Chat with us, powered by LiveChat Case 13-1: It Is Not Just About the Bling Anymore: Benefits and Perks”The Competitive Edge in Employee Recruitment. Case 13 - School Writers

Case 13-1: It Is Not Just About the Bling Anymore: Benefits and Perks”The Competitive Edge in Employee Recruitment. Case 13

 

elect one of the following case studies (located in your textbook): 

  • Case 13-1: It Is Not Just About the Bling Anymore: Benefits and Perks—The Competitive Edge in Employee Recruitment.
  • Case 13-2: Google Searches SAS for the Business Solution to How to Create an Award-Winning Culture.

Then complete the following: 

  • Add your opinion about the choices and decisions being made—if this was your company, would you make this choice? 
  • What would you do differently?

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Employee Benefits

Chapter 13

Lussier, Human Resources Management 3e. © SAGE Publications, 2019.

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Overview of Benefits Management

Benefits are indirect compensation of value to employees.

Some are mandatory due to federal and state statutes. Others are optional based on desires of firm.

According to the U.S. Bureau of Labor Statistics, benefits average roughly 30% of total employee compensation cost.

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Benefits are indirect compensation that provide something of value to the employee.  

Some are mandatory, due to federal and state statutes, and some are optional, based on the desires of the firm. 

 According to the U.S. Bureau of Labor Statistics, benefits average roughly 30 percent of total employee compensation cost. 

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Strategic Value of Benefits Programs

Because people demand more and better benefits to match how they live, companies add new benefits.

Requires HR to spend time monitoring benefits’ cost and value.

Benefits provide incentives to employees to continue working for firm because they are cared for.

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Because people demand more and better benefits to match how they live, companies add new benefits. 

This requires HR to spend more time monitoring benefits’ cost and value.  

But benefits also provide incentives to employees to continue working for the firm because they are being cared for by the company. 

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Why Benefits Grow as a Portion of Overall Compensation

Tax advantages–many benefits are deductible expenses.

Statutory requirements–unemployment insurance, worker’s compensation insurance, and FMLA are government mandated employer expenses.

Influence of organized labor–collective bargaining efforts of unions have brought attention to appeal of employee benefits.

Buying in bulk–spreads cost and allows companies to negotiate better rates.

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Why are benefits continuing to grow as a portion of overall compensation?

Growth in the cost of providing employee benefits has occurred for a number of reasons. Let’s take a quick look at some of the biggest reasons for growth in benefits programs in the United States and worldwide.

Tax advantages. One reason benefits are growing is that there are federal and sometimes state tax advantages for companies that provide them. If the company provides its employees with a benefit, the firm can write off all or part of the cost of providing the benefit. Sometimes the company can get benefits pretax for employees as well. As an example, most health insurance premiums are tax deductible for employers and are not taxable as income (pretax) for employees. So providing some benefits can reduce the tax burden on both the company and the individual. Take a look at the table on benefits taxation that is reproduced from IRS Publication 15B in Exhibit 13-1.

Statutory requirements. Federal–and increasingly, state and local–laws require companies to provide certain benefits. A number of states have now made sick leave, other paid time off, retirement, healthcare and other benefits mandatory for most or all private corporate employers in addition to the minimum wage increases we noted in Chapter 11. In 1935, Social Security laws were passed that required companies to provide employees with old-age, survivor, and disability benefits. Over the ensuing years, Congress has added other mandatory benefits such as unemployment, workers’ compensation, family and medical leave, and the Affordable Care Act or ACA (we will discuss each of these shortly). Each time Congress or the states require employers to provide a new benefit, the cost to employers for providing benefits goes up.

Influence of organized labor. We talked about the National Labor Relations Act in Chapter 9 and noted then that the act allows employees to “bargain collectively” with their employers. This is another reason that benefit costs have grown for companies over the years. A large part of collective bargaining is usually focused on employee benefits (for a variety of reasons), and once union members gain such benefits, employees in other competing companies use this as leverage to have the same benefits added to their workplace, even if the company is not unionized. Unions also use the tax-favored status of many benefits to make them more palatable to the company during negotiations, and organizations may prefer benefits concessions to wage concessions because of the tax advantages. So unions have had a significant effect on the cost and variety of benefits.

Buying in bulk. Virtually everyone now knows that if you buy things in larger quantities, you get them cheaper (think Sam’s Club or Costco). Buying benefits in bulk works the same way. If companies buy benefits in bulk for employees, it is cheaper than if the employee buys the same benefits individually.

