organization to receive the full affect of its employee benefits program, the
program must be frequently communicated to employees. Ask students for
effective ways to communicate benefits to employees.
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• Communication of employee benefits has been stimulated by passage of the
II. EMPLOYEE BENEFITS REQUIRED BY LAW
A. Social Security Insurance
• For this topic the instructor may wish to bring in a speaker from the Social
Security Administration. Frequent changes in the law make it difficult for one
to keep current. Discuss the major provisions, such as old-age insurance benefits,
1. Retirement Benefits
• To qualify for retirement benefits, a person must have reached retirement age
2. Disability Benefits under Social Security
• Social Security pays benefits to people who cannot work because they have a
medical condition that is expected to last at least one year or result in death.
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such as spouses over sixty-two and dependent children, may qualify for
3. Survivor’s Benefits
• Survivors’ benefits represent a form of life insurance paid to members of a
deceased person’s family who meet the eligibility requirements.22 Survivors’
4. Medicare
• The Social Security Administration also administers the Medicare program,
which is funded by a separate payroll tax. Retired people age sixty-five or
older are eligible for Medicare, which includes both medical and hospital
insurance and prescription drug coverage.
B. Unemployment Insurance
This applies to employees who have been working in employment covered by the
C. Workers’ Compensation Insurance
• Workers’ compensation insurance is based on the theory that costs of
industrial accidents should be considered as one of the costs of production. In
most states it is compulsory. Benefits vary from state to state and are based on
percentage of wages. Under most plans the employer and the employee gain by
maintaining good safety records.
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D. COBRA Insurance
The Consolidated Omnibus Budget Reconciliation Act extends employer-provided
E. Benefits Provided by the Patient Protection and Affordable Care Act (PPACA)
• In 2010, the Patient Protection and Affordable Care Act (PPACA) became law.
This act, along with the Health Care and Education Reconciliation Act of 2010,
F. Benefits Provided under the Family and Medical Leave Act
• Note the Family and Medical Leave Act (FMLA) applies only to employers
having fifty or more employees. It requires the employer to provide up to twelve
weeks of unpaid job-protected leave.
III. MAJOR DISCRETIONARY EMPLOYEE BENEFITS
A. Health Care Benefits
These receive greater attention because of sharply rising costs and employee desire
for medical coverage.
1. Medical Benefits
• Medical and medically related benefits payments average 12.1 percent of
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2. Dental, Optical, and Mental Health Benefits
• Dental care and optical care are popular health benefits of employees.
3. Cost Containment Strategies
• Approaches used to contain costs are reduction in coverage, mandatory
second opinions for surgery, increased coordination of benefits, increased
• An important, and increasingly popular, cost containment strategy used by
employers are consumer-driven health plans. These plans go by various names
including medical saving accounts (MSAs), health saving accounts (HSAs),
flexible spending accounts (FSAs), or health-reimbursement accounts
4. Value-Based Health Initiatives
A small but growing number of employers are turning to what is being called
5. Wellness Programs
Wellness programs are employer-sponsored programs designed to encourage
6. Disease Management Programs
Via medically trained personnel, disease management programs provide patients
150 Part 4: Implementing Compensation and Security
7. Employee Assistance Programs (EAPs)
• Employee assistance programs (EAPs) provide counseling, diagnosis, and
8. Counseling Services
• Counseling is an important part of EAP. Managers and supervisors should
B. Payment for Time Not Worked
These costs are 9.8 percent of payroll costs. Included in this category are:
1. Vacations with Pay
2. Paid Holidays—Industry trend and employer size determine the number of
3. Sick Leave—Employers will provide a fixed number of sick leave days to
accommodate employees with illnesses. In some cases, sick leave days, when not
used in a given year, may be paid off in cash, or accumulated to cover prolonged
illnesses.
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C. Supplemental Unemployment Benefits
• These plans were introduced in 1955 when the UAW successfully negotiated a
D. Life Insurance
This is one of the oldest and most popular employee benefits. The amount of life
insurance offered employees is frequently based on salary earned and additional
amounts can be purchased at nominal costs up to a specified limit.
E. Long-Term Care Insurance
F. Retirement Programs
With the aging of the U.S. workforce, retirement programs become a more important
benefit to employees. Retirement planning becomes an important aspect of employer
policy and an employee’s future needs.
1. Preretirement and Phased Retirement Programs—About one-half of firms
responding to a survey of Fortune 500 companies were found to have
preretirement programs, and those that don’t plan to establish them.
• Note that considerable emphasis is given in preretirement programs to
G. Pension Plans
Earliest pension plans were found among the civil and armed services of the federal
government and among railroads. Originally pensions were based on a reward
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1. Types of Pension Plans—Explain the difference between defined-contribution
2. 401(k) Savings Plans
• The most significant change in pension coverage is the tremendous growth of
tax-deferred 401(k) savings plans.
• Employees who use 401(k) plans have their savings withheld through
payroll deduction, and employers match the saved amounts on some
percentage basis.
