unit iv - cm final (1).ppt

UNIT IV
Employee Benefits Management

UNIT IV: Employee Benefits
Management
 Components - Legally required Benefits
 Benefits Administration
 Employee Benefits and Employee Services
 Funding Benefits through VEBA
 Costing Benefits
 Components of Discretionary benefits
 Designing and Planning Benefit Program
 Totally Integrated Employee Benefit Program.

Legally required benefits
 An overview of legally required benefits
 Components of legally required benefits
 Implications of legally required benefits for
strategic compensation.

FRINGE BENEFITS
 Various extra benefits provided to the
employees, in addition to the compensation paid
in the form of wage or salary.
 Legally required payment
 Contingent /deferred benefits (discretionary)
 Payment for Time not worked

LEGALLY REQUIRED
BENEFITS
 Protection programs that attempt to promote
worker safety and health, maintain family
income streams and assist families in crisis.
 Indirectly promote competitive advantage

CONTINGENT AND DEFERRED
BENEFITS
 Pension plans
 Group life insurance
 Group health insurance
 Medical expenses
 Disability income
 Guaranteed annual wage
 Prepaid legal plans
 Military leave and pay

 Jury duty and bereavement paid leave
 Maternity leave
 Child care leave
 Sick leave
 Dental benefits
 Tuition aid benefits
 Suggestion awards
 Service awards
 Severance pay

Payments for time not worked
 Vacations
 Holidays
 Voting pay allowances
Other benefits:
1. Travel allowances
2. Company car and subsidies
3. Moving expenses
4. Uniform and tool expenses
5. Employee meal allowance
6. Discounts o employer’s goods and services
7. Child care facilities.

EMPLOYEE BENEFITS
 Comprising of both wage and non-wage
components of total labour costs
 Non-wage – kind, wage – cash
 Taxable
 Non-monetary benefits: motivation
 Non-monetary incentives: career advancement
opportunities, flexible working hours and
opportunities to acquire new skills and
knowledge

TYPES OF EMPLOYEE
BENEFITS
 Employment security
 Medical and Healthcare
 Old age and Retirement
 Miscellaneous benefits

STATUTORY EMPLOYEE
BENEFITS IN INDIA
 Bonus: 8.33% minimum bonus/ex gratia
 Employee security
 Retrenchment compensation: Industrial disputes
act 1947: layoff and retrenchment .=50empl,
15days/max 45 days
 Layoff compensation: 50% of total basic wage
and DA- 45 days p.a.
 Safety and health provision: factories act 1948

LEGALLY REQUIRED
PAYMENTS
 To protect individuals from catastrophic events such as
disability and unemployment.
 Protective programs that attempt to promote worker
safety and health, maintain family income streams, and
assist families in crisis.
 Social Insurance – designed to minimise the possibility
that individuals become unemployed or severely injured
while working, enable to maintain subsistence income
levels.
 Lead to competitive advantage – participate in economy

COMPONENTS OF LEGALLY
REQUIRED BENEFITS
 Social security act
 Old age benefits
 Survivor benefits
 Disability benefits
 State compulsory disability laws
 Family and medical leave act

Social security act
 Income discontinuity – great depression 1930s–
led to act
 To protect families from financial devastation in
the event of unemployment
 Retirement income
 Health & welfare of employees and their
families

UNEMPLOYMENT INSURANCE
 Central unemployment tax fund
 Exception of most agricultural and domestic workers
 Criteria for benefits: minimum period of time, first four
quarters of last five completed calendar quarters, not have let job
voluntarily, able & available for work, be active – seek work, not
have refused an offer, not be unemployed – labor dispute, not
have had termination – violation of conduct.
 Receive: weekly benefits, widely vary, fraction, maximum of 26
weeks,1970 – amendment (39 weeks) supplemental
unemployment benefit, September 11th attach- 65 weeks
 Experience rating system( 1 to 10% tax)

Old age survivor and disability
insurance (OASDI)
 Retirement income, survivors’ insurance (1939)
and disability insurance (1965)
 Old age benefits: upon retirement/under
survivors and disability programs – they earned
 survivors benefits: dependent, unmarried
children of deceased and a spouse of
deceased who is caring for a child or
children - fully insured

