Chapter 13: Providing Benefits and Services Jackson and Schuler © 2003 South-Western College Publishing. All rights reserved. Eighth edition.

Chapter 13:Chapter 13:

Providing Benefits and ServicesProviding Benefits and Services

Jackson and SchulerJackson and Schuler

© 2003 South-Western College Publishing. All rights reserved.

Eighth editionEighth edition

Managing Human Managing Human ResourcesResources

© 2003 South-Western College Publishing. All rights reserved. 13–2

Chapter OutlineChapter OutlineChapter OutlineChapter Outline

Employee Benefits and Services Within an Integrated Employee Benefits and Services Within an Integrated HR SystemHR System

The Strategic Importance of Employee Benefits & The Strategic Importance of Employee Benefits & ServicesServices

Public Protection ProgramsPublic Protection Programs Private Protection ProgramsPrivate Protection Programs Health Care Benefits & ServicesHealth Care Benefits & Services Paid LeavePaid Leave Work-Life BalanceWork-Life Balance Other Benefits & ServicesOther Benefits & Services Administrative IssuesAdministrative Issues


TerminologyTerminologyTerminologyTerminology

Benefits and ServicesBenefits and Services In-kind payments to employeesIn-kind payments to employees For membership or participation in the For membership or participation in the

organizationorganization

Public Protection ProgramsPublic Protection Programs Legally requiredLegally required Social Security, unemployment, workers’ Social Security, unemployment, workers’

compensationcompensation

Private Protection ProgramsPrivate Protection Programs Voluntary for employersVoluntary for employers Health care, life insurance, disability, retirementHealth care, life insurance, disability, retirement


Benefits and Services within Benefits and Services within an Integrated HR Systeman Integrated HR System

Benefits and Services within Benefits and Services within an Integrated HR Systeman Integrated HR System

Other HR Activities• Fairness/Legal• Recruitment• Compensation• Safety/Health

Global Environment

OrganizationalEnvironment

Objectives for Total Compensation• Communicate Values• Support Objectives• Attract, Retain• Motivate• Contain Costs

Total CompensationMonetary….Nonmonetary

Provide Mandatory Benefits & Services• Social Security• Unemployment/Wkrs Comp

Provide Voluntary Benefits and Services• Retirement, Medical• Paid Leave, Life Cycle

Communicate and Administer

Monitor Health and Safety


External Influences External Influences External Influences External Influences

EmployeeEmployeeBenefitsBenefits


Wage controlsWage controlsWage controlsWage controls

Health care costsHealth care costsHealth care costsHealth care costs

Union bargainingUnion bargainingUnion bargainingUnion bargaining

Federal tax policiesFederal tax policiesFederal tax policiesFederal tax policies

InflationInflationInflationInflation

CompetitionCompetitionCompetitionCompetition

Social legislationSocial legislationSocial legislationSocial legislation

Expansion of social securityExpansion of social securityExpansion of social securityExpansion of social security


Internal InfluencesInternal InfluencesInternal InfluencesInternal Influences

Human Human resourceresource

philosophyphilosophy

Human Human resourceresource

philosophyphilosophy

Business Business strategystrategy

and and objectivesobjectives

Business Business strategystrategy

and and objectivesobjectives

Employee wantsEmployee wantsEmployee wantsEmployee wants




Average Annual Monetary BenefitsAverage Annual Monetary Benefitsand Earningsand Earnings

Average Annual Monetary BenefitsAverage Annual Monetary Benefitsand Earningsand Earnings

68%

14%

9%

7% 2%

Pay for TimeWorked

Private Pensions,Insurance

Paid Vacationsand Rest Periods

Legally RequiredPayments

Other


Percentage of Who Rank Each BenefitPercentage of Who Rank Each BenefitMost ImportantMost Important

Percentage of Who Rank Each BenefitPercentage of Who Rank Each BenefitMost ImportantMost Important

0 10 20 30 40 50 60 70

Health Insurance

Retirement Savings

Pension

Life Insurance

Long-term care

Disability

Stock Options


The Strategic Importance of The Strategic Importance of Benefits and ServicesBenefits and Services

The Strategic Importance of The Strategic Importance of Benefits and ServicesBenefits and Services

Benefits and Services May:Benefits and Services May: Attract good employeesAttract good employees Increase employee moraleIncrease employee morale Reduce turnoverReduce turnover Increase job satisfactionIncrease job satisfaction Enhance the organization’s Enhance the organization’s

imageimage


Benefits, Services and Business Benefits, Services and Business StrategyStrategy

Benefits, Services and Business Benefits, Services and Business StrategyStrategy

Are generally not considered motivatorsAre generally not considered motivators Benefits and services are not contingent on Benefits and services are not contingent on

performanceperformance Innovative packages may attract and retain Innovative packages may attract and retain

employeesemployees

Communication is importantCommunication is important Many employees don’t know the worth of Many employees don’t know the worth of

benefits they receivebenefits they receive Employees may view benefits as entitlementEmployees may view benefits as entitlement Employees differ on the relative value they Employees differ on the relative value they

place on particular benefit place on particular benefit


Business Objectives Addressed by Business Objectives Addressed by Benefits and ServicesBenefits and Services