3. Cash-Balance Pension Plans
• Cash-balance pension plans are predicted to become a leading type of
pension plan.
4. Federal Regulation of Pension Plans
• Private pension plans are subject to federal regulations under ERISA.
Standards and controls are provided for, and minimum funding is required. Of
special concern to the individual is vesting—the guarantee of accrued benefits
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H. Domestic Partner Benefits
• Employers may offer benefits to employees who establish a domestic partnership.
The textbook provides a standard definition of a domestic partnership arrange–
IV. WORK-LIFE BALANCE AND OTHER BENEFITS
• There has been an increasing number of services designed to make life at work
more rewarding and to enhance the well–being of employees. Today employers are
trying to create a work/life environment by offering a host of employee services designed
A. Child and Elder Care
• Today there is an unprecedented demand for child care arrangements. The HR
journals are replete with articles on child care programs in various organizations.
• Child care benefits range from financial assistance, alternative work schedules,
and family leave options to on-site child care centers. A high percentage of
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being a caregiver can be a time consuming and stressful endeavor.
B. Other Benefits and Services
There exist many services that companies can offer their employees. What services
1. Credit Unions
• Services offered by credit unions include banking services, loans, or saving
2. Educational Assistance
• Employers offer educational assistance to employees in support of human–
capital investment, employee recruitment and retention, and as a hedge against
talent drain from retirement.
ANSWERS TO END–OF-CHAPTER DISCUSSION QUESTIONS
1. This question is designed to bring out the fact that employees have different benefit needs.
It may be emphasized that while benefits may appear to be equal for all employees, they
Chapter 11: Employee Benefits 155
actually satisfy employee needs in varying degrees. For example, some employees do not
2. This question is designed to stimulate discussion about benefits and their value to the
organization and its employees. Suggestions will vary. Things to be considered when
designing a strategic benefits plan for a small employer would include many of the same
3. These laws are directly related to employee benefits.
• Employee Retirement Income Security Act (ERISA)—Requires employers to inform
employees about their pension program.
• Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986—Requires
4. Employer options to control health care costs include HMOs, PPOs, and medical savings
accounts (MSAs). Additionally, employers may eliminate health benefits not frequently used
or require larger employee deductibles and/or greater employee copayments.
5. This question is designed to elicit various student responses.
6. Among the reasons why employees retire at age 65 or earlier are failing health, frustration
156 Part 4: Implementing Compensation and Security
Many factors affect an individual’s decision to retire: health, job satisfaction, economic well–
7. Advantages of 401(k) pension plans are that (1) there is less cost to employers, (2) they are
often attractive to smaller employers, and (3) through employer’s matching contributions
8. This discussion question was included to foster a group discussion on employee benefits.
After teams have formulated their answers, have each team select a spokesperson to report
the team’s findings.
ANSWERS TO USING THE INTERNET ACTIVITIES
Internet Exercise #1, page 481
Question:
Visit the U.S. Social Security Administration and locate its retirement estimator. Estimate your
Social Security retirement income based on expected income and number of years you will be
working. Are your estimated benefits sufficient in your opinion? If not, what else might you do
to ensure that you are comfortable in your retirement?
Answer:
Student answers will vary depending on their expected income and retirement age. After
Chapter 11: Employee Benefits 157
Internet Exercise #2, page 498
Question:
Visit the AARP website and find the organization’s 401(k) savings calculator. Enter your
percent to contribute, annual salary, current age, and expected annual salary increase. Based on
the information provided, what will be your total estimated 401(k) retirement savings by the time
you retire? Do you think this amount will be sufficient? Why or why not?
Answer:
Student answers will vary depending on what is entered. Some students may be surprised to find
that their total expected 401(k) contribution may be well over $1 million. However, there are
several factors to consider, such as:
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VIDEO CASE DISCUSSION GUIDE
Guide students through a discussion that will help them recognize that as a vendor of benefits,
Bright Horizons are closely in touch with what employees are looking for in benefits. They
can then apply that feedback to the benefits packages they offer their own employees.
NOTES FOR END–OF-CHAPTER CASE STUDIES
Case Study 1: Adobe’s Family-Friendly Benefits: An Unexpected Backlash
1. Managers often remark that evaluating and granting/denying the personal requests of
employees is a more difficult decision to make than evaluating the work performance of
employees. When evaluating an employee’s work performance, managers often have standards,
2. Experience indicates that employees can present a myriad of reasons—often very creative
ones—to justify their need for a flexible work hours schedule. Because of the type of problem
3. Ultimately, Janis must maintain the performance of her department while attempting to
balance the professional and personal lives of her employees. Janis needs to determine exactly
how many account managers she requires to cover the work. Once the work is covered, Janis
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can evaluate the merits of the various needs of her employees. This is exactly why
employees are requested to document and justify the reasons for their personal time-off
requests. In this case, if only one employee can be given time off, then Janis should grant
Case Study 2: Evaluating Our Work/Life Climate
After students have completed the questionnaire, have them discuss their finding in a class
discussion. Have students describe programs their employers have which facilitate a
work/life climate.