Disability Benefits:
 meet req. of disability insured status (fully
insured and min amt of work under SS –
AGE DIABILITY)
 Disability : Endure for atleast 1 year or to
result in death (waiting period upto 6month)

MEDICARE
 US citizens aged 65 or older for providing
insurance coverage for hospitalization ,
convalescent care and major doctor bills
 4 separate plans:
 Medicare Part A:
 Medicare Part B
 Medigap
 Medicare + Choice or Medicare Part C:

Medicare Part A:
 Compulsory hospitalisation insurance – both
inpatient and outpatient hospital care & services
 90 days – single spell of illness (60 days out of
hospital)
 Unlimited in-home care visits – homehealth
agency – nursing care, therapy treatment home
health aid

Medicare Part B
 Voluntary supplementary medical insurance
covers 80 % of medical services and supplies -
$100 annually
 Not covered under part A – physician/medical
services
 Paid jointly by person & federal govt.
 Diagnosis, therapy , surgery services of office
nurse, consultation calls , medication not self
administered

MEDIGAP INSURANCE
 Voluntary supplemental insurance to fill in the
gaps for parts A & B
 Pvt insurance companies – extra fee
 Medicare select plans : medigap policies that
offer lower premiums in exchange for limiting
the choice of health care providers

MEDICARE PART C COVERAGE
 Balanced budget act of 1997 established
medicare + choice( switch health plans – annual
open enrollment), a third medicare program –
PART C
 Alternative program of part A & B
 Receive health care from a variety of options –
pvt fee for service plans – cash benefits,
managed care plans or medical saving accounts.
– high from approved providers

STATE COMPULSORY DISABIITY
LAWS(WORKERS COMPENSATION)
 Early 20th century – industrial accidents – common &
occupation illness – alarming rate. First law enacted -
1911
 Based on
 principle of liability without fault
 Key principle : employer – assume costs of occupational
injuries and accidents
 Workers compensation insurance programs: cover
expenses incurred
 Maritime workers – long shore & harbor compensation act
 Federal employees compensation act

Workers compensation objectives &
obligation to the public:
 Sure, prompt, reasonable income & medical benefits
 single remedy & reduce court delays, costs &
workloads
 Fees to lawyers – eliminate ,
 max employer interest in safety,
 frank study – causes of accidents.

Claims under worker’s compensation
programs
 injury claims – disabilities : accidents, keyboards usage
 occupational disease claims – ailments: trades/process
 death claims
File claims to state commissions
 Depending upon the claims: Four kinds of benefits:
 Medical:
 Disability – 2/3 rd weekly wages
 death : burial allowances & survivors benefit
 rehabilitative services: physical & vocational
RECENT TRENDS IN WORKERS COMPENSATION

FAMILY & MEDICAL LEAVE
ACT OF 1993
 To provide employees with job protection – family or medical
emergencies
 Guaranteed leave – same position with same benefits, pay and
other terms and conditions
 Recognition – parents elderly
 Two income families – child rearing – paternity leave
 Employed – 12 months atleast - 1250 hrs
 Exempt - Less than 50 employees.
 12 week period – paid leave-personal, sick vacation , unpaid.
 HR professionals – proactive plan – manage workloads – cross
train workers – knowledge & skills, pay – for knowledge,
temporary employees.

THE IMPLICATIONS OF LEGALLY
REQUIRED BENEFITS FOR
STRATEGIC COMPENSATION
 Do not directly meet the imperatives of competitive
strategy ( provide subsistence income to all beneficiaries
regardless of their performance(Social adequency)).
 Hindrance to companies – mandated expenditure.
Invest in direct compensation, R &D, Lowest cost
strategies – reserve.
 Reduce worker’s compensation claims – safety
measures, health promotion schemes:
 Integrate worker’s compensation benefits in to the rest of
benefits program.
 Unemployment insurance costs – reduce (demand – 2yrs)

