OL-211-M5-M4

Chapter Introduction

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Learning Outcomes

After studying this chapter, you should be able to

· LO 1Detect cost-effective strategies companies use to develop benefits plans.

· LO 2Identify and explain the employee benefits required by law.

· LO 3Describe the types of work-life benefits that employers may provide.

· LO 4Describe the different types of retirement programs and pension plans and the regulations related to them.

Approximately three in five people report benefits and perks being among their top considerations before accepting a job. Maybe this is why companies like Netflix provide one paid year of maternity and paternity leave to new parents, or why Spotify covers costs for egg freezing and fertility assistance, or why Airbnb gives its employees an annual stipend of $2,000 to travel and stay in an Airbnb listing anywhere in the world. Despite how cool many of these benefits may be, the cost of providing them has been climbing sharply. Due to increased access to employer information through social media and search engines, employees are increasingly aware of the benefits they receive and how they compare to what other companies are offering. Hence, benefits act as a key source of advantage (or disadvantage) for companies.

11.1Elements of a Successful Benefits Program

Benefits can represent more than 50 percent of the total payroll costs an employer pays, depending upon the types of benefits it offers. Some benefits are legally required, whereas others are voluntarily granted by employers. Figure 11.1 shows the proportion of total pay U.S. organizations, on average, pay to their employees in the form of benefits, and a breakdown of how much goes to each.

Apply What You Learned: Figure 11.1 Where a Dollar of Employee Compensation Goes in the United States

Complete the following activity.

Copyright © Cengage Learning. All Rights Reserved.

Benefits are expensive, which is why companies pay close attention to them. Health care costs, which have been growing at double and triple the rate of inflation, are of particular concern. Managers are also concerned about the affordable health care laws proposed by Congress in 2017. We will discuss more about health care reform later in the chapter along with health care cost-containment measures firms are implementing.

Many forces must be kept in balance for a benefits program to succeed. For example, a firm’s managers must consider how to fund its benefits program and sustain it, as well as the tax consequences related to it. The needs of a company’s employees also must be considered because they can differ significantly from firm to firm. If the firm’s industry is unionized, this will affect the types of benefits the firm is likely to have to offer. So will the benefits its competitors are offering and the organization’s strategic objectives. Microsoft, for example, picks up the full tab for medical care for all of its U.S. employees and their dependents, which is unusual. But Microsoft does so because one of its strategic objectives is to attract the top talent in the country. The benefits plan also needs to be compatible with the organization’s strategic compensation plan (see Chapter 9), including its total rewards strategy.

11.1aSelecting Benefits

LO 1

In designing a benefits program, a firm can purchase detailed compensation data or hire outside firms to help in the designing process. Before a new benefit is introduced, its need should first be determined through consultation with employees. Designing benefits programs with employee participation means employees are more satisfied with the final benefits plan. And employees who are satisfied with their benefits are more likely to be satisfied with their jobs. Opinion surveys are also a common method for obtaining employee input. Many organizations establish committees composed of managers and employees to administer, interpret, and oversee their benefits policies. The Leadership and Learning Center in Salem, Massachusetts, a professional development organization, has decreased turnover from 40 percent in the 1990s to the single digits in recent years. The reason? A benefits committee. Twice a year, employees break into committees to administer benefits survey and revise the benefits plan, giving employees much more responsibility and say in their own benefits packages.

Flexible Benefits

To serve their intended purpose, employee benefits programs must adapt to the changes that are continually occurring within our society. As you have learned, three generations of employees now occupy the workplace, and each places a different priority on their benefits. Consequently, firms have to think about designing a benefits strategy that appeals to each group. For example, Millennial employees are probably less likely to be concerned with having pensions than babyboomers. Likewise, Generation X employees who are raising their families are more likely to want family-friendly benefits and health care for their dependents than babyboomers and Millennial employees. There are also more single-parent families and two-earner couples in the workplace than there have been in the decades past. As you can see, benefits programs need to take into account a highly diversified workforce to attract highly capable employees.

To make it easier to accommodate the individual needs of different employees, a wide range of organizations have begun offering  flexible benefits plans , also known as cafeteria plans. Rather than one-size-fits-all plans, these plans allow individual employees to choose the benefits that are best suited to their particular needs. They also prevent certain benefits from being wasted on employees who have no need for them. Furthermore, companies realize they can get a better return on investment by tailoring benefits to an employee’s stage of life or family status. Compensation specialists often see flexible benefits plans as ideal. Employees select the benefits of greatest value to them, while employers manage benefits costs by limiting the dollars employees have to spend.

Typically, employees are offered a basic or core benefits package of life and health insurance, sick leave, and vacation. Requiring a core set of benefits ensures that employees have a minimum level of coverage to protect against unforeseen financial hardships. Employees are then given a certain amount of funds to purchase whatever other benefits they need through the plan. Other benefit options might include prepaid legal services, financial planning, dental insurance, and long-term care insurance. Some of the less-routine options include elder care, public transportation vouchers, and even pet insurance. These are optional, since not every employee will need or want services such as these, so they are optional.

11.1bAdministering Benefits

With the wide variety of benefits offered to employees today, administering an organization’s benefits program can be both costly and time-consuming. Even for small employers with 30 to 40 employees, keeping track of each employee’s use of a benefit or request for a change of benefits can be cumbersome. Fortunately, online employee benefit systems have become mainstream for both large and small employers. Employees are provided with passwords that allow them to get information about their benefits plans, enroll in their plans of choice, change their coverage, or simply inquire about the status of their various benefit accounts without contacting a HR representative. Online benefits systems are often referred to as employee self-service (ESS) systems and can result in significant cost savings in benefits administration, improving accuracy of decisions, decreasing processing time, and greater employee satisfaction. This system is so successful because it gives employees the information and responsibility of personalizing and tracking their own benefits.

As with the benefits themselves, it can be helpful to obtain feedback on different online systems a firm is investigating and adopting by asking employees to “test drive” them. If a system is difficult to navigate, employees will end up calling the human resources department for assistance, defeating the purpose of the system.

11.1cCommunicating Employee Benefits

Communicating the costs of benefits is a key part of an effective benefits strategy. One survey from a research and consulting firm found that 4 of 10 U.S. employees lack any knowledge of the costs of their benefits, and of the 60 percent who think they know the cost of their benefits, only 15 percent could provide a reasonable estimate. But even as employees become more aware of the cost of their benefits, many of them still do not realize exactly what employers are paying or why they try to keep benefits costs down.

Communicating employee benefits information improved significantly with the passage of the Employee Retirement Income Security Act (ERISA) in 1974. The act requires that employees be informed about their pension and certain other benefits in a manner calculated to be understood by the average employee. Additionally, employees can sue their employers for misleading them about health and welfare benefits under ERISA.

