Human resource management gaining a competitive advantage 2014 chapter 13

– The Consolidated Omnibus Budget Reconciliation Act COBRA requires employers to permit employees to extend their health insurance coverage at group rates for up to 36 months following

• Benefits are unique because:

– there is more regulation of benefits than of

Reasons for Benefits Growth

• Laws mandating benefits passed during and

after the Great Depression

• Wage and price controls instituted during WWII and labor shortages

• The tax treatment of benefits programs

– The marginal tax rate is the percentage of an

additional dollar of earnings that goes to taxes

• Large group v 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 includes provision for 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

• Currently, full benefits begin at age 65 or a reduced benefit can begin at age 62

• Both employers and employees are assessed a

payroll tax

• The eligibility age for benefits and any tax penalty for earnings influence retirement decisions

• Unemployed workers are eligible for benefits if they

– have a prior attachment to the workforce,

– are available for work,

– are actively seeking work,

– 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.

• The system is based on no-fault liability.

• Approximately 90 percent of U.S workers are covered.

Private Group Insurance

• Offered at the discretion of employers, and plans are not legally required

• Group rates are lower because of economies of

scale, the ability to pool risks, and the greater

bargaining power of a group.

• Medical insurance tends to be the most important

benefit for people.

– The Consolidated Omnibus Budget Reconciliation

Act (COBRA) requires employers to permit employees

to extend their health insurance coverage at group rates for up to 36 months following a qualifying event, such as termination.

• Disability insurance includes short-term plans and

long-term plans

• Insulates employees from

investment risk, which is

borne by the company.

pension plan trustees,

established vesting rights and

portability provisions, and

established the PBGC

Defined Contribution Plan

• Does not promise employees

a specific benefit level upon retirement

• Employers shift investment risk to the employee

• There is no need to calculate payments based on age and service.

• Most prevalent in small companies.

Types of Defined Contribution

Plans

Money Purchase Plan

Profit-sharing Plan Employee Stock

Ownership Plan

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 interest at a predefined rate.

Funding, Communication, and

Vesting Requirements

• A summary plan description (SPD) obligates

employers to describe the plan's funding,

eligibility requirements, risks, and so on

• ERISA guarantees that employees, after working

a certain number of years, earn the right to a

pension upon retirement

– These are referred to as vesting rights.

• Vesting schedules that may be used are as

follows:

– Employees are vested after five years of service – Employers may vest employees over a three- to seven-year period, with at least 20 percent in the third year and each year thereafter.

Pay for Time Not Worked

• In the European Community, as many as

30 days of mandated vacation is

common.

• In the United States, there is no legal

minimum, although 10 days is common

• Sick leave programs often provide full

salary replacement for a limited period of time, usually not exceeding 26 weeks.

• The amount of sick leave is often based

on length of service, accumulating with

service

Family-Friendly Policies

• To ease employees’ conflicts between work and nonwork, organizations may use family-friendly policies such as family leave policies and child care

• The Family and Medical Leave Act:

– 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

Family-Friendly Policies

• Child Care - Employers may

provide some type of child

care support to employees:

– supplies and helps employees

collect information about child care,

– 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

– The company should know what the competition is doing.

– Surveys information is available from private

consultants, the Bureau of Labor Statistics (BLS), and the Chamber of Commerce.

• Cost control

– The larger the cost of a benefit, the greater the

possibility for savings

– The rate of growth may result in serious costs in the future

– Cost containment efforts can only work to the

extent that the employee has significant direction

Healthcare: Controlling Costs

and Improving Quality

• In the United States, health-care expenditures have gone from 5.3 percent of the GNP in 1960

to 14 percent recently

• Attempts at cost control have come through

employers, since most health care is provided through organizations

• A recent trend has been to shift costs to

employees through the use of deductibles,

coinsurance, exclusions and limitations, and

maximum benefits

Healthcare: Controlling Costs

and Improving Quality

Health maintenance

organizations (HMO)

• focus on preventive care and

outpatient treatment.

• require employees to use

only HMO services and

providing benefits on a

prepaid basis.

• physicians and health-care

workers paid a flat salary to

reduce incentive of raising

costs.

Preferred provider organizations (PPOs)

• have 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 just the PPOs

• tend to be less expensive than traditional health care but more expensive than HMOs.

Employee Wellness Programs

• Focus on changing behaviors both on and off

work time that could eventually lead to future

health problems

• There are two broad classes of EWP’s:

– Passive

• use little or no outreach to individuals and provide

no ongoing motivational support

– Active

• assume that behavior change requires not only awareness and opportunity, but also support and reinforcement.

Health Care Costs and Quality:

Ongoing Challenges

• Two important phenomena are often

encountered in cost control efforts

– Piecemeal programs may not work well

because steps to control one aspect may lead to employees to “migrate” to other programs that provide medical treatment at

no cost to them

– There is often a so-called Pareto Group,

which refers to a small percentage of employees being responsible for generating the majority of healthcare costs

Staffing Responsibilities that

Control Benefits Cost Growth

• Because benefit costs are fixed, the benefits cost per hour can be reduced

by having employees work more hours

• Have employees classified as exempt, since they can then 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

• Care must be taken not to raise

employee expectations regarding future changes.

Flexible Spending Accounts

• These plans permit employees to choose the

types and amount of benefits that they want

• Advantages include:

– employees can be more aware and appreciative of their benefits package

– a better match between the package and the

employee's needs, which improves satisfaction and retention

– cost reductions are often achieved

• Disadvantages include:

– high administrative cost

– adverse selection

Communicating with Employees

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.

• The major advantage is that

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 that women

contribute more to a pension plan than men.

– Employers cannot discriminate against employees over the age of 40 in terms of pay or benefits

– employees with disabilities have equal access to the same health insurance coverage as other employees.

• Monitoring Future Benefits Obligations - The

Financial Accounting Statement (FAS) 106

states that any benefits (excluding pensions)

provided after retirement, cannot be funded on a