As you can see, there are a variety of reasons why the costs of benefits have grown in the last 80 years. And once a benefit becomes part of the employee’s compensation package, it is very hard to delete that benefit in the future. We consider them an entitlement (Chapter 12)–we feel that the company owes us this benefit. So the cost of providing benefits almost never goes down; it just keeps going up. However, some companies, especially companies with fewer than 50 employees, have decided to drop health care benefits for their employees as a result of the detailed requirements in the ACA. An EBRI study noted that “many small employers may have decided that the increasing costs and risks associated with offering health coverage were no longer justified”.

Santora, J. C. (2010). The psychology of defined-benefits pensions: When do they affect employee behavior. Academy of Management Perspectives, 24, 85–86.

Miller, S. (August 4, 2016). “Small businesses are dropping health coverage; Large employers hold steady. SHRM, https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/small-business-health-coverage.aspx , retrieved July 26, 2017.

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Considerations in Providing Benefits Programs

Amounts

Affordability to the firm.

Mix

Various mixes include retirement benefit, health insurance, life and disability insurance, dental care, public transportation vouchers, and so on.

Flexibility

Allows employees to choose one type of benefit over another.

87% of respondents in a recent survey emphasized flexibility as a key component for benefits.

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Statutory Benefits

Social security

Old age, survivors, and disability insurance (OASDI) programs.

Retirement

Disability and survivor benefits

Medicare

National healthcare program for elderly or disabled.

Workers’ compensation

Provides medical treatment and temporary payments to employees who are injured on job or become ill because of job.

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Statutory benefits are benefits that are required by law. A number of benefits are required by federal laws in the United States and in many other countries. There are also laws that apply if the company chooses certain optional, or nonmandatory, benefits in certain cases. Always remember that laws vary in every state and every country, so check to make sure you know all of the requirements based on where your organization is based. The first of our statutory benefits in the US is Old Age, Survivors and Disability Insurance.

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Full Social Security Retirement Age

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Affordable Care Act

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Affordable Care Act

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Lussier, Human Resources Management 3e. © SAGE Publications, 2019.

Statutory Benefits

Unemployment Insurance–federal program managed by states. Provides payments for a fixed period to employees who lost their jobs through no fault of their own.

Family and Medical Leave Act of 1993 (FMLA)–unpaid leave employers must provide to eligible employees when they or immediate family members have medical issues. In 2007, SHRM found 63% of employers reported abuse of intermittent FMLA leave by employees.

Patient Protection and Affordable Care Act of 2010 (PPACA)– requires employers with more than 50 employees to provide health insurance or face significant penalties levied by federal government.

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Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

Requires employers to offer temporary health insurance to individuals who leave their employment for at least 18 months and up to 36 months.

Cost of insurance is full rate (employer and employee contributions) plus a 2% administrative fee.

Insurance protection remains without interruption, which is important for employees undergoing medical treatment for pre-existing conditions.

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Lussier, Human Resources Management 3e. © SAGE Publications, 2019.

Health Insurance Portability and Accountability Act of 1996 (HIPAA)

If an employee had group health insurance at a previous job and if new employer has health care coverage, the firm is required to provide opportunity to participate in their health insurance plan.

Portability of this benefit is advantageous to people who are undergoing treatment for pre-existing conditions.

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Employee Retirement Income Security Act of 1974 (ERISA)

Major provisions:

Eligibility–available to employees over 21 who have worked in firm for one year.

Vesting–maximum time a firm can retain company contributions to employee’s account.

Portability–allows employees to move funds from employer to another qualified fund.

Fiduciaries–must act under the “prudent man” or Reasonable Person Theory.

PBGC–Pension Benefit Guarantee Corporation ensures retirement funds against failure.

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Vesting. A second major provision of ERISA is the vesting rules. Vesting provides for a maximum amount of time beyond which the employee will have unfettered access to their retirement funds, both employee contributions and employer contributions. Most retirement plans today take in contributions from both the employer and the employee.

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Voluntary Benefits

Paid Time Off or PTO–average cost of is approximately US$1 for every $10 in direct wages.

Vacation or Annual Leave–average vacation time in 2007 was 15 days.

Sick Leave–approximately three of four employers provide sick leave to employees.

Holiday Pay–most companies observe ten federally mandated holidays along with some “floating” holidays.

Paid Personal Leave–two of five companies provide paid personal leave in addition to vacation and sick leave.