In one settlement, Providence Health & Services, a nonprofit hospital chain, paid $352 million to settle a proposed class action accusing the organization of using religious affiliation as church exemption to avoid ERISA requirements of minimum funding and failing to protect employees’ retirement plans. This and other settlements underscore the importance of communicating benefit information accurately and unambiguously.

When communicating employee benefits, the best advice is to use multiple media techniques. Different employee groups have different ways of learning and distinct preferences for how they receive information. Also, the level of complexity of the benefit information being communicated is likely to determine media selection. Because about a third of IKEA’s employees are Millennials, the company was worried if it only mailed out benefit information to these employees, many of them would not bother to open the packages. So in addition to mailing information the company used Twitter to send a weblink to its benefits site and remind employees about the firm’s benefit enrollment deadline. “We wanted to talk to our co-workers in a way they are talking,” says Beth Gleba, corporate information manager for IKEA, North America.

Samsung is a company using its own technology to build employee engagement to help recruit and retain talent. In 2012, Samsung switched to an online, flexible benefits portal called Highlights, but still struggled to get the staff to take advantage of the choices and flexibility of the benefits plan. So to communicate the benefits package of Highlights, Samsung rebranded the package and its communication strategy. Not only was the Highlights interface easier to access and use, but Samsung passed out gifts to the staff like a piggy bank or a pedometer with the Highlights logo to highlight the new wealth and lifestyle benefits categories. They also used online materials, text messages, and physical posters and infographics to get employees to think more seriously about the benefits offered alongside salary. Samsung, once struggling to engage staff about their benefits, now has reached the stage where 95 percent of its employees have used Highlights.

Some general pointers for designing benefits information regardless of the medium include the following:

· Avoid complex language when describing benefits. Clear, concise, and understandable language is a must.

· Explain the purpose behind a benefit and the value it offers employees. Be upfront about the pros and cons of different benefit plans.

· Use graphics whenever possible to make the information understandable at a glance.

· Provide numerous examples to illustrate how a benefit choice might affect different types of employees, depending upon their personal circumstances.

Employers must use a variety of techniques to communicate the complexities of benefits programs to their employees.

Source: http://blogs.intel.com/jobs/

Even if employees can access their benefits information online, most firms periodically mail out printed benefit statements that detail the status of an employee’s benefits. See the Highlights in HRM 1 for an example of how to calculate your total compensation based on salary and benefits. Notice how the employee’s total compensation is highlighted so that the full value of the benefits received is easier to see.

Apply What You Learned: A Personalized Statement of Benefits Costs

Complete the following activity.

Copyright © Cengage Learning. All Rights Reserved.

Cost Containment Strategies

Many firms have either begun requiring employees to pay part of the cost of their benefits or, if they were already doing so, increasing the amounts they pay in the form of premiums, copays, and deductibles. In addition, it is not uncommon for larger companies to cut the health care plans they once provided their retirees.

Containing Medical Benefits Costs

What is causing the growth in health care costs? The rise has been attributed to many factors. One is the overuse of costly health care services by consumers. This is part of the reason why firms have turned to health savings accounts and  high-deductible health insurance plans (HDHPs) . In conjunction with HDHPs, employees are provided with a health care spending account (HSA) they and their employers can contribute to on a pretax basis. In addition, employees can deduct the amounts they contribute from their earnings when they pay their income taxes. An advantage of HSAs is that the funds remaining in the account at the end of the year belong to the employee, even if he or she leaves the company. Employees often like HDHPs for this reason and because the regular premiums deducted from their paychecks for insurance are generally lower than they are with other types of health care plans such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

The downside is that with an HDHP, when employees receive treatment, they have to pay either a percentage of their care or all of it until they meet a high threshold called a deductible. These expenses are generally higher than the copays and deductibles associated with other types of plans. Because of this, employees are more conscious of medical costs. They have an incentive to spend their health care funds wisely and over time to increase the value of their health savings accounts. For this reason, HDHPs are sometimes referred to as consumer-driven plans.

HDHPs do seem to help control costs. However, because they work differently and require higher out-of-pocket costs for employees, HR managers need to carefully explain how they work and show employees how much long-term savings they can accumulate for their long-term medical care. Also, some studies have shown that employees with HSAs tend to put off preventive care so as to grow their HSAs. This can be a mistake if an employee later develops a serious and costly disease that could have been prevented with early screening and treatment.

Because HMOs and PPOs offer discounted rates, they have become another vehicle for reducing costs.  health maintenance organizations (HMOs)  are organizations of physicians and other health care professionals that provide a wide range of services to subscribers and their dependents on a prepaid basis. Employees pay a small fixed fee called a copay, often $25 or $30, whenever they get medical treatment. Employers pay a fixed annual fee to the HMO to cover the majority of their employees’ medical costs. Because they must provide all covered services for a fixed dollar amount, HMOs generally emphasize preventive care and early intervention. Employees who sign up for the plan must choose a general-practice physician, called a primary-care physician, from the HMO’s list of doctors. Their primary-care physicians provide them with their basic medical care. However, to see a specialist, employees need a referral from their primary-care physicians. This helps keep costs down as well, because specialists charge fees that are generally higher than those charged by primary-care physicians. The copays employees pay to see specialists are also slightly higher, which gives employees an incentive to see their primary-care physicians first.

A  preferred provider organization (PPO)  is a group of physicians who establish an organization or a network of doctors that guarantee lower costs to the employer through lower service charges or agreed-on utilization controls (such as a reduced number of diagnostic tests per employee). Unlike HMOs, where employees may have limited choices when it comes to the doctors they see, PPOs allow employees to select their doctor of choice from a wider list of physicians (participating doctors). Normally, a number of physicians are available to choose from for different medical needs, and employees do not need a referral to see a specialist. Small copays are a common feature of PPOs as well. Employees also have the option of using a doctor outside of the PPO, but it costs more.

Employers sometimes couple PPOs and HMOS with different types of tax-advantaged accounts employees can use to pay their out-of-pocket health care expenses such as their copays, the cost of prescription drugs, and so forth. A health reimbursement account (HRA) allows employees to be reimbursed by their companies for their out-of-pocket expenses. Employees do not have to pay taxes on the amounts they are reimbursed, which is what they would have to do if the reimbursements were made through their paychecks. A flexible spending account (FSA) is another type of account employees use to pay for their health-related expenses. Employees fund these accounts by having money deducted from their paychecks. The money deducted is not subject to taxes, so workers have more to spend on their health care than they would without the accounts. Companies can make contributions to FSAs as well. A disadvantage of FSAs is that funds not used by the end of the plan year revert back to one’s employer.

In addition, many companies—even Fortune 500 companies—are limiting the plans employees can choose from to all but the least expensive ones and conducting audits to be sure non-eligible dependents of employees are not being covered.