Business Objectives Addressed by Business Objectives Addressed by Benefits and ServicesBenefits and Services

Objective: To unify a company acquired from Objective: To unify a company acquired from a mergera merger Benefits Response: Analyze immediate Benefits Response: Analyze immediate

versus gradual transfer of subsidiary versus gradual transfer of subsidiary employees into corporate benefits plan.employees into corporate benefits plan.

Objective: To cut accident rates 10% by year Objective: To cut accident rates 10% by year endend Benefits Response: Establish employee Benefits Response: Establish employee

assistance program. Set up literacy training assistance program. Set up literacy training to ensure employees can read safety signs.to ensure employees can read safety signs.


Benefits CostsBenefits CostsBenefits CostsBenefits Costs

In 1929, total benefits In 1929, total benefits averaged 5% of total averaged 5% of total pay, in 2000: 30% of pay, in 2000: 30% of

Wages and salaries are Wages and salaries are 40 times greater than 60 40 times greater than 60 years agoyears ago

Benefits and services Benefits and services are 500 times greaterare 500 times greater


Public Protection ProgramsPublic Protection ProgramsPublic Protection ProgramsPublic Protection Programs

Social security systemSocial security system Unemployment Unemployment

compensation benefitscompensation benefits Workers’ compensation Workers’ compensation

and disabilityand disability


Social SecuritySocial SecuritySocial SecuritySocial Security

Social Security Act of 1935; Medicare was Social Security Act of 1935; Medicare was added in 1966added in 1966

Federal Insurance Contributions Act (FICA)Federal Insurance Contributions Act (FICA) 6.2% of the first $68,400 income for 6.2% of the first $68,400 income for

retirement and disabilityretirement and disability 1.45% of total income for hospital insurance 1.45% of total income for hospital insurance

(Medicare)(Medicare) Equal contributions from the employer and Equal contributions from the employer and

the employeethe employee


Unemployment CompensationUnemployment CompensationUnemployment CompensationUnemployment Compensation

Jointly administered by Federal and State Jointly administered by Federal and State governmentsgovernments

Tax rates for employers vary based on Tax rates for employers vary based on number of people using benefitsnumber of people using benefits

Level of benefits ranges Level of benefits ranges 50-70% of base salary50-70% of base salary


Workers’ CompensationWorkers’ CompensationWorkers’ CompensationWorkers’ Compensation

Covers costs and lost income due to injury or Covers costs and lost income due to injury or illness that result from on-the-job eventsillness that result from on-the-job events

Administered by statesAdministered by states Fully financed by employersFully financed by employers Managing workers’ compensation costs:Managing workers’ compensation costs:

Use health care cost-containment strategies Use health care cost-containment strategies (audit bills, develop preferred providers, (audit bills, develop preferred providers, etc.)etc.)

Implement job safety programsImplement job safety programs Combine with disability managementCombine with disability management


Relevant LawsRelevant LawsRelevant LawsRelevant Laws

Pregnancy Discrimination Act of 1978Pregnancy Discrimination Act of 1978 Pregnancy is defined as a disability.Pregnancy is defined as a disability. Female employees (and spouses) Female employees (and spouses)

must receive same benefits for must receive same benefits for pregnancy as for other disabilities.pregnancy as for other disabilities.


Family and Medical Leave Act of Family and Medical Leave Act of 19931993

Family and Medical Leave Act of Family and Medical Leave Act of 19931993

Covers employers with 50 or more workersCovers employers with 50 or more workers Required to grant up to 12 weeks of unpaid Required to grant up to 12 weeks of unpaid

leave annually leave annually For birth/adoptionFor birth/adoption To care for immediate family member with To care for immediate family member with

serious health conditionserious health condition For employee with serious health conditionFor employee with serious health condition

Employee keeps preexisting health coverage Employee keeps preexisting health coverage and must be allowed to return to same or and must be allowed to return to same or equivalent jobequivalent job


Relevant Laws (cont’d)Relevant Laws (cont’d)Relevant Laws (cont’d)Relevant Laws (cont’d)

Economic Recovery Tax Act of 1981Economic Recovery Tax Act of 1981 Employees allowed to make tax deductible Employees allowed to make tax deductible

contributions to employer-sponsored plan or contributions to employer-sponsored plan or individual retirement account (IRA)individual retirement account (IRA)