ROAD TO STRATEGIC
COMPENSATION
 1980s – compensation professionals : designing &
implementing compensational programs that contribute
to competitive advantage. (describes success)
 competitive advantage: ability to maintain market
share & profitability over a sustained period of several
years.
 Increased global competition: more productive – leading
edge skills, apply then to sustain competitive advantage.
 Compensation practices contribute to CA :
productive, high skilled, well designed merit pay,
incentive pay, pay for knowledge, pay for skills,
discretionary benefits ( strategic value)

REFERENCE
 Strategic Compensation – a human resource
management approach – 3rd edition – Joseph J.
Martocchio
 Chapter 10: Page no: 331 - 345

Introduction
 Expensive (forgotten stepchild of the total
compensation package – employee benefits &
services (fringe benefits))
 In-kind payments
 1929 – 3%, 1994 – 40.7 % (wages & salaries) (W
& S increased 65 fold : benefits : 872 times)
 Org: 40% , may increase to 50%

RAPID EXPANSION: REASONS
 Imposition of wage ceilings – world war
 Unacceptability of autocratic mgt. & decline of
paternalism.
 1940s – 1970s, unions: wage increase later :
benefits
 Income tax legislation
 social security & medicare

EMPLOYEE BENEFITS
 They are those compensation components made
available to employees that provide:
 Protection in case of health and accident-related
problems
 Income at some future date or occasion (upon
retirement, termination of employment or meeting
of certain objective criteria)

EMPLOYEE SERVICES
 They are compensation components that
contribute to the welfare of the employee by
filling some kind of demand.

BENEFITS ADMINISTRATION
 Large organisations – benefit manager – vice
president/director of compensation and benefits
 Small organisations – manager of compensation and
benefits
 Finance dept: pension, life insurance and disability
programs
 Accounting dept: medical insurance, claims processing
completion of government reports related to mandated
benefits
 Top management: retains authority – time-off with pay
program

TWO IMP. PARTS OF BENEFITS
ADMINSITRATION
 Benefits Planning and design
 Benefits communication

BENEFITS PLANNING AND
DESIGN
 Recognize importance : 1970s while developing flexible
benefits plans/cafeteria plans:
 In design stage: benefits analysed – features:
 Minimum age /length of service req.
 Possible employee contribution & vesting schedule for
pension plan.
 Coinsurance, deductible, ceiling req and dual coverage for
medical insurance
 Option : medical insurance
 Temporary & Part – time included, regular full time &
what benefits - retirees?, which dependents?

CRITICAL ISSUES IN BENEFITS
PLANNING
 Current and future role of government
mandated benefits
 Employee demographic and preferences
 Employer ability to pay and employee
contributions
 Self –funding and third party administration
 Monitoring and auditing

BENEFITS COMMUNICATION
 1960s and 1970s – limited motivational value of
programs
 Basic benefits communication program – elements
 Within 90 days – oral & visual presentation
 Every year – benefits statement – detailed description of
employee’s benefit account
 Access to as needed service – inhouse/community
 Adhoc employee meetings: new benefits, cost containment
opportunities and other critical or important benefits issues
 Continuing notices – online communication – HR specialists

EMPLOYEE BENEFITS
 Insurance & non – insurance
 Seven major groups:
 Disability income contribution
 Loss –of job income contribution
 Deferred income
 Spouse or family income continuation
 Health & accident protection
 Property and liability protection
 Special group of benefits and services called perquisities
VARIETY FEATURES, AVAIBLABLE TO CERTAIN INDIVIDUAL/GROUPS

1. DISABILITY INCOME
CONTINUATION
 Disabilities : regular, temporary, total, partial
 Unable to continue work – accident/health related
problem: maintain existing lifestyle without major
modification
 11 components: Short-term (S& A), long term,
workers’ compensation, non occupational disability
,social security, travel accident insurance, sick leave,
supplemental disability insurance, accidental death and
dismemberment group life insurance: total permanent
disability , retirement plans
MAXIMIZE PROTECTION AND MIN COSTS