Containing Dental, Optical, and Mental Health Benefits Costs

Dental plans are designed to help pay for dental care costs and to encourage employees to receive regular dental attention. Like medical plans, dental care plans may be operated by insurance companies, dental service corporations, those administering Blue Cross/Blue Shield plans, HMOs, and groups of dental care providers. Typically, the insurance pays a portion of the charges, and the subscriber pays the remainder. Optical benefits work in a similar way. These benefits generally cover or offset the cost of seeing an optometrist once or twice a year as well as the cost of contact lenses and glasses purchased periodically.

Almost all workers with health coverage receive mental health benefits as part of their plans. However, prior to 2009, most plans had limits on inpatient hospital stays and outpatient visits, and the copays were often higher than they were for medical-care copays. The Mental Health Parity and Addiction Equity Act of 2008 changed that. In terms of the costs and access to care, the law requires group health plans to treat mental health benefits the same way they do medical and surgical benefits.

Many employers offer incentives for employees who take care of their health, such as discounts on health club memberships.

Lucky Business/ Shutterstock.com

Containing Additional Costs

An aging U.S. population, high obesity rates, and the health problems associated with them are three other reasons cited for rising health care costs. To combat these problems, companies are offering employees lower health care premiums for adopting healthy habits and activities. Wellness programs (discussed shortly) are a part of this effort. Conversely, firms are also penalizing employees for unhealthy habits by charging them higher health care premiums for habits such as smoking. To help cope with the rising costs of drugs, companies are encouraging their employees to use generic drugs and buy 90-day supplies through designated mail-order pharmacies that provide them at a discount.

One of the more dramatic moves companies are making is waiving the deductibles and copays for medical tourism. This means employees can pay less if they are willing to travel abroad for medical procedures where they often cost only a fraction of what they do in the United States. Figure 11.2 shows the countries Americans most utilize for treatment abroad and the approximate cost of procedures as a percentage of U.S. costs.

Apply What You Learned: A Personalized Statement of Benefits Costs

Complete the following activity.

Copyright © Cengage Learning. All Rights Reserved.

Value-Based Health Initiatives

A small but growing number of employers are turning to what is being called value-based health initiatives. Value-based initiatives focus on more than cost-cutting. Companies pursuing this strategy look at the medical care their employees most use and need—such as treatment for asthma, high blood pressure, or diabetes—and target benefits and health programs toward them. For example, Cerner Corporation, an electronic health record system for health care providers like hospitals and clinics, noticed that many of their employees didn’t purchase the medicine they needed to handle their anxiety or depression. So they reduced the out-of-pocket costs and waived copayments for prescriptions for antidepressants for employees and their families. Because of this policy change, Cerner Corporation employees were more likely to use or start a new medication for anxiety or depression and reported positive health outcomes.

Wellness Programs

Wellness programs  are employer-sponsored programs designed to encourage employees to maintain and improve their health and well-being by getting regular checkups, eating properly, exercising, and managing their stress levels so as to prevent costly and protracted illnesses. The Home Depot has a broad corporate wellness program to prioritize employee health and demonstrates the kinds of strategies other firms can use when formulating their own wellness programs. The Home Depot offers resources like healthy cooking and physical fitness programs with such resources as cookbooks, discounts to health club chains, and chats with coaches to set goals and create a 12-week journey to better health; health challenges every summer for a chance to win cash prizes; smoking cessation programs with free one-on-one coaching and nicotine patches; free onsite flu shots; and wellness recognition programs where employees nominate one employee who sets and achieves their wellness goal for a prized patch to wear on their apron and recognition from The Home Depot.

Disease Management Programs

Via medically trained personnel,  disease management programs  provide patients and their caregivers with information on monitoring and treating medical conditions, while coordinating communication between them, their health care providers, employers, and insurers. Bank One Corporation of Chicago developed such a program when managers noticed high absenteeism among employees with diabetes, asthma, and depression. Disease management programs can also be used in conjunction with the rehabilitation of employees who are injured on the job to help them recover more quickly and return safely to work.

Walk while you work? To combat obesity and other health problems, GlaxoSmithKline, Humana, Mutual of Omaha, and Best Buy have begun utilizing treadmill desks like the one shown here. The treadmills move at a slow speed so employees do not get hot and sweaty and out of breath.

Richard Sennott/Tribune Content Agency LLC / Alamy

Employee Assistance Programs

To help workers cope with a wide variety of problems that interfere with the way they perform their jobs, all kinds of organizations, including the New York Mets, USAA, the Los Angeles Police Department, and Levi Strauss, have developed  employee assistance programs (EAPs) . An employee assistance program typically provides diagnosis, counseling, and referral for advice or treatment when necessary for problems related to alcohol or drug abuse, emotional difficulties, and financial or family difficulties. The main intent is to help employees solve their personal problems or at least to prevent problems from turning into crises that affect their ability to work productively. To handle crises, many EAPs offer 24-hour hotlines employees can call. After Cerner Corporation offered its employees an EAP program, the company’s outpatient mental health care costs declined by nearly 41 percent.

Counseling Services

An important part of an EAP is the counseling services it provides to employees. While most organizations expect managers to counsel subordinates, some employees may have problems that require the services of professional counselors. Most organizations refer such individuals to outside counseling services such as family counseling services, marriage counselors, and mental health clinics. Some organizations have a clinical psychologist, counselor, or comparable specialist on staff to who employees may be referred.

11.2Employee Benefits Required by Law

LO 2

Legally required employee benefits constitute 19 percent of the benefits package that employers provide. These benefits include employer contributions to social security, unemployment insurance, and workers’ compensation insurance. We will discuss each of these benefits.

11.2aSocial Security Insurance

The Social Security Act was designed to protect workers against the loss of earnings resulting from old age and unemployment. The act was later amended to include disability, or, in the case of dependents, the death of the worker supporting them. Together the programs have become referred to as Old Age, Survivors, and Disability Insurance (OASDI). According to the Social Security Administration, in 2017 over 62 million people received retirement benefits from social security.

OASDI has become nearly universal for work performed in the United States, covering approximately 96 percent of the American workforce. Workers excluded from coverage include railroad workers and civil service employees covered by their own systems as well as farmers, domestic workers, and the self-employed whose earnings do not meet certain minimum requirements. The Social Security program is supported by means of a tax levied against an employee’s earnings that must be matched by the employer in each pay period. In 2017, the tax was 6.2 percent, though the percentage can vary depending on economic conditions. The tax revenues are used to pay three major types of benefits:

1. retirement benefits,

2. disability benefits, and

3. survivors’ benefits.

Because of the continual changes that result from legislation and administrative rulings, as well as the complexities of making determinations of an individual’s rights under social security, we will describe these benefits only in general terms.

Retirement Benefits

To qualify for retirement benefits, a person must have reached retirement age and be fully insured. A fully insured person has earned 40 credits—a maximum of 4 credits a year for 10 years, based on annual earnings, a figure adjusted annually. The amount of monthly social security retirement benefits is based on earnings, adjusted for inflation, over the years an individual is covered by social security. Under Social Security guidelines, an individual’s full retirement age depends on the year of his or her birth. Workers born after 1928 can collect full benefits once they’ve earned 40 credits, about 10 years of work. Because of longer life expectancies, for those born after that date, the age to collect full benefits has been gradually raised to age 67.