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Voluntary Benefits–Group Health Insurance

Traditional health care plans typically cover a set percent of fees for medical services.

Health maintenance organization (HMO)–managed care that provides health maintenance services and medical care.

Preferred provider organization (PPO)–hybrid between traditional fee-for-service plans and HMOs.

Health or medical savings accounts (HSA/MSA)–allow employers and employees to fund medical savings accounts with which employees can pay medical expenses with pretax dollars.

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Utilization Analysis

Review of program cost and comparison of costs with rate of program’s usage by members of company.

Benefit categories are evaluated to determine if program is providing a valuable benefit that employees are utilizing or if same benefit dollars could be allocated elsewhere to yield greater utilization of resources.

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Retirement Benefits: Defined Benefit Plan

Not mandatory, but if provided, firm must comply with ERISA provisions.

Employer-provided benefit plans are available to 74% of full-time workers and 39% of part-time workers in private industry.

Defined benefit plan provides retiree with a specific amount and type of benefit that will be available when employee retires.

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Lussier, Human Resources Management 3e. © SAGE Publications, 2019.

According the Bureau of Labor Statistics, employer-provided retirement plans are available to 77% of all full-time workers and 38% of part-time workers in private industry. They are not mandatory, but if we provide them we have to comply with ERISA. Employees say that retirement benefits are very important for feeling of loyalty–retention. As with health insurance, companies provide retirement benefits to motivate employees. However, as discussed in Chapter 12, employees may view them as simply an entitlement. Retirement benefits are categorized into two types. Let’s discuss both followed by five options for defined contribution plans.

https://www.bls.gov/news.release/pdf/ebs2.pdf (retrieved July 29, 2017).

ADP Research reported in Forbes (November 23, 2015): 102-103.

C. Santora, “The Psychology of Defined-Benefits Pensions: When Do They Affect Employee Behavior,” Academy of Management Perspectives (2010), 24(2), pp. 85–86.

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Retirement Benefits: Defined Contribution Plan

Defined contribution plan identifies only amount of funds that go into a retirement account, not what employee will receive upon retirement.

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Lussier, Human Resources Management 3e. © SAGE Publications, 2019.

Defined benefit versus defined contribution plans. A defined benefit plan provides the retiree with a specific amount and type of benefits that will be available when the individual retires. The retiree knows exactly what they are going to receive in benefits when they retire. Defined contribution plan. Unlike with a defined benefit plan, under a defined contribution plan the employee does not know what their retirement benefit will be. Defined contribution plans identify only the amount of funds that will go into a retirement account, not what the employee will receive upon retirement. The employee only knows what their contribution to the retirement fund consists of

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401k and 403b Plans

401k retirement plan–savings investment account for individual employees of corporations.

403b retirement plan–similar but used for nonprofits.

In 2017, employees under 50 years old were permitted to contribute up to US$18,000 in pre-tax dollars. Typically, employers provide matching contributions in amount of 1–5%.

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Lussier, Human Resources Management 3e. © SAGE Publications, 2019.

Retirement Benefits

Matching contributions–many employers that offer a 401k or 403b provide matching contributions up to a set maximum.

IRAs and Roth IRAs–taxpayers can make tax-free contributions to an IRA (subject to maximum annual income limit). These contributions reduce taxable income by full amount of contribution in year in which they are placed in account.

Simplified employee pension (SEP) plans–for self-employed individuals and members of small companies.

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Employee Insurance Coverage

Life insurance

Disability insurance–short-term and/or long-term protection

Life and health insurance

Employer-sponsored automobile insurance, homeowners and renters insurance, identity theft, and pet insurance

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Employee Benefits

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Employee Benefits

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Lussier, Human Resources Management 3e. © SAGE Publications, 2019.

Administration of Benefits

Flexible benefit (cafeteria) plans–employees choose from multiple options.

Modular plans–employees choose benefits from modules, each with a different mix of insurance, employee services, and retirement options. These plans are easiest for HR to manage.

Core plus plans–core benefits available to all. Employees choose from remaining benefits.

Full choice plans–complete flexibility for employees.

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Lussier, Human Resources Management 3e. © SAGE Publications, 2019.

Communicate Value to Employees

To understand true cost and value of benefits employees receive from firm.

To provide information through multiple communication channels more often than once a year during open enrollment.

To consider mail, search bases and email reminders, and/or social media, depending on demographics of firm.

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