1. Short-term (S& A) disability: insured is absent from
work – accident or illness - 26 weeks, 50 to 75 % of
base pay
2. Long term disability (LTD): incapacitated
employees with long term security. Self insurance
funding, normal pension, 50 to 75 % of base pay.first
2 year more, upto 65 years.
3. Worker’s compensation: occupational disability
insurance, life time – 330 – 650 weeks
4. Non- occupational (temporary) disability: illness,
injury, maternity,26 weeks-depends on wage,
employee contributions

5. Social security: old age, survivors, disability
health insurance (OASDHI) totally &
permanently disabled – cash benefits & social
security, wait – 5 full calendar months & upto 65
years after that retirement rolls.
6. Travel accident insurance: who travel frequently,
disabled or killed – work assignment, first day –
base earnings, or flat % of the regular rate of pay.
7. Sick Leave: unable to work – illness 12 days per
year (on avg, 10 days), accumulation – 10 – 20
days : earned sick leaves, 6 months base pay after
retirement. – buy back.

8. Supplemental disability insurance: top management
employees: select / small group
9. Accident, death and dismemberment: accident loss
of limbs or sight. – amount – extent of disability, travel
– full benefit.
10. Group Life Insurance: Total permanent Disability
(TPD): monthly payment over a period 60 – 120
months . Face value of policy is small – less than
60 payments.
11. Retirement Plans: service & age req., disability, 10
years, 50 years, long –term disability.

2. LOSS – OF- JOB INCOME
CONTINUATION
 Assist workers during short-term periods of
unemployment – layoff & termination
 Eight major compensation components:
 Unemployment Insurance (UI)
 Supplemental unemployment benefit insurance (SUB)
 Guaranteed annual income(GAI)
 Guaranteed income stream (GIS)
 Individual account plan
 Severance pay
 Job contract
 Short-time compensation program

 UNEMPLOYMENT INSURANCE:
Requirements, differences in employer costs:
economic conditions, eligibility, benefit payments.
 SUPPLEMENTAL UNEMPLOYMENT
BENEFIT INSURANCE (SUB):
Unions – steel, rubber, flat glass and farm
equipment, 7 years of employment, 10 yr – 1 yr
SUB approx. 80 % take home payments.
 GUARANTEED ANNUAL INCOME: Collective
bargaining situation. 1950 – national sugar refining
com. & union – long island refinery, Monday –
atleast 4 days, 1936 hrs/242 days of work per
year(avg. 230 – 245 days), dock worker

 Guaranteed Income stream (GIS): 1982 bargaining ,
ford workers : lose jobs after 15 years or more of
service receive : 50 % of their base pay until they are
eligible for retirement
 Individual account pay: predetermined and
negotiated contributions: suspensions, layoffs –
disciplinarian labour disputes .
 Severance Pay: one time payment/series, plant
closings, tech advances, economic depression, 2-3 days
of work / 6months or 1 year of work. small – last day
of work, large : 2 – 3 different times, imp issue, golden
parachute – late 1970s

 Job Contract: senior-level management – high
skilled , desired professionals- guaranteed a
certain incomes – specific period of time with
certain obligations.
 Short-time compensation program: cut
production – instead of layoff, diff. normal &
reduced pay – state for unemployment
compensation assistance,- 3 days instead of 5 :
40 % of max benefits.

3. DEFERRED INCOME
 Accumulate capital & meet future financial goals
 Social security
 Qualified retirement plan : pension, profit – sharing, stock bonus
 Plans meeting IRS POLICIES AND REGULATIONS
 Simplified employee pension plans
 100% of employees have reached the age of 25 during calender year and
have performed services for the employer during the calender year and
three years preceding – 15%- less than 26 employees -no
 Supplemental executive retirement plan
 ERISA –imposed limits, qualified pension plans, ERISA EXCESS
BENEFITS PLAN benefit replacement or enhancement under defined
benefits and defined contribution plans.unfunded program – selected
individuals – general assests
 Supplemental and executive group life insurance plans

 Stock purchase: acquisition, Qualified, full market value stock
purchase plan, performance stock plans discounted stock PP,
 Stock option
 Key personnel over a period of time that exceed the time periods granted
for stock purchase plans
 Exercise: time – acquired or purchases
 Window – specific period of time set by govt regulation
 Stock grant
 Stock acquisition plan, selected employees with stock at no cost. – stock
appreciation grants: payment & full value grants: payment (over
predetermined period) – base value, dividend and appreciation (period
grant is in force)

