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Strategic Compensation: A Human Resource Management Approach

Ninth Edition

Chapter 11

Legally Required Benefits

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Origins of Legally Required Benefits (1 of 2)

Established to protect individuals from catastrophic events

Disability

Unemployment

Protection programs to:

Promote worker safety and health

Maintain family income streams

Assist families in crisis

Enable retirees to maintain subsistence income levels

Learning Objective 10.2

Summarize the four main categories of legally required benefits.

Components of Legally Required Benefits

Four Categories of Legally Required Benefits

Social Security Programs

Unemployment insurance

Old Age, Survivor, and Disability Insurance (OASDI)

Medicare

Workers’ Compensation

Family and Medical Leave

Health insurance

Unemployment Insurance

Temporary income for spells of unemployment that result through no fault of the employee

Individuals must meet several criteria to qualify for unemployment benefits. An employee who is terminated for cause (ex. poor performance) does not qualify.

Those applying for unemployment insurance benefits must have been employed for a minimum period of time.

An employee who is terminated as part of a company layoff is eligible

Unemployment Insurance Eligibility

Able and available for work

Actively seeking work

Has not refused suitable work

Must be employed for the last four or five quarters prior to becoming unemployed, known as the base period

Disability Benefits

Worker was fully insured

Eligibility varies according to age and disability. Younger workers need fewer quarters of coverage because they have fewer years to accumulate quarters.

Disability must last one year or be terminal

Average monthly disability benefit was $1,146 in 2015

Medicare

Health insurance coverage for citizens age 65 and older

Provided insurance coverage for:

Hospitalization

Convalescent (getting better) care

Major doctor bills

Prescription drug costs

Medicare: fee-for- service plan

A person may receive coverage under the original Medicare Plan or Medicare Advantage Plan.

The original Medicare plan is a fee-for- service plan that is managed by the federal government. It includes many health care services, medical supplies, and certain prescription drugs.

Participants in fee-for-service plans possess the choice to receive care from virtually any licensed health care provider or facility.

Medicare : Medicare Advantage Plans

It includes a variety of insurance options, including health maintenance organizations, preferred provide organizations, Medicare special needs plans, and Medicare medical saving account plans.

Medicare Advantage Plans are run by private companies subject to strict regulations specified in the Medicare program.

Workers’ Compensation Objectives

Provide income and medical benefits

Reduce lawsuit

Relieve charities’ financial drain

Eliminate legal fees and time

Encourage employer interest in safety

Promote accident study and avoidance

Employers must fund workers’ compensation programs according to state guidelines.

Family and Medical Leave

Family and Medical Leave Act (FMLA)

12 weeks of unpaid leave for:

Birth, adoption, foster care

Serious family medical problems of a spouse, child or parent

Worker’s serious medical problem

Retention (maintaining) of:

Seniority

Health insurance coverage

Credit for previous service

Accrued retirement benefits

Designing and Planning the Benefits Program

HR professionals must address fundamental issues, including:

Who receives coverage

Deciding whether to include retirees in the plan.

Whether to deny benefit to employees during their probationary periods

Financing

Employee choice

Cost containment

Communication

Designing and Planning the Benefits Program

Financing:

Human resource managers must consider how to finance benefits. In fact, the available resources and financial goals may influence, to some extent, who will receive coverage.

Managers may decide among noncontributory, contributory and employee-financed program or some combination.

noncontributory financing: implies that the company assumes total costs for each discretionary (optional) benefit.

Contributory financing: the company and its employees share the costs.

Employee financed benefits: employers do not contribute to the financing of optional benefits.

Designing and Planning the Benefits Program

Employee choice

Human resource professional must decide on the degree of choice employees should have in determining the set of benefits they will receive.

If employees within a company can choose from among a set of benefit , as opposed to all employees receiving the same set of benefits, the company is using a flexible benefit plan or cafeteria plan.

Cost containment

HR managers try to contain costs.

Communication

To create an awareness of and appreciation for the way current benefits improve the financial security and the physical and mental well being of employees.

To provide a high level of understanding about available benefits.

To encourage the wise use of benefits.