Disability Benefits under Social Security

Social Security pays benefits to people who cannot work because they have a medical condition that is expected to last at least a year or result in death. Although some government programs provide money to people with partial disabilities or short-term disabilities, Social Security does not. In addition to disability payments to the worker, certain members of an employee’s family, such as spouses over 62 and dependent children, may qualify for benefits based on the person’s work history. The Social Security Administration uses a five-step process to decide if a worker is disabled and eligible to collect benefits. Highlights in HRM 2 outlines this process.

Highlights in HRM 2

Who Is Eligible to Collect Disability Payments under the Social Security Act?

If you experience a disability, the Social Security Administration in conjunction with a state agency will use the following five-step process to determine if you are eligible to collect benefits.

1. Are you working? If you are working and your earnings average more than a certain amount each month, you will generally not be considered disabled. The amount changes each year. If you are not working, or your monthly earnings average this amount or less, a state agency will then look at your medical condition.

2. Is your medical condition “severe”? For the state agency to decide that you are disabled, your medical condition must significantly limit your ability to do basic work activities—such as walking, sitting, and remembering—for at least one year. If your medical condition is not that severe, the state agency will not consider you disabled. If your condition is that severe, the state agency goes on to step 3.

3. Is your medical condition on the List of Impairments? The state agency has a list of impairments that describes medical conditions that are considered so severe that they automatically mean that you are disabled as defined by law. If your condition (or combination of medical conditions) is not on this list, the state agency looks to see if your condition is as severe as a condition that is on the list. If the severity of your medical condition meets or equals that of a listed impairment, the state agency will decide that you are disabled. If it does not, the state agency goes on to step 4.

4. Can you do the work you did before? At this step, the state agency decides if your medical condition prevents you from being able to do the work you did before. If it does not, the state agency will decide that you are not disabled. If it does, the state agency goes on to step 5.

5. Can you do any other type of work? If you cannot do the work you did in the past, the state agency looks to see if you would be able to do other work. It evaluates your medical condition, your age, education, past work experience, and any skills you may have that could be used to do other work. If you cannot do other work, the state agency will decide that you are disabled. If you can do other work, the state agency will decide that you are not disabled.

Source: Disability Benefits, SSA Publication No. 05-10029 (Washington, DC: U.S. Social Security Administration, 2010), www.ssa.gov/diplan/dqualify5.htm.

Survivor’s Benefits

Survivors’ benefits represent a form of life insurance paid to members of a deceased person’s family who meet the eligibility requirements. Survivors’ benefits can be paid only if the deceased worker had credit for a certain amount of time spent in work covered by social security. The exact amount of work credit needed depends on the worker’s age at death. As with other benefits discussed earlier, the amount of benefit survivors receive is based on the worker’s lifetime earnings doing work covered by social security.

Medicare

The Social Security Administration also administers the Medicare program, which is funded by a separate payroll tax. Retired people age 65 or older are eligible for Medicare, which includes both medical and hospital insurance and prescription drug coverage. The program helps with the cost of health care, but it does not cover all medical expenses or the cost of most long-term care. A portion of the payroll taxes is paid by workers and matched by their employers. In 2017, workers and their employers each paid 1.45 percent on every dollar of salary or wages paid. Medicare is also financed in part by monthly medical premiums deducted from social security recipient’s checks.

One of the concerns employers have about Medicare relates to the eligibility age. As explained, it is currently 65, but legislators are considering increasing the age to 67 as they have done with social security.

11.2bUnemployment Insurance

Unemployment insurance is part of a national program administered by the U.S. Department of Labor under the Social Security Act and coordinated with the states. It protects workers who lose their jobs through no fault of their own. Employers entirely foot the bill for this benefit via a payroll tax, which can vary widely by the state. The rates firms pay also depend upon their layoff records, or what is referred to as their experience ratings. Generally speaking, a firm with a record of laying off large numbers of employees will have to pay a higher rate than those that do not. This means that companies most likely to lay people off will have to pay a larger share of unemployment taxes that end up going to their former workers. In addition, these tax rates will vary from one state to the next. As you can see, unemployment taxes are something HR managers must consider when they make decisions about where to locate their operations and hire employees as well as lay them off.

Employees who are laid off are generally eligible for up to 26 weeks of unemployment insurance benefits during their unemployment. During periods of high unemployment, the federal government has sometimes passed legislation extending the amount of weeks employees can collect benefits.

Workers eligible for unemployment benefits must submit an application for unemployment compensation with their state employment agencies, register for available work, and be willing to accept any suitable employment that may be offered to them. However, the term “suitable” gives individuals considerable discretion in accepting or rejecting job offers. The amount of compensation workers are eligible to receive, which also varies by the state, is determined by a worker’s previous wage rate and length of employment.

11.2cWorkers’ Compensation Insurance

Workers’ compensation insurance  is a system whereby employers purchase private or state-funded insurance to cover employees injured at work. Workers’ compensation law is governed by statutes in every state. Therefore, specific laws vary with each jurisdiction. For example, each state has different regulations governing the amount and duration of lost income benefits, including provisions for medical and rehabilitation services and how the state system is administered. Workers’ compensation laws also provide death benefits to surviving spouses and dependents.

Workers’ compensation insurance covers workers injured on the job, whether injured on the workplace premises, elsewhere, or in an auto accident while on business. It does not matter if the employee was at fault. In addition, workers that collect compensation cannot sue their employers for their injuries unless gross negligence by the employer led to the injury or the employer lacked the level of insurance required by law. Workers’ compensation insurance also covers certain work-related illnesses. Before any workers’ compensation claim will be allowed, the work-relatedness of the disability must be established. Also, the evaluation of the claimant by a physician trained in occupational medicine is an essential part of the claim process.

While employers in all states pay “workers’ comp” insurance, the amount they pay—through payroll taxes—varies. Like with unemployment insurance rates, the rate an employer pays depends upon its experience rating, which is based on various factors including the company’s frequency and severity of employee injuries (referred to as the company’s experience rating). Not surprisingly, organizations will strive to have good safety records (see Chapter 12 on creating a safe work environment) in order to pay a lower payroll tax rate.

11.2dCOBRA Insurance

We first discussed COBRA in Chapter 3. Recall that the Consolidated Omnibus Budget Reconciliation Act mandates that employers make health care coverage—at the same rate the employer would pay—available to employees, their spouses, and their dependents on termination of employment, death, or divorce. The coverage must be offered for 18 to 36 months, depending on qualifying guidelines.

11.2eBenefits Provided by the Patient Protection and Affordable Care Act

In 2010, the Patient Protection and Affordable Care Act (PPACA) became law. This act, along with the Health Care and Education Reconciliation Act of 2010, comprises the health care reform platform that went into effect in 2014.

