12-1

Chapter 12

Employee
Benefits and Services
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Indirect Financial Compensation

All employer-
Most available Not
provided
as long as the dependent on
rewards and
worker is seniority or
services,
employed performance
other than pay

Also called benefits and services

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Indirect Financial Compensation

There is a lack of agreement on…

Responsibility for
What is included Purposes served
programs

Costs and value Units in which Criteria for

of the various costs and values decision making
elements are measured

Decisions about indirect compensation are more complex

than those related to wages and salaries
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Indirect Financial Compensation

Increased Insurers’
legislation insolvency

Global Cost of medical

competition Reasons technologies
behind rising
benefit costs
More women Aging
in workforce workforce
New
immigration
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Why Offer Benefits and Services?

Common reasons…

Labor market demands

To keep a union out

The union won them

To increase employee performance

These reasons don’t explain the degree to

which benefits and services are provided
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Who Makes Decisions About Benefits?

Independent Internal HR
consultants personnel
Decision
makers

Unions Government
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Voluntary Benefits

Break time Jury duty

Most employers offer
compensation for
Holidays time not worked
Lunch

Wash-up
time Sick leave
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International Vacation Benefits

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Family and Medical Leave Act (FMLA)

Passed in 1993
Employers with 50+ employees must provide up to
12 weeks of unpaid leave during any 12-month period

Stipulations
Employee must have been employed for
12 months to be eligible
Employer must continue group health
insurance during the leave
Employee must be allowed to return to
the same (or equivalent) job
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Family and Medical Leave Act (FMLA)

Birth of a child
Qualifying
events Adoption

Placement of foster child

Serious illness, injury, or

mental condition of a
family member
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Family and Medical Leave Act (FMLA)

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Maternity and Parental Leave

 The Pregnancy Discrimination Act of 1978

 Requires that pregnancy be treated as
any other temporary disability
 European leave policies offer lessons
 Limited leave entitlements have a positive
effect on productivity and create few
problems for employers
 Basic coverage should be established by law
 Parental leave should offer financial payment
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Employer-Purchased Insurance

Risks can be Employers can buy insurance more

offset through cheaply than can individuals
insurance Employer-sponsored insurance is a
preferred benefit

Insurance Historically paid in full by employer

premiums
Employees now paying increasing
share of the expense
Major forms of
insurance Health, life, disability
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Health Insurance

A declining number of Only 10% of part-time

companies offer health employees have medical
insurance benefits

In 2006, 47 million Americans had no health insurance

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Health Insurance

Less than 10 years ago, 6% of payroll

went to health care benefits
In 2004, the figure exceeded 19%

Contributing Factors

Sophisticated Malpractice
Increasing health
technology and insurance
care labor costs
costly tests premiums
Over utilization of Belief that health
Oversupply of
fee-for-service coverage is an
hospital beds
medicine entitlement
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Health Insurance

 Health insurance is a preferred benefit

 Most employees get basic coverage
 Salaried employees typically receive
major medical with “last-dollar coverage”
 Unionized workers usually have expanded
coverage with specific benefits
 Types of health care coverage vary from
organization to organization
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Health Insurance

The Health Maintenance Act of 1973

forced businesses to provide
alternative health care plans
Health maintenance Preferred provider
organizations (HMOs) organizations (PPOs)
These and similar plans are
known as managed care
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Health Maintenance Organizations

 Medical specialists offering outpatient and

hospital coverage for a fixed monthly fee
 HMOs promote preventive, healthy
lifestyles
 Increasingly popular with employers
 Some employees resist the plan
 Enrollee may have to leave his/her family
doctor for one who works with the plan
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Preferred Provider Organization

Financial incentive
Select panel of
to use selected
providers
Provides providers
services
for a fixed fee
Some flexibility
Emphasis on
in choice of
cost efficiency
providers
Marketing to
purchasers,
not users
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Preferred Provider Organization

 To compete, PPOs must

 Provide
cost-efficient health care
 Emphasize cost containment

 Cost controls
 Obtain discounts from providers
 Pass some risk to providers
 Control utilization
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Employee Services

Stock Social &

ownership recreation
plan programs

Education Other
Financial
programs employee services
services

Retirement Child &

planning elder care
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Flexible (Cafeteria) Benefits Plan

Escalating benefit costs and diversity have

caused two new benefits to surface

Flexible spending
Flexible (cafeteria)
(reimbursement)
Plan
Accounts

Allows employees to Provides funds from

choose between which employees
multiple types of pay for expenses not
benefits covered by the
regular benefits
package
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Flexible (Cafeteria) Benefits Plan

 Flexible benefits and reimbursement accounts

 Increase employee satisfaction
 Save employers from purchasing coverage that
employees don’t want
 Regardless of employee choices, sufficient
coverage must be provided in key areas
 Health care
 Life insurance
 Disability insurance
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Managing an Effective Benefits Program

Things to consider

Funding

No proof that benefits motivate or increase satisfaction

Employees see benefits/services as entitlements

Unions, competitors, industry trends push managers
to provide or increase voluntary benefits
Costs continue to escalate dramatically
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Managing an Effective Benefits Program

Managing a benefits program effectively

Step 1 Set objectives and strategy

Step 2 Involve participants and union

Step 3 Communicate benefits

Step 4 Monitor costs closely

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Cost-Benefit Analysis

When benefit costs increase, the price

of products and services increases
This makes companies less competitive

Higher benefit cost reduces permanent employment

It’s cheaper to pay overtime or hire part-time
employees than pay full-time wages plus benefits

Evidence shows that benefits do not affect turnover