HRM gaining a competitive advantage noe ch013

 Medical insurance -most important benefit; most full-time employees get such benefits..  Consolidated Omnibus Budget Reconciliation Act COBRA requires employers to permit employees

Human Resource Management:

Gaining a Competitive Advantage

Chapter 13 Employee Benefits

Learning Objectives

 Discuss growth and its reasons in benefits costs.

 Explain provisions of employee benefits programs.

 Compare U.S and other countries’ employee benefits.

 Describe effects of benefits management on cost and

work-force quality.

 Explain importance of effectively communicating

nature and value of benefits to employees.

 Describe regulatory constraints that affect the way

employee benefits are designed and administered.

Average cost of benefits is about 37%

for every payroll dollar.

 about 27% of total compensation package.

Benefits are unique because:

 more regulation of benefits than direct pay.

 almost obligatory for employers to provide

 complex for employees to understand

Reasons for Benefits Growth

Laws mandating benefits passed during and

after Great Depression

Wage and price controls instituted during WWII

and labor shortages

Tax treatment of benefits programs

 Marginal tax rate is % of an additional dollar of

earnings that goes to taxes

Large groupV individual insurance

Organized labor

Employer differentiation

Benefit Programs Social Insurance

Private Group Insurance

Family-Friendly

Policies

Retirement Pay For Time Not

Worked

Social Security

Social Security provides old-age insurance, unemployment

insurance, survivors' insurance, disability insurance,

hospital insurance and supplementary medical insurance.

Social Security retirement benefits are free from federal tax

and free from state tax in some states.

Full benefits begin at age 65 or a reduced benefit at 62

Both employers and employees are assessed payroll tax.

Eligibility age for benefits and tax penalty for earnings

influence retirement decisions

Unemployment Insurance

 4 Objectives of Unemployment Insurance:

1 offset lost income during involuntary unemployment

2 help unemployed workers find new jobs

3 provide an incentive for employers to stabilize employment

4 preserve investments in worker skills by providing workers with

income during short-term layoffs.

 No state imposes the same tax on every employer.

 Unemployed workers are eligible for benefits if they

1 have a prior attachment to the workforce

2 are available for work

3 are actively seeking work

4 were not discharged for cause, did not quit voluntarily and are

not out of work because of a labor dispute.

Workers’ Compensation

Workers' compensation laws cover job-related injuries and death.

 System is based on no-fault liability.

 Covers 90 %of U.S workers.

Private Group Insurance

 Offered at employer’s discretion; plans not legally required.

 2 major types: medical insurance and disability insurance.

 Medical insurance -most important benefit; most full-time

employees get such benefits.

 Disability insurance includes short-term and long-term plans

 Group rates are lower because of economies of scale, ability

to pool risks and greater bargaining power of a group.

 Consolidated Omnibus Budget Reconciliation Act (COBRA)

requires employers to permit employees to extend health

insurance coverage at group rates for up to 36months

following a qualifying event, such as termination.

• Insulates employees from

investment risk, which is

borne by the company.

plan trustees, established

vesting rights and portability

provisions and established

PBGC

Defined Contribution

• Does not promise

employees a specific benefit level upon retirement

• Employers shift investment

risk to the employee

Types of Defined Contribution Plans

Money Purchase

Profit-sharing Employee Stock

Ownership

Cash Balance Plans

An employer sets up an individual account for each employee and contributes a

percentage of the employee’s salary.

The account earns % at a

predefined rate.

Funding, Communication and

Vesting Requirements

 Summary plan description (SPD) obligates employers to

describe plan's funding, eligibility requirements, risks

etc

 ERISA guarantees that employees, after working a certain

number of years, earn the right to a pension upon

retirement, referred to as vesting rights.

 Vesting schedules that may be used:

 Employees are vested after five years of service

 Employers may vest employees over a three- to seven-year

period, with at least 20 %in the third year and each year

Pay for Time Not Worked

Vacation:

 Europe- 30 days of mandated vacation is common.

 U S.- no legal minimum; 10 days is common.

Sick Leave Programs:

 provide full salary replacement for a limited period

of time, usually not exceeding 26 weeks.

 amount based on length of service, accumulating

with service

Family-Friendly Policies

To ease employees’ conflicts between work and

non-work, organizations may use family-friendly

policies such as family leave policies and child

care.