The key provisions all employers need to consider are the following:

· Firms that employ 50 or more people who work 30 or more hours per week but do not offer them health insurance will have to pay a penalty to the government. Also, firms with 200 full-time employees are required to automatically enroll new full-time employees in their health care plans.

· Employers must offer coverage for their employee’s children until they turn 26.

· No copays or deductibles can be charged to employees and their dependents for certain “essential” health care services, which are generally preventive care related.

· Lifetime dollar limits on key health care benefits are not allowed.

· Employees cannot lose their insurance coverage solely because of an honest mistake they or their employers made on their insurance applications.

As of 2017, the Affordable Care Act was being contested by President Trump and the Republican congressional leaders. They insisted that they would retain the crucial part of the law: the promise that people can buy insurance even if they’ve had illnesses in the past. However, some of the proposed changes included opt-out provisions that would not require insurers to cover a standard, minimum package of benefits to everyone. Insurers would also be able to charge more for people who have prior illness.

11.2fBenefits Provided under the Family and Medical Leave Act

The Family and Medical Leave Act (FMLA) applies to employers having 50 or more employees during 20 or more calendar workweeks in the current or preceding year. A covered employer must grant an eligible employee up to a total of 12 workweeks of unpaid leave in a 12-month period for one or more of the following reasons:

· Birth of and care for a newborn child

· Adoption or foster care placement of a child

· Care for an immediate family member (spouse, child, or parent) with a serious medical condition

· Serious health condition of the employee

Under the FMLA, employees are eligible to take leave if they have worked for their employers for at least 12 months, have at least 1,250 hours of service, and work in organizations that have 50 or more employees within a 75-mile radius. An employer can require that the need for medical leave be supported by a certification issued by a health care provider. Highlights in HRM 3 shows the federally required poster for the FMLA. In studying the poster, note the other important stipulations, such as enforcement and unlawful acts, which are of direct concern to managers.

Highlights in HRM 3

Your Rights under the Family and Medical Leave Act

Employers are required to provide employees with this general notice about FMLA, which must be posted at the worksite (or electronically) and published in an employee handbook or given to new employees upon hire.

Pay-for-Performance Philosophy

Note: Other federally required posters are reproduced in Chapters 3, 9, and 12M.

Parents of newborn children are guaranteed 12 weeks of unpaid leave under the provisions of the Family and Medical Leave Act.

OJO Images Ltd / Alamy

This law affects an organization’s benefits program in several of its provisions: It mandates continuation of medical coverage, it prohibits loss of accrued benefits, it provides for restoration of benefits after leave, it permits substitution of paid leave and vacation during leave, it makes communication and notice compulsory, and it prohibits waiver of benefits. On return from FMLA leave, an employee must be restored to his or her original job or to an “equivalent” job. Equivalent jobs are those identical to the original job in terms of pay, benefits, and other employment terms and conditions.

Employers need to check their state employee-leave laws as well. Some states provide rights to employees that are greater than those provided by the FMLA. Wisconsin is an example. Two states—California and New Jersey—require employers to provide paid leave to parents following childbirth or adoption.

In January 2008, Congress passed the National Defense Authorization Act that amended the FMLA to provide eligible employees working for covered employers new leave rights related to military service. Specifically, an eligible employee who is the spouse, son, daughter, parent, or next of kin of a covered service member who is recovering from a serious illness or injury sustained in the line of duty on active duty is entitled to up to 26 weeks of leave in a single 12-month period to care for the service member. Importantly, managers or supervisors with legal or administrative questions regarding the FMLA are advised to seek assistance from HR before proceeding with an employee’s FMLA leave request. Also, employers cannot penalize employees for requesting or taking FMLA leave in an employment action including hiring, promotion, transfer, training, disciplinary action, or awards for attendance (not missing work).

11.3Work-Life Discretionary Benefits

LO 3

Eddie Bauer, an outdoor clothing and equipment supplier, offers its employees take-out dinners and one paid “balance day” off a year. eBay sets aside spaces at its San Jose, California, campuses as prayer and meditation rooms where employees can “decompress” during the workday. Ben & Jerry’s employees have access to a nap room. At Mitre, a nonprofit researcher, employees can take up to a week of paid time off to help with scouting trips or volunteer projects. These organizations, like many others, are seeking to create a work-life organizational climate that allows employees to balance their work with their personal needs. Why? One research report shows that 60 percent of employees prefer to have work-life balance benefits, and that employees are 20 percent more engaged in and satisfied with their job when they’ve hit the right work-life balance. And work-life balance programs not only retain talent but can be a factor in attracting and recruiting potential employees. And as Millennials trend toward dominating the job market, attracting this demographic means adjusting programs to include the kinds of benefits they want, like 401(k) matching, onsite nutritionists, corporate-wide community events and challenges, the ability to work from home, and opportunities to volunteer or contribute to social causes. To appeal to this broad demographic group and other employees concerned about the environment, some companies have begun offering their employees “green” benefits. Clif Bar & Company gives employees $6,500 toward the purchase of a hybrid car.

11.3aChild and Elder Care

Consider this: Every week, child care providers in the United States look after nearly 11 million children under the age of 5 whose parents are working. This, combined with increased employment of women with dependent children, illustrates the unprecedented demand for child care arrangements. Some employers, such as Fel-Pro, Merck, Syntex, Baptist Hospital of Miami, and Ben & Jerry’s, promote onsite or near-site child care centers. Employer-sponsored dependent care spending accounts allow employees to set aside a portion of their pay before taxes to care for a dependent child. If a mom has to travel with a breastfeeding child, Zillow will pay for them to ship their breast milk back home; and Facebook provides $4,000 in “Baby Cash” to employees with a newborn.

Similarly, according to a study of AARP and the National Alliance for Caregiving, today more than 39 million Americans are caring, unpaid, for an elderly parent. The term  elder care , as used in the context of employment, occurs when an employee provides care to an elderly relative while remaining actively at work. The majority of caregivers are women.

Beyond the loss of organizational productivity and higher employee costs, a growing concern of employers is the negative effects of caregiving on employee health. Not surprisingly, caregivers in the workforce suffer higher levels of physical, emotional, and financial stress since they find it difficult to respond to the demands of balancing work and family. To help employees meet the challenges of caregiving, organizations may offer elder care counseling, educational fairs and seminars, printed resource materials, support groups, and special flexible schedules and leaves of absence. Employers may also band together for better elder care. The Partnership for Elder Care—a consortium of American Express, JPMorganChase, Philip Morris, and other companies—use the resources of the New York City Department of Aging, a public information and aging support agency. In addition, an increasing number of employers supply or subsidize temporary care for employees’ elders and children when their regular arrangements fall through so these employees can come to work. A benefit such as this is referred to as a  backup care program . Home Depot, for example, offers a backup care program to its employees. The program provides a discount to employees who need spur-of-the-moment care so they can come to work.

