HRM Ch. 13
Terms in this set (38)
Medical insurance, retirement plans, paid time off, profit sharing, wellness programs, professional development.
Characteristics of benefits
- Affects employee attitudes
- Focuses on health and wellness
- Reflects company's willingness to invest in HR
- Should support mission, vision, and values of the firm
- Alleviates concerns about what happens if they are injured or ill
Benefits are unique because
- More regulation than direct pay
- Almost obligatory for employers to provide
- Complex for employees to understand
- Employees may not even be aware of benefits available to them
Reasons of Benefits Growth
1. The Social Security Act
2. Wage and price controls from World War II
3. Tax treatment of benefits programs
4. Marginal tax rate: the % of additional earnings that goes to taxes
5. No employer taxes on most employee benefits
6. Cost advantage that groups vs. individuals
7. Growth of organized labor during the 1930s-1950s
8. Differentiating employers in the eyes of current or prospective employees
- Social Security
- Unemployment Insurance
- Workers Compensation
- The Patient Protection and ACA
Social Insurance (Legally Required). Considered a benefit.
Social Security Act established to provide for Unemployment Insurance and Old Age Insurance
- Survivor's insurance
- Disability insurance
- Hospital insurance (Medicare Part A)
- Supplementary medical insurance (Medicare Part B) for the elderly
Social Security Retirement
Begins at age 65 years and 6 months (full benefits) or age 62 (reduced benefits). May be free from state and federal taxes. Paid for with payroll tax.
Objectives of Unemployment Insurance
- Offsets lost income during involuntary unemployment
- Helps unemployed workers find new jobs
- Incentivizes employers to stabilize employment
- Preserves investments in worker skills by providing income during short-term layoffs
1. How is it financed?
2. What does the size of the tax depend on?
3. What must they have/be/not have been?
4. How much do benefits usually cover?
5. How long is it usually paid?
- Financed through taxes on employers
- Size of tax depends on the employer's experience rating
- Must have a prior attachment to the workforce
- Must be available for work
- Must be actively seeking work (registering at the local unemployment office)
- Were not discharged for cause, did not quit voluntarily, and are not out of work because of a labor dispute
- Benefits vary but usually cover 50% of earnings
- Usually paid for 26-39 weeks
Covers job-related injuries and death, employers immune from lawsuits, OSHA rules apply.
Employee does not need to show that the employer was grossly negligent in order to receive compensation.
Four Main Benefits from Workers Compensation
- Disability Income: typically 2/3 of tax free earnings
- Medical Care
- Death benefits
- Rehabilitative services
Why are Private Groups (Medical Insurance) usually lower than individual rates?
Because of economies of scale, ability to pool risks, and greater bargaining power of group.
Consolidated Omnibus Budget Reconciliation Act (COBRA)
Permits employees to extend their health insurance coverage at group rates for up to 36 months following a "qualifying event" such as termination (except for gross misconduct), a reduction in hours that leads to the loss of health insurance, death, etc.
Short-term (for 6 months or less) and long-term.
True or False: Employers are not legally required to offer retirement plans
Guarantees a specified retirement benefit level to employees based typically on a combination of years of service, age, and employee's earnings level. Protected by two employment laws: Pension Benefit Guaranty Corporation (PBGC) and Employee Retirement Income Security Act (ERISA).
Individual account set up for each employee with a guaranteed size of contribution. Shift investment risk to employees.
Money Purchase Plan and examples
Employer specifies a level of annual contribution (such as 10% of salary). At retirement age, the employee is entitled to the contributions plus the investment returns. Ex. Profit- sharing plans, ESOPs, 401(k) plans, Pension Protection Act (PPA).
Cash Balance Plans
A retirement plan in which the employer sets up an individual account for each employee and contributes a % of the employee's salary; the account earns interests at a predetermined rate. All contributions come from the employer. Rate guaranteed in a defined benefit plan. Within 90 days after entering a summary plan description, employees must receive a description of the plan's funding, eligibility requirements, risks, etc.
When someone has worked a specified minimum number of years, ERISA guarantees that they ear a right to a pension from their plan upon retirement.
Pay for Time not Worked
Includes paid vacation, holidays, sick leave. No legal minimum in the U.S., but 20 days in Europe.
Family Friendly Policies
Balance work and family life.
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. Child care support including on-site or near-site provision of child care, paid in part or in full by company.
The Five Most Highly Ranked Benefits Objectives for Employees
1. Increase employee
4. Attract employees
5. Help employees make better financial decisions
Most expensive benefit
Medical and other insurance.
Cost and growth trajectory of a legally required benefit category.
U.S. spends the most on health care in the world, most through employers. Employers can shift costs to employees through deductibles, coinsurance, exclusions and limitations, and maximum benefits.
Employee Wellness Programs
Focus on changing behaviors both on and off work time that could eventually lead to future health problems. Preventive in nature. Ex. gym membership.
Ongoing challenge with health care costs and quality
Controlling rising costs.
Small group of employees responsible for generating most of health costs.
Staffing Responses to Control Benefits Cost Growth
- Reduce benefit-cost/hour by having employees work more
- Classify employees as exempt
- Temporary workers
- Independent contractors
- Nature of the Workforce: Demographic factors impact benefits desired
Communicating With Employees and Maximizing Benefits Value
- Employees and job applicants underestimate value of their benefits
- Organizations spend little time communicating about benefits and costs
- Provide written information
- Online tools: benefits webpage easy to navigate
Flexible Benefits Plans
Permit employees to choose their types and amounts of benefits
- They can gain a greater awareness and appreciation
- Should be a better match
- Overall cost reductions in benefits programs
- May have high administrative costs.
Flexible Spending Accounts
Permits pretax contributions of up to $2,600 to an employee account that can be drawn on to pay for uncovered health care expenses.
Affordable Care Act
Doesn't require employers to provide health benefits but does impose penalties on larger employers that don't provide insurance or coverage that is unaffordable. Increases the Medicare Hospital Insurance payroll tax on earnings for higher-income taxpayers. Dependent coverage until age 26.
General Regulatory Issues
- Sex, Age, and Disability: The Supreme Court declared it illegal for employers to require women to contribute more to a defined benefit plan than men
- Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act
- Americans with Disabilities Act
Financial Accounting Statement (FAS) 106
Requires companies to fund retirement benefits on an accrual rather than a pay-as-you-go basis and enter these future costs on their financial statements.