4. SPOUSE AND FAMILY
INCOME PROTECTION
 Life insurance: 50-50, 80 -20, all, retired person 30 days after
leaving
 Retirement plans :joint and survivor life income, spouse benefits
 Social security
 Tax- sheltered annuity – cash on deferred arrangements –
reduced salary – qualified trust
 Workers compensations
 Burial expenses and income benefits
 Accidental death and dismemberment
 Fixed lumpsum benefit to a beneficiary when a worker’s death is
accidental.
 Travel accident insurance
 Health care coverage: 3 – 12 months

5. Health and accident protection
 Eligibility tests:
 50% test - lower paid employees eligible,
 90/50% test- 90% lower paid employees eligible atleast 50%
of the highest value benefits – highly paid employees,
 plan provision test: no provision – eligibility discriminates
highly paid.
 Benefits tests:
 value of avg benefit – lower paid for all health plans combined
= atleast 75% of the value –highly paid.
 Plans to provide medical benefits:
 Fee for service plans (FFS) – coinsurance, choose any
provider , self-insured, commercial insurance , blue
cross/blue shield plans

 Managed care plans: - specific provider : medical
care and health care cost
 Preadmission review, utilization review, discharge
planning, mandatory second surgical opinion –
 Health Maintenance Org – 1973/prepaid services
approach (fixed set of medical services) , primary
care physician – 24 hrs
 Preferred Provider Organisation – independent
physicians, hospitals & health care providers+
insurance – life time maximum benefits,
 Point of service plans – less structure, outside
/within network., open ended HMO

 Features of health care insurance plans
 Excludes mental health benefits, Major medical,
hospitalization plans, surgical, comprehensive
physical, in-house medical services, post retirement
medical, AIDS coverage, medical saving accounts,
health saving accounts presciption drug costs
 Dental,vision, hearing aid, worker’s compensation
 Social security, additions to health care coverage,
health coast containmenet, play-pay plans
 Universal health care

6.Property and liability protections
 Group auto, home, legal, umbrella liability,
employee liability, fidelity bond insurance.

PERQUISITES
 CEO, KEY OFFICIALS
 Maximize the time available for business related
purposes and at the same time enhance the
quality of their lives

ESOP
 EMPLOYEE STOCK OWNERSHIP PLAN
 A plan which a company borrows money from a
financial institution by using its stock as a collateral
for the loan. Principal and interest loan repayments
are tax-deductible. (each loan repayment – stock is
released. – stock is placed in Employee stock
ownership trust for distribution at no cost to all
employees. Receive – retirement or seperation.

ESOPs take primary forms
 A stock bonus ESOP - employer contributes
company stock to the ESOT – Employee stock
bonus trust and does not use ESOT as
mechanism for obtaining funds.
 Levareaged/ leveragable ESOP – the employer
uses the special tax privileges granted to an
ESOT to obtain funding for various purposes.

BENEFITS - EMPLOYER
 Establishing and maintaining a stable, high –
performance workforce (retain)
 Certain Tax benefits
 Establishes the trust to hold more than 10% of assets
 Sell equity interest without having to go public
 Leveraged features is desirable
 Sell stock in any desired increment at any one time upto
total holdings
 Companies currently not paying tax can carry ESOP
deductions for 15 years

EMPLOYER COSTS
 Dilution of the value of stock and ownership
rights
 Cashed out demands – departing employees
 Installation cost range : min $10,000 - $15,000
 Fair market value of the stock – outside
appraiser – costs
 Proxy statement – information
 Decline in the prices of the stock – extreme loss
in wealth

EMPLOYEE BENEFITS
 Equity opportunities with no cash investment
 Chance to voice their views at the policy making
levels of the org.
 Pay not tax on stock until distribution
 Can roll distribution over into an IRA, thus
deferring any tax at the time of distribution.

EMPLOYEE COSTS
 Might pay lower wages or salaries, recognizing
the possibility of significantly larger total
compensation through stock acquisition
opportunities.
 Stock could decrease in value – bankruptcy or
business failure.