11.3bPayment for Time Not Worked

The “payment for time not worked” category of benefits includes paid vacations, bonuses given in lieu of paid vacations, payments for holidays not worked, paid sick leave, military and jury duty, and payments for absence due to a death in the family or other personal reasons. Figure 11.1 showed that these benefits constitute another large expenditure—7 percent—of an employer’s total payroll costs, on average.

Paid time off is not mandatory in the United States, though. This contrasts sharply with the policies other countries around the world, including Austria, Peru, Spain, the United Arab Emirates, Finland, and Italy, where employees must be given 30 paid days off annually. In fact, until recently China was the only other country that did not offer any paid time off. Now the United States is the only one.

Vacations with Pay

Despite the fact that vacation pay is not required in the United States, most employers generally agree that vacations are essential to the well-being of an employee. Research shows that workers who use their vacation time are more productive and less prone to job-related burnout. Exactly how much paid vacation time firms provide their employees varies by a firm’s industry, locale, size, and other factors. Employees in the United States who work for large companies often get 10 paid days of vacation a year. To qualify for longer vacations of 3, 4, or 5 weeks, one may expect to work for 7, 15, and 20 years, respectively.

Most companies require their employees to take their vacation days by the end of the year or forfeit them (“use it or lose it”). An increasing number of employees say they are too busy at work to take all the vacation days they are allotted. According to one survey, Americans hand back more than $21 billion in unused vacation dollars to their employers each year. Some companies, however, let their employees “roll over” at least some of their vacation days to the following year. Of those that do, the average they allow workers to roll over is 20 days, according to a survey by the Society for Human Resources Management.

Paid Holidays

The federal government recognizes 10 legal public holidays, which are shown in Figure 11.3. However, private employers are not required to offer employees these days off or pay employees for them. Many companies do, though. Organizations that have to remain open during holidays (emergency services providers such as hospitals, transportation companies, etc.) often pay employees who work on holidays extra pay for doing so. Many organizations also give workers an additional 2 or 3 days off at their discretion for personal use.

Figure 11.3

Federally Recognized Holidays in the United States

· New Year’s Day, January 1

· Martin Luther King, Jr. Day, the third Monday in January

· President’s Day, the third Monday in February

· Memorial Day, the last Monday in May

· Independence Day, July 4

· Labor Day, the first Monday in September

· Columbus Day, the second Monday in October

· Veterans Day, November 11

· Thanksgiving Day, the fourth Thursday in November

· Christmas Day, December 25

Of course, not all employees celebrate all the holidays their companies recognize, particularly Christian holidays. A variety of arrangements can be made for these employees. For example, they might be allowed to work the holidays and then take off other days as a substitute. Or they might be allowed to use personal days, vacation days, or, as a last resort, take the holidays they do not want to work off without pay. Another trend is to give all employees a certain number of paid days they can use as holidays whenever they want.

Small Business Application

Creative Benefit Strategies Can Help Small Businesses Compete

Although competing with large companies on the basis of benefits might seem impossible, small business owners still have some other “cards” they can play that bigger companies might not offer. For example, if they cannot offer extensive benefits, it is not uncommon for small businesses to offer stock or shares in the company to their employees. Flexible work hours and arrangements are also a low-cost strategic benefit small businesses can offer their employees without first having to cut through a lot of corporate red tape.

Another way small businesses can augment their benefits programs is by partnering with companies that offer discount programs to employers’ workers. Price Optical offers a discount program for employers who are not able to provide vision benefits for their employees. Discounts for homeowners, automobile and group life insurance, dental and chiropractic care, health club memberships, and weight-control programs are other benefits small businesses can procure on behalf of their employees as well as tickets to entertainment events and product discounts.

Finally, if a small business wants its employees to have benefits but does not want to either provide or administer them, it can contract with a professional employer organization (PEO). Recall from Chapter 1 that a PEO is typically a larger company that for a fee takes over the management of a smaller company’s HR tasks and can provide employees with benefits that small companies cannot afford.

Sources: Gwen Moran, “The Business of Better Benefits,” Entrepreneur (May 2011), http://www.workforce.com; Vicki Powers, “Green Benefits Helpful in a Down Economy,” Workforce Management (May 2009), http://www.workforce.com; “Cost Shifting Initiatives,” Broad Reach Benefits [blog] (February 15, 2011), http://broadreachbenefits.com/blog.

Sick Leave

There are several ways in which employees may be compensated during periods when they are unable to work because of illness or injury. Most public employees, as well as many in private firms, receive a set number of sick leave days each year to cover such absences. Where permitted, sick leave that employees do not use can be accumulated to cover prolonged absences. Accumulated vacation leave may sometimes be used as a source of income when sick leave benefits have been exhausted. Some employers also make group insurance that provides income protection during a long-term disability available. As discussed earlier in the chapter, worker’s compensation partially reimburses the income employees lose during absences resulting from job-related injuries.

Sabbaticals

A sabbatical is paid (or unpaid) time away from a job for 4 or more weeks that employees take off to renew themselves before returning to work. Historically, sabbaticals have been associated with academia, but in the 1960s, companies, including McDonald’s, began to adopt them. Fortune magazine has added sabbaticals to their criteria for naming the 100 Best Companies to Work For. For example, Epic Systems Corporation, a Wisconsin-based health care software company, offers employees a paid 4-week sabbatical to pursue their creative talents after 5 years at the company. For small businesses that need to temporarily cut their payroll costs, unpaid sabbaticals can be a short-term alternative to layoffs and a way to reward valuable employees who never previously imagined they would be able to take a significant amount of time off to pursue other activities.

Severance Pay

Severance pay  is a one-time payment sometimes given to an employee who is being involuntarily terminated. The severance pay may cover only a few days’ wages or wages for several months. The pay received usually depends on the employee’s years of service. Employers that are downsizing often use severance pay as a means of lessening the negative effects of unexpected termination of employees. Other triggers for severance pay include job elimination, voluntary separation programs, or refusal of a reassignment or relocation. Employees who quit do not ordinarily receive severance pay. An employee who accepts severance pay is generally required to sign a release agreement waiving his or her right to take any kind of legal action against the company. To avoid legal action, companies sometimes offer severance pay to employees fired for cause.

Supplemental Unemployment Benefits

While not required by law, in cyclical industries, unemployment compensation is augmented by  supplemental unemployment benefits (SUBs)  paid for by employers. The mining industry is an example. If the price of a metal being mined falls sharply (which is not an uncommon occurrence), the firms mining the metal often slow down production until the price rises again. SUBs help attract employees to industries such as this. The amount of the benefits is generally determined by an employee’s length of service and wage rate.