Encouraged employee stock ownershipEncouraged employee stock ownership

Health Insurance Portability and Health Insurance Portability and Accountability Act of 1996Accountability Act of 1996 Facilitates employees’ transfer of Facilitates employees’ transfer of

coverage when they change jobscoverage when they change jobs


Economic Growth and Tax Relief Economic Growth and Tax Relief Reconciliation Act of 2001Reconciliation Act of 2001

Economic Growth and Tax Relief Economic Growth and Tax Relief Reconciliation Act of 2001Reconciliation Act of 2001

Raises contribution limits for IRAs and employer-Raises contribution limits for IRAs and employer-sponsored retirement planssponsored retirement plans

Reduces (to 3 yrs) length of service before employer Reduces (to 3 yrs) length of service before employer contributions to retirement programs must be contributions to retirement programs must be availableavailable

Shortens pension vesting waiting periodsShortens pension vesting waiting periods Eliminates federal taxes on Eliminates federal taxes on

withdrawals from college withdrawals from college savings planssavings plans


Private Protection ProgramsPrivate Protection ProgramsPrivate Protection ProgramsPrivate Protection Programs

Are not required by lawAre not required by law IncludeInclude

Retirement income plansRetirement income plans Capital accumulation plansCapital accumulation plans Savings and thrift plansSavings and thrift plans Supplemental unemploymentSupplemental unemployment Guaranteed payGuaranteed pay


Pension PlansPension PlansPension PlansPension Plans

Qualified Plan: Qualified Plan: Covers broad class of employeesCovers broad class of employees Receives favorable tax treatmentReceives favorable tax treatment

ERISA (Employee Retirement Income Security ERISA (Employee Retirement Income Security Act of 1974)Act of 1974) Protects benefits for workers covered by Protects benefits for workers covered by

private pension plans; prohibits unfunded private pension plans; prohibits unfunded plansplans

Specifies provisions for vesting (time when Specifies provisions for vesting (time when employer’s contribution belongs to employee)employer’s contribution belongs to employee)


Types of Pension Plans Types of Pension Plans Types of Pension Plans Types of Pension Plans

Defined Benefit PlanDefined Benefit Plan Benefits vary with age and length of serviceBenefits vary with age and length of service Provides predictable income after retirementProvides predictable income after retirement Penalizes employee mobilityPenalizes employee mobility Regulated by ERISARegulated by ERISA

Cash Balance PlanCash Balance Plan Pays a lump sum upon employees’ Pays a lump sum upon employees’

departuredeparture Has become more popular as Has become more popular as

employee mobility has increased employee mobility has increased


Types of Pension Plans (cont’d)Types of Pension Plans (cont’d)Types of Pension Plans (cont’d)Types of Pension Plans (cont’d)

Defined Contribution PlansDefined Contribution Plans Each employee has separate accountEach employee has separate account Employer may contribute (contributory) or Employer may contribute (contributory) or

not (noncontributory)not (noncontributory) Money purchase plansMoney purchase plans

• Employer makes regular contributionsEmployer makes regular contributions Tax-deferred profit-sharing plansTax-deferred profit-sharing plans

• Employees share profits and Employees share profits and investment risk investment risk


Supplemental PlansSupplemental PlansSupplemental PlansSupplemental Plans

401K Plans401K Plans Employer and employee contribute to fundEmployer and employee contribute to fund Employee makes investment decisionsEmployee makes investment decisions

Employee stock and stock option plansEmployee stock and stock option plans Recent trend is to offer to all employeesRecent trend is to offer to all employees


Health Care Benefits and ServicesHealth Care Benefits and ServicesHealth Care Benefits and ServicesHealth Care Benefits and Services

Medical CoverageMedical Coverage Wellness ProgramsWellness Programs Employee Assistance ProgramsEmployee Assistance Programs Disability InsuranceDisability Insurance


Medical Care Medical Care Medical Care Medical Care

Most employees underestimate cost and view Most employees underestimate cost and view medical care as an entitlementmedical care as an entitlement

Companies that provide health insurance Companies that provide health insurance spend more than 13 cents of every dollar they spend more than 13 cents of every dollar they make to pay for coverage.make to pay for coverage.