EMPLOYEE STOCK OPTION
PLANS
 Granted to key personnel over a period of time
that exceeds the time periods granted for stock
purchase plans.
 Right to purchase a specific amount of
corporate stock at a stipulated price within a
specified period of time. – no obligation
 Shares of stock : size – value, level, base pay,
outstanding,no.of employees provided

MERITS
 Nonqualified perspective : tax laws do not impose any
limitation on the amount of the stock a corporation can
option to an individual.
 Granted stock option is not considered a compensation
cost to the organisation.
 Tax deduction
 Stock warrants to an employee
 Motivational compensation tool
 Full price, discounted ,variable price, tax offset formula
value, stock grant ,stock appreciation,restricted stock
plan, performance share plan, phantom stock plan…

DEMERITS
 Taxed – certain kind of stock
 Limited employees
 Limited period
 Meet certain performance measures
 Practical business considerations

EMPLOYEE SERVICES
 To enhance lifestyle of employees
 Three major set of components that consitute
the employee services group:
 Pay for time not worked
 Time off without pay
 Income equivalent payment and reimbursement for
incurred expenses

PAY FOR TIME NOT WORKED
 Holidays: 9 -12 days per year
optional
 Vacations: after 6 mths or 1
yr
 Jury duty:
 Election official
 Witness in court
 Civic duty
 Military duty
 Funeral leave
 Illness in family leave: 1 -5 da
 Marriage leave: 5 days
 Paternity leave
 Maternity leave
 Sick leave
 Wellness leave
 Time off to vote
 Blood donations
 Grievance and contract
negotiations
 Lunch , rest and wash-up
periods
 Personal leave
 Sabbatical leave

A DIFFERENT APPROACH
 Minimise sick leave abuses including eliminating sick
leave programs
 Earned time, personal time or no-fault time off
- time-off with pay for every hour worked
 Days off with pay – co decides to grant: job or seniority
( 2080 hrs – work, 5yr employee – 35 days off with pay)
 35/2080 = 0.0168 days for every hr worked
 Earned time – atleast 32 hrs in week, max 90 days
accumulation

TIME OFF FROM WORK
WITHOUT PAY
 Covered by the employer's medical, life
insurance and disability programs
 12 weeks of unpaid leave – FMLA, child, parent,
spouse or own
 Hidden cost – job open, continuing their
benefits – non pay status

INCOME EQUIVALENT PAYMENTS
AND REIMBURSEMENT FOR
INCURRED EXPENSES
 Charitable contributions
 Counseling – Employee
assistance )medical,
psychological, family, legal
financial, career,
outplacement
 Tax preparation
 Education subsidies
 Child adoption
 Child care
 Elderly care
 Subsidized food services
 Discounts on merchandise
 Physical awareness and
fitness programs
 Social and recreational
opportunities
 Parking
 Transportation to and from
work
 Travel expenses

 Clothing reimbursement/allowance
 Tool reimbursement /allowance
 Relocation expenses
 Emergency loans
 Credit unions
 Housing

FUNDING BENEFITS
THROUGH VEBA
 A funding vehicle used by many organisations to
reduce benefits costs is a voluntary employee
benefits association – VEBA
 Tax-exempt trust designed to meet the
specific needs of an organisation.
 Pays benefits claims, expenses and invests
excess funds
 Operates under 501(a) of IRC

FUND MUST MEET THE FOLL
REQUIREMENTS
 Organisation- association of employees
 Membership is voluntary
 Purpose of providing life, sickness accident or
any other benefits for its members or their
dependents
 No part of net earnings goes to benefits any pvt.
Shareholder

VEBA REDUCES BENEFITS
COSTS
 Lower operating expenses than insured
programs
 Requireing small reserves
 Paying minimal to no stat insurance premium
taxes ( 2 – 4% of net premium)
Funds – long term disability plans and retired life
insurance reserves vacation benefits, recreational
benefits and facilities, child care facilitates,
severance payment and educational benefits

Other
 Trusts – Supplementary unemployment
compensation trusts and the group legal service
trusts ( limits on amounts set aside on a tax free
reserves)
 IRS approval – non discriminatory test
 Employers do not receive – refund, credit or
additional benefits
 Prohibited from funding retiree health benefits

COSTING BENEFITS
 Prerequisite to any benefits communication
program
 Four commonly used for costing benefits and
services:
 Annual cost of benefits and services for all employees
 Cost per employee per year
 Percentage of payroll (annual cost divided by annual
payroll)
 Cents per hr – cost per employee per hr.

ANNUAL COST
 For each benefit
 Develop accounting procedure – computerised,
bookkeeping
 Valuable in developing budgets and in
describing the total cost of the benefits program

COST PER EMPLOYEE PER
YEAR
 Especially pay for time not worked security and
health benefits
 Bookkeeping complex – group insurance
 Aggregate cost of benefits per employee
 to achieve greatest effect – communicated to
employee- costs

PERCENTAGE OF PAYROLL
 Identifying and classifying all compensation
costs
 Determination of cost of each component and
the total cost of benefits and services as a
percentage of payroll.
 Straight time costs – premiums – benefits

CENTS PER HOUR
 Define the term hour.
 260x8 hrs = 2080 hrs/ actual hours worked
 Total benefits costs by the total number of
hours worked during the year
 Frequently , valuable

Cafeteria plans/flexible
compensation/benefits plan
 Senior executives, top professionals and mgrs to
choose individually many of their benefits and
services within certain limits.
 mandatory/- legal, security, majority rule
 Opportunity to contain cost of benefit package
 benefits – more tax effective basis
 Choice as to benefits they receive

Selection process of benefits
 Identify alternatives
 Determine the cost
 Total permissible cost for the entire package

FOUR GOALS – PLAN
increases and improves
 Appreciation of the interest and desire of employer – QWL
 Loyalty & motivation – enhance productivity
 Understanding the value & Cost each B & S comp
 Understanding the value & Cost of total BP
Well – conceived,, well – designed and well – implemented
Worker expectation and preferences, attitudes
Degree of opportunity for growth and security
Changing benefits – costs, expand their benefits, advise – value,
assist
Micro approach, mix, macro approach

ESTABLISHING A FLEXIBLE
C/B PLAN
 Senior management
 Compensation & human resources specialist
 Employees
Collecting data
Administration
Changes in legislation

EXAMPLES OF FLEXIBLE
COMPENSATION PROGRAMS
 Modular plan: modules/packages
 Core plan
 Benefits bank
 Unlimited choice plan
 Mini-flex plan

OVERVIEW OF
DISCRETIONARY BENEFITS
 40% of employee total payroll costs, lower tax liability
 Offered at the will of the co, regardless of their
performance
 Three broad categories
 Protection programs
 Paid time off
 Services
 Originated in 1940s and 1950s – mandated (not to
increase core compensation ), expanded discretionary
benefits
 Offer welfare practices:
 anything for comfort and improvement, intellectual or social of
the employees over and above wages paid which is not a
necessity of the industry nor required by law.

COMPONENTS OF
DISCRETIONARY BENEFITS
 PROTECTION PROGRAMS:
 Income protection programs:
 Disability insurance
 Life insurance : term coverage & whole life
 Pension programs – 401(k) plans
 Financing method: contributory vs noncontributory
 Tax treatment: qualified vs nonqualified
 Benefit determination : defined contribution plans vs defined benefit
plans
 Employee retirement income security act of 1974 (ERISA)
 Health protection program

 Fee for service: indemnity plans, coinsurance,out of
pocket, self-funded insurance
 HMO, PPO
 Dental insurance
 Vision insurance
 Time paid off: different leaves already discussed
 Services: discussed already

DESIGNING & PLANNING THE
BENEFITS PROGRAM
 Objectives
 Involve employees in the benefits determination
process – survey, interviews and focus groups
 STEPS:
 Who receives coverage
 Whether to include retirees in the plan
 Whether to deny benefits to employees during their
probationary periods
 financing the benefits
 Degree of employee choice in determining benefits
 Cost containment
 communication

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