11.3cLife Insurance

One of the oldest and most popular employee benefits is group term life insurance, which provides death benefits to beneficiaries and may also provide accidental death and dismemberment benefits. The premium costs are normally paid by the employer, with the face value of the life insurance equal to two times the employee’s yearly wages. These programs frequently allow employees to purchase additional amounts of insurance for nominal charges. In addition, many companies allow employees to purchase life insurance for their spouses and dependents via their company plans. This is an attractive benefit because the rates employees pay for the insurance is often lower when purchased through their company plans.

11.3dLong-Term Care Insurance

Long-term care insurance is designed to pay for nursing home and other medical-related costs during old age. Because the workforce is aging and people are living longer, a small but growing number of employers are finding that long-term care insurance can be a strategic benefit to attract and retain employees, particularly workers caring for older parents and relatives. Many of these employees have experienced firsthand the challenges of caring for aging loved ones who were unable to prepare properly for their long-term needs.

11.3eOther Benefits and Services

Credit Unions

Credit unions exist in many organizations to serve the financial needs of employees and attract potential employees. They offer a variety of deposits as well as other banking services and make loans to their members. Although the employer may provide office space and a payroll deduction service, credit unions are operated by the employees under federal and state legislation and supervision. Because credit unions are owned by their members, they often charge lower banking fees and offer loans at lower rates. Generally, credit unions are located near an employer’s facility, making it fast and convenient for employees to do their banking there. The service employees receive is also often more personal than the service they would get from bigger banks.

Educational Assistance

Proactive employers view educational assistance programs, also called tuition aid, as a strategic business tool to support talent management and develop leadership. To be eligible for tuition aid, an employee may have to meet a length of service requirement and show that classes taken relate to job performance or organizational career development. Employers may pay full or partial tuition costs plus related expenses such as books and supplies. For example, PwC offers its employees $1,200 per year for student loan debt reimbursement.

Figure 11.4 shows some of the other benefits firms are offering employees that we have not already mentioned in this chapter. In summary, although benefits are expensive, they can be a good way for a company to differentiate itself, strengthen its employer “brand” to attract top talent, and retain that talent. However, both small and large employers need to implement their benefit plans strategically as well as continually monitor their effectiveness and costs.

Figure 11.4

Other Benefits Organizations Offer Employees

· Business travel insurance

· Time off for children’s school activities

· Work-at-home arrangements/telecommuting

· Onsite cafeterias and take-home food

· Onsite laundry, dry cleaning, and hair-dressing services

· Employee referral bonuses

· Donation-gift matching

· Adoption assistance

· Onsite nurses and doctors

· Shuttle services for commuters

· Onsite massage services

· College scholarships

LO 4

Retirement Programs

Airline pilots are legally required to retire at age 65. However, for most other professions in the United States there is no law mandating a retirement age. Therefore, whether an employee elects to retire depends on various factors such as personal and financial condition and health, other family obligations, the extent to which he or she receives satisfaction from work, and the ability to meet changing job demands.

Preretirement and Phased Retirement Programs

Although most people eagerly anticipate retirement, many of them find that it requires a major financial lifestyle adjustment. Employers sometimes offer preretirement planning seminars and workshops to help make employees aware of the kinds of adjustments they may need to make when they retire. The topics covered can include pension plans, health insurance coverage, Social Security and Medicare, personal financial planning, wellness and lifestyles, and the process of adjusting to being around one’s spouse 24/7!

To help older workers get used to the idea of retirement, some organizations experiment with “retirement rehearsal.” Polaroid, for example, offers employees an opportunity to try out retirement through an unpaid 3-month leave program and allows its employees to gradually cut their hours before retirement. This kind of program is referred to as  phased retirement . Formal phased retirement programs are common in other countries but rarer in the United States because employees often need to get their health care coverage through their employers until they turn 65. At this point they can go on Medicare. However, as more babyboomers want to continue to work and employers seek to retain them, the number of phased retirement programs is expected to grow.

11.3fPension Plans

Pensions reward employees for their years of service with a company by providing them with income when they retire. However, like with other discretionary benefits, the decision whether to offer a pension plan is up to the employer.

Types of Pension Plans

There are two major ways to categorize pension plans:

1. according to contributions made by the employer and

2. according to the amount of pension benefits to be paid.

In a  contributory plan , contributions to a pension plan are made jointly by employees and employers. In a  noncontributory plan , the contributions are made solely by the employer. When pension plans are classified by the amount of pension benefits to be paid, there are two basic types: defined benefit plan and defined contribution plan. Under a  defined benefit plan , the amount an employee is to receive on retirement is specifically set forth. The amount employees collect is usually based on their years of service, average earnings during a specific period of time, and age at time of retirement. While a variety of formulas exist for determining pension benefits, the one used most often is based on the employee’s average earnings (usually over a 3- to 5-year period immediately preceding retirement), multiplied by the number of years of service with the organization. A deduction is then made for each year the retiree is under age 65. For example, an employee with a 4-year preretirement annual salary of $55,000 and 30 years of service may receive a yearly retirement payment of $23,000.

A  defined contribution plan  establishes the basis on which an employer will contribute to the pension fund. The contributions may be made through profit sharing, thrift plans, matches of employee contributions, employer-sponsored individual retirement accounts (IRAs), and various other means. The amount of benefits employees receive on retirement is determined by the funds accumulated in their accounts and how well the investments purchased with the funds have grown over time. In other words, the amount employees get is not certain. As a result, these plans pose more financial risk for employees than defined benefit plans do. However, employers have come to prefer them because they do not have to shoulder all of the responsibility of funding them. In 1989, 39 percent of private sector employees were covered by defined benefit pension plans. Today, only 18 percent are. Even Fortune 100 firms are scrapping their defined benefit plans. According to a survey by the HR consulting firm Watson Wyatt, today most Fortune 100 companies now offer their new salaried employees only a defined contribution plan.

Many baby boomers in the United States are continuing to work long past the traditional retirement age of 65.

racorn/ Shutterstock.com

401(k) Savings Plans

401(k) plans started to become extremely popular as an employee-savings vehicle beginning in the 1980s. This is a type of defined contribution plan named after section 401(k) of the Internal Revenue Code. The plan allows employees to save through payroll deductions that reduce their taxable income and have their contributions matched by the employer. Usually the employer matches the employee contributions at the rate of 25 to 50 cents for every worker dollar contributed.

401(k) plans have been widely embraced by companies as a replacement for costly defined benefit pension funds. Today, about 60 percent of households nearing retirement have 401(k)-type of accounts. However, unlike defined benefit pension plans, which guarantee payments based on years of service, the 401(k) plan guarantees nothing. The return depends entirely on how much money goes into the plan, the rate of return on the investments purchased with the funds contributed, and, with stock-funded plans, the price of the company’s stock. Economic downturns and stock market crashes take a heavy toll on 401(k) accounts.