Medical Care ApproachesMedical Care ApproachesMedical Care ApproachesMedical Care Approaches

Insurance CompaniesInsurance Companies Provider OrganizationsProvider Organizations Health Maintenance Organizations (HMOs)Health Maintenance Organizations (HMOs) Preferred Provider NetworksPreferred Provider Networks Self-Funded PlansSelf-Funded Plans


Medical Cost Containment Medical Cost Containment StrategiesStrategies

Medical Cost Containment Medical Cost Containment StrategiesStrategies

Hospital utilization Hospital utilization programsprograms

Coordination of benefitsCoordination of benefits Data analysisData analysis Case managementCase management Cost sharing with Cost sharing with

employeesemployees Incentives to promote Incentives to promote

employee healthemployee health


Wellness ProgramsWellness ProgramsWellness ProgramsWellness Programs

Proactive programs to prevent health Proactive programs to prevent health problemsproblems

May include:May include: On-site exercise programsOn-site exercise programs Stress-management trainingStress-management training Assistance to stop smokingAssistance to stop smoking Weight-loss programsWeight-loss programs


Employee Assistance ProgramsEmployee Assistance ProgramsEmployee Assistance ProgramsEmployee Assistance Programs

Assist employees with chronic personal Assist employees with chronic personal problems that hinder job performance and problems that hinder job performance and attendanceattendance

Employees referred to confidential counseling Employees referred to confidential counseling servicesservices

Includes help with alcohol and drug Includes help with alcohol and drug dependencies, domestic problems, mental dependencies, domestic problems, mental disorders, financial problemsdisorders, financial problems


Paid LeavePaid LeavePaid LeavePaid Leave

Off the job:Off the job: Vacations and holidaysVacations and holidays Paid absencesPaid absences

On the jobOn the job Lunches, rest periodsLunches, rest periods


Managing AbsenteeismManaging AbsenteeismManaging AbsenteeismManaging Absenteeism

In U.S., average daily absenteeism rate 2-3% In U.S., average daily absenteeism rate 2-3% of payroll.of payroll.

Programs that reward attendance may be Programs that reward attendance may be more effective than disciplinary approaches.more effective than disciplinary approaches.

Personal Time Off (PTO) benefits may Personal Time Off (PTO) benefits may prevent unscheduled absenteeism.prevent unscheduled absenteeism.


Work-Life BalanceWork-Life BalanceWork-Life BalanceWork-Life Balance

Child Care ServicesChild Care Services Dependent care reimbursement accountsDependent care reimbursement accounts Resource and referral programsResource and referral programs On-site care facilitiesOn-site care facilities Flexible schedulingFlexible scheduling

Backlash from child-free Backlash from child-free workers tends to be workers tends to be limited in scopelimited in scope


Work-Life BalanceWork-Life BalanceWork-Life BalanceWork-Life Balance

Elder Care ServicesElder Care Services Information and referral programsInformation and referral programs Long-term care insuranceLong-term care insurance

28% of employees over 30 spend an average of 10 hours a week giving careto an older relative


Work-Life Balance (cont’d)Work-Life Balance (cont’d)Work-Life Balance (cont’d)Work-Life Balance (cont’d)

Other Life Cycle and Life Style BenefitsOther Life Cycle and Life Style Benefits Benefits for spousal equivalentsBenefits for spousal equivalents Educational expense allowancesEducational expense allowances Relocation and housing assistanceRelocation and housing assistance


Administrative IssuesAdministrative IssuesAdministrative IssuesAdministrative Issues

DeterminingDeterminingthe benefitsthe benefits

packagepackage

DeterminingDeterminingthe benefitsthe benefits

packagepackage

ProvidingProvidingbenefitsbenefitsflexibilityflexibility

ProvidingProvidingbenefitsbenefitsflexibilityflexibility

CommunicatingCommunicatingthe benefitsthe benefits

packagepackage

CommunicatingCommunicatingthe benefitsthe benefits

packagepackage

ManagingManaging& reducing& reducing

benefitsbenefitscostscosts

ManagingManaging& reducing& reducing

benefitsbenefitscostscosts


Determining the Benefits and Determining the Benefits and Services PackageServices Package

Determining the Benefits and Determining the Benefits and Services PackageServices Package

Employee preferences vary considerably and Employee preferences vary considerably and are difficult to predict, based on demographic are difficult to predict, based on demographic characteristics.characteristics.

Corporate size, ability to pay, strategy and Corporate size, ability to pay, strategy and culture affect benefits decisions.culture affect benefits decisions.

Flexible plans, which allow employee choice Flexible plans, which allow employee choice of benefits, are very effective.of benefits, are very effective.


Communicating the Benefits andCommunicating the Benefits and Services Package Services Package

Communicating the Benefits andCommunicating the Benefits and Services Package Services Package

Most companies use Most companies use passive, impersonal passive, impersonal techniquestechniques

New approaches New approaches include:include: Voice response Voice response

systems (call systems (call centers)centers)

Intranet web sitesIntranet web sites

Chapter 13: Providing Benefits and Services Jackson and Schuler © 2003 South-Western College Publishing. All rights reserved. Eighth edition.

Documents

total benefits

worth of benefits

benefits costsin

corporate benefits plan

life insurance

total income

total pay

employershealth care