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Chapter 12: Managing Employee Benefits
Chapter 12: Managing Employee Benefits
Table of Contents
Chapter Summary
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Learning Objectives
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Lecture Outline
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Critical Thinking Challenges
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Case: The City in Red
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Supplemental Cases
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Extra Teaching Video
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Chapter Summary
Chapter 12 explains employee benefits. The first section discusses the role of benefits in the organization,
including their cost and value to employers and employees. Next, benefit management includes benefit
plan designing (covered in section 2) and administering, communicating, and measuring (covered in
section 3). Legally required benefits, including Social Security, Medicare, workers’ compensation, and
unemployment compensation, are discussed in section 4. Retirement benefits are discussed in section 5
followed by legal regulation of retirement benefits in section 6. Health care benefits are covered in section
7. Section 8 discusses financial benefits, including insurance, financial services, education assistance, and
severance pay. Family-oriented benefits and paid-time-off are discussed in the last two sections.
Learning Objectives
After students have read this chapter, they should be able to accomplish the following objectives:
• Explain how companies use benefits as a competitive advantage.
• Identify four key benefit design considerations.
• Specify three legally required benefits.
• Discuss the trends in retirement plans and compare defined benefit and defined
contribution plans.
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Chapter 12: Managing Employee Benefits
education programs and retirement planning support, and provision of unique benefits.
Lecture Outline
HR Headline: Thinking Outside of the Box
Boxed CEO Chieh Huang is an entrepreneur who started his e-tailing business in his
garage a few years ago. His main goal was to start and run a successful business selling
home products and groceries via an online service website. His website, Boxed, allows
customers to purchase everyday items in bulk. Customers can save money without
incurring an annual club membership fee. The company operates a number of warehouses
to facilitate quick shipment of orders.
The company’s culture is built around these targeted programs to support employees. The
company has a policy where any full-time employee who is getting married will receive up
to $20,000 from Boxed. The company also provides unlimited paid paternity and maternity
leaves.
• A benefit is a tangible indirect reward provided to an employee or group of employees for
organizational membership.
12-1. Benefits and HR Strategy
12-1a. Benefits as a Competitive Advantage
• Benefits are an important factor in employee commitment, recruitment, and retention.
12-1b. Tax-Favored Status of Benefits
• Providing benefits rather than wages can be advantageous for employees because most
benefits are not taxed as income.
HR Competencies & Applications: Gross-Up Pay Calculation
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Chapter 12: Managing Employee Benefits
To determine the “true” value of employee benefits, HR professionals can calculate the “gross–
up” amount that represents the equivalent pay to the employee. Gross-up means to increase the
net amount of what the employee receives to include the taxes owed on the amount.
1. 100% − tax% = net%
2. payment/net% = gross amount of earnings
3. (payment × net%) = net pay
12-1c. Global Benefits
12-1d. Public-Sector Benefits
12-1e. Types of Benefits
12-2. Managing Benefits
12-2a. Benefits Design
• Key decisions in benefit design are shown in Figure 12-3.
• A flexible benefits plan is a program that allows employees to select the benefits they
prefer from options established by the employer.
• Adverse selection is a situation in which only higher-risk employees select and use
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12-3. Benefits Administration, Technology, and Communication
• Organizations must track legal compliance, record keeping, enrollment, and participation
issues.
12-3a. Benefits Measurement
• Many HR metrics can be used to evaluate benefits. Some examples are shown in Figure
12-3b. Benefit Cost Control
12-3c. Benefit Communication
• Communication about benefits and employees’ satisfaction with the benefits are linked.
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Chapter 12: Managing Employee Benefits
Competency)
Drug policies regarding marijuana use vary by state and company, but it is still illegal under
federal law. Companies with zero-tolerance drug policies seem to be protected against
reimbursement claims for medical marijuana because marijuana use is against company policy
and it’s a federal crime.
1. Have you ever worked for an organization that had a zero-tolerance drug policy? If so, how
did the company manage this policy? If not, do you think your employer should have
developed such a policy?
Students’ answers will vary. Students should consider state law and its effect on the
company’s drug policy.
2. What should HR professionals and line managers do to better educate themselves about the
impact of marijuana use on workers’ compensation?
Students’ answers will vary. Students should use the search terms “marijuana,” “workers’
compensation,” and the name of your state on the Internet.
12-4c. Unemployment Compensation
12-4d. Additional Legally Required Benefits
• Besides workers’ compensation and unemployment insurance, most companies must
12-5. Retirement Benefits
• Today, many U.S. citizens have inadequate savings and retirement benefits to fund their
retirements.
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Chapter 12: Managing Employee Benefits
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
employee’s retirement.
Discussion Starter: Using Figure 12-6, ask students how they expect to fund their retirement.
12-5a. Retirement Plan Concepts
12-5b. Retirement Plans
• A retirement plan is a program established and funded by the employer and/or
employees to fund employees’ retirement years.
• The two broad categories of retirement plans are defined benefit plans and defined
contribution plans, as shown in Figure 12-7.
12-6. Legal Regulation of Retirement Benefits
• Many laws and regulations affect retirement plans.
12-6a. Employee Retirement Income Security Act
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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
12-6b. Retirement Benefits and Age Discrimination
• The Age Discrimination in Employment Act (ADEA) states that most employees cannot
12-7. Health Care Benefits
• The Patient Protection and Affordable Care Act (PPACA) is still evolving.
12-7a. Increases in Health Benefit Costs
12-7b. Health Care Reform Legislation
• Provisions of the PPACA were phased in over several years, culminating in universal
12-7c. Employer-Sponsored Plans
• Employers with at least 50 full-time or full-time equivalent (FTE) employees who work
12-7d. Controlling Health Care Benefit Costs
• Employers offering health care benefits are taking a number of approaches, such as
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Chapter 12: Managing Employee Benefits
those shown in Figure 12-9, to control and reduce their costs.
o A deductible is money paid by an insured individual before a health plan pays for
medical expenses.
o A health spending account is a tax-favored savings plan to provide funds for
paying medical expenses.
12-7e. Wellness Initiatives and Other Innovative Health Care Programs
• A major strategy of cost reduction is wellness programs that focus on improving worker
health.
• Employees receive incentives to use wellness facilities and to participate in health-
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
12-7g. Dental and Vision Coverage
• Additional health benefit programs frequently include dental and vision care expenses.
12-8a. Insurance Benefits
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Chapter 12: Managing Employee Benefits
• The most common types of insurance benefits are the following:
o Life insurance: A typical level of coverage is one and one-half or two times an
employee’s annual salary.
12-8b. Financial Services
• Financial services include credit unions, purchase discounts, discount programs, club
memberships, stock purchase plans, and financial planning and counselling.
HR Perspective: Cooking Up Financial Health
A few years ago, Original Rudy’s Country Store and Bar-B-Q decided to offer a financial
wellness program to its employees. While many companies offer this program as an option,
Rudy’s decided to go “all in” and make the program mandatory for all employees.
1. Do you think requiring participation in financial literacy programs is a good idea? Why or
why not?
Students’ answers will vary. Students could consider how financial literacy programs can
assist in managing finances.
2. Would you participate in such a program if your employer offered one? Would you need
some incentive (financial or otherwise) to participate? If so, what type of incentive would
entice you?
Students’ answers will vary. Students could consider the benefits reaped by Rudy’s
employees. They can also consider the incentives offered to Rudy’s employees to keep them