Cash Balance Pension Plans

Along with 401(k) saving plans, a significant development in pension planning has been cash balance saving plans. With cash balance plans, the employer makes a yearly contribution into an employee’s retirement savings account. The contributions are based on a percentage of the employee’s pay—typically 4 percent. Additionally, the employee’s account earns annual interest, often tied to the 30-year Treasury rate. For example, an employee earning $35,000 a year would receive a yearly contribution of $1,400 to his or her account. After a year, the account would receive an interest credit of around 5 percent. Employees can normally roll their account balances into a personal IRA should they change jobs.

Federal Regulation of Pension Plans

Private pension plans are subject to federal regulation, including vesting rules, under ERISA.  Vesting  is a process that guarantees pension-plan participants will receive their pensions when they reach retirement age, regardless of their employment status at that time. In other words, the benefits cannot be revoked, even if the employee no longer works for the company. Vesting prevents companies from laying off employees before they retire so they are unable to collect their pensions. Under ERISA, all pension plans must provide employees with vested rights to their accrued benefits after they meet a certain minimum years of service, say, 5 years. So, for example, an employee leaves the company prior to the minimum years of service, the person would lose any money the firm contributed to his or her pension. However, employers can pay out a departing employee’s vested benefits if the present value of the benefit is small.

The Employee Retirement Income Security Act also requires minimum funding standards be followed to ensure pension benefits will be available to employees when they retire. Currently the pensions of many older companies are underfunded, however. GM, Chrysler, U.S. Steel, and Delta Air Lines are among them. In addition, many state and local governments are facing billions in pension shortages due to the last recession. Equally worrisome are the number of pension plans in danger of failing altogether.

The Employee Retirement Income Security Act also created the Pension Benefit Guaranty Corporation (PBGC), a federal government agency. The PBGC ensures that if a plan is terminated, guaranteed minimum benefits are paid to participants. When companies go through bankruptcy proceedings, they often try to cancel their pension obligations, leaving employees to rely on the PBGC for retirement income. Unfortunately for retirees, the monthly pension payments from the PBGC are often significantly less than those promised under a company’s original retirement plan. Another growing concern is that the PBGC—which has a $34 billion deficit of its own that has been growing annually—will be unable to meet its financial obligations. The PBGC is supported by premiums paid by employers. To improve its funding situation, the agency has asked Congress to allow it to increase the premiums it charges employers.

11.3gDomestic Partner Benefits

More employers are granting benefits to employees who establish domestic partnerships, which can consist of both same-sex and unmarried opposite-sex couples. Viacom, Gannett Company (publisher of USA Today), Levi Strauss, Silicon Graphics, Warner Bros., and Stanford University are among the many organizations that offer benefits to domestic partners of employees. Most Fortune 500 companies now provide benefits to same-sex partners.

The definition of a domestic partnership varies from company to company. However, Apple Computer’s definition, which is as follows, is typical: A domestic partner, the company says, is “a person over age 18 who shares living quarters with another adult in an exclusive, committed relationship in which the partners are responsible for each other’s common welfare.” Employers that offer domestic partnership coverage typically require employees to sign an “Affidavit of Domestic Partnership” attesting that they meet certain conditions such as the following:

· A minimum age requirement

· A requirement that the couple live together

· A specification of financial interdependence

· A requirement that the relationship be a permanent one

· A requirement that each not be a blood relative

Organizations that offer benefits to domestic partners are simply extending current benefits, normally full medical and dental plans, to all employees.

HR decisions about domestic partnership benefits need to take into account local and state laws and how they are being implemented. For example, several California cities, including Berkeley, Los Angeles, Oakland, and San Francisco, have adopted an ordinance that requires all companies with city contracts to extend domestic partner benefits to their employees who reside in the city or who work on contracts for the city.

Chapter Review

Summary

· LO 1The cost of health care programs has become the major concern in the area of employee benefits. Organizations are taking a variety of approaches to contain health care costs. Included among them are the relative preference shown for each benefit by managers and employees, the estimated cost of each benefit and the total amount of money available for the entire benefits package, and how it compares to the competition. Through committees and surveys, a benefits package can be developed to meet employees’ needs. Through the use of flexible benefit, or cafeteria plans, employees are able to choose the benefits that are best suited for their individual needs.

·

· LO 2Nearly a quarter of the benefits package that employers provide is legally required. These benefits include employer contributions to social security, unemployment insurance, workers’ compensation insurance, and state disability insurance. Social security taxes collected from employers and employees are used to pay three major types of benefits:

· 1. retirement benefits,

· 2. disability benefits, and

· 3. survivors’ benefits.

· Payroll deductions and taxes are also legally required to fund the government program, Medicare. Medicare provides medical and hospital insurance and prescription drug coverage for people over 65.

·

· LO 3Included in the category of benefits that involve payments for time not worked are vacations with pay, paid holidays, sick leave, and severance pay. Some companies offer their employees paid sabbaticals. A typical practice in the United States is to give employees 10 days of vacation leave and 10 holidays. In addition to vacation time, most employees, particularly in white-collar jobs, receive a set number of sick leave days. A one-time payment of severance pay may be given to employees who are being terminated. Other types of discretionary benefits that employers typically provide include EAPs, counseling services, educational assistance plans, child care, and elder care.

·

· LO 4For most professions in the United States, there is no mandatory retirement age. The topics covered can include pension plans, health insurance coverage, Social Security and Medicare, personal financial planning, wellness and lifestyles, and the general process of adjusting to retirement. Whether to offer a pension plan is the employer’s prerogative. However, once a plan is established, it is then subject to federal regulation under ERISA to ensure that benefits will be available when an employee retires. Two pension plans are available—defined benefit and defined contribution. With a defined benefit plan, the amount an employee receives on retirement is based on years of service, average earnings, and age at time of retirement. Two of the most significant trends are the growth of 401(k) plans and cash balance pension plans, both of which are defined contribution plans.

Chapter Review

Key Terms

· backup care program

· contributory plan

· defined benefit plan

· defined contribution plan

· disease management programs

· elder care

· employee assistance programs (EAPs)

· flexible benefits plans (cafeteria plans)

· health maintenance organizations (HMOs)

· high-deductible health insurance plans (HDHPs)

· noncontributory plan

· phased retirement

· preferred provider organization (PPO)

· sabbatical

· severance pay

· supplemental unemployment benefit (SUB)

· vesting

· wellness programs

· workers’ compensation insurance

Chapter Review

Discussion Questions

· LO 1Many organizations are concerned about the rising cost of employee benefits and question their value to the organization and to the employees. In your opinion, what benefits are of greatest value to employees? To the organization? Why?

· LO 2Employers are required by law to provide specific benefits to employees. What laws mandate benefits to employees, and what are the provisions of those laws?

· LO 3Working in teams of 3 or 4, assume your team was hired as a benefits consultant to a small business having 50 to 60 employees. What benefits do you believe this employer should offer, given limited resources? Justify your reasons for offering these benefits.

· LO 4Describe 401(k) pension