Family and Medical Leave Act (FMLA):

 applies to organizations with 50 or more employees within a

75-mile radius

 applies to childbirth or adoption; care for a seriously ill child,

spouse, or parent; or for an employee's own serious illness

 Employees are guaranteed the same or comparable job when

they return to work

 Employees with less than a year of service or those who work

Family-Friendly Policies

 Family and Medical Leave Act requires organizations with

50 or more employees within a 75-mile radius to provide

as much as 12 weeks of unpaid leave after childbirth or

adoption; to care for a seriously ill child, spouse, or

parent; or for an employee’s own serious illness.

• vouchers or discounts for existing child care facilities or

• child care facility at or near worksites

Managing Benefits:

Employer Objectives and Strategies

Surveys and Benchmarking

 Company should know what competition is doing.

 Surveys information is available from private

consultants, Bureau of Labor Statistics (BLS) and

Chamber of Commerce.

Cost control

 Larger the benefit cost, greater the savings possibility

 Growth rate of may result in serious future costs

 Cost containment efforts work to extent that the

employee has significant direction in choosing how

much to spend in a benefit category

Healthcare:

Controlling Costs and Improving Quality

 In U S spends more on health care than any other country

 Health-care expenditures have risen from 5.3 % of GNP in

1960 to 15.3% today.

 Cost control attempts – by employers such as managed

care, fall into six major categories:

 Trend - to shift costs to employees through use of

deductibles, coinsurance, exclusions and limitations and

maximum benefits

Controlling Costs and Improving Quality

Health Maintenance

Organizations (HMO)

• focus on preventive care

and outpatient treatment.

• require employees to use

only HMO services and

provide benefits on a

prepaid basis.

• physicians and health-care

workers paid a flat salary to

reduce incentive of raising

costs.

Preferred Provider Organizations (PPOs)

• contract with employers and

insurance companies to provide care at reduced fees

• do not provide benefits on a

prepaid basis.

• employees often are not

required to use justPPOs

• less expensive than

traditional health care but more expensive than HMOs.

Employee Wellness Programs

 Focus on changing behaviors on and off work time that

could lead to future health problems.

 2 Classes of EWP’s:

1 Passive -use little or no outreach to individuals and

provide no ongoing motivational support

2 Active- assume that behavior change requires not only

awareness and opportunity, but also support and

2 Phenomena in Cost Control Efforts

Staffing Responses

to Control Benefits Cost Growth

Because benefit costs are fixed, benefits cost per

hour can be reduced by having employees work

more hours.

Classify employees as exempt, since they can

reduce their benefit costs per hour without having

to pay overtime.

Classify workers as independent contractors

rather than employees, eliminating the employer's

obligation to provide legally required benefits.

Nature of the Workplace

 Assessing employee benefits preferences is

essential.

 Use market research methods to assess

employees’ preferences same way consumers’

demand for products and services are assessed.

 Care must be taken not to raise employee

expectations regarding future changes.

Communicating With Employees

Flexible Spending Accounts

Permit employees to choose types and

amount of benefits

Advantages include:

 employees more aware and appreciative of their

benefits package

 better match between package and employee's

needs, which improves satisfaction and retention

 cost reductions

Disadvantages include:

 administrative cost

 adverse selection

Flexible Spending Accounts

Permits pretax contributions to an

employee account that can be drawn on to pay for uncovered health care expenses.

Funds must be spent during the year or

they revert to the employer.

Major advantage -take-home pay

increases.

General Regulatory Issues

 Benefit plans must meet nondiscrimination rules and

qualified plans.

 Sex, Age, and Disability:

 It is illegal for companies to require women to contribute more

to a pension plan than men

 Employers cannot discriminate against employees over age

40 in pay or benefits

 Employees with disabilities have equal access to same health

insurance coverage as other employees

 Monitoring Future Benefits Obligations– Financial

Accounting Statement (FAS) 106-any benefits (excluding

pensions) provided after retirement cannot be funded on a

pay-as-you-go basis; must be paid on an accrual basis.

 Need to balance interests of shareholders, current

 Organizations less paternalistic employee benefit strategies.

 Employees have more responsibility and risk regarding

benefits.

 Employers have greater reliance on defined contribution plans

Such plans require employees to understand investing.

 Risk to employees is greater when defined contribution plans

invest a substantial portion of their assets in company stock.

 If the company has financial problems, employees risk losing

both their jobs and their retirement money

 Companies have reduced or eliminated benefits giving more

responsibility to employees

 Employees are being asked to increase the proportion of costs

that they pay and to use data on health care quality to make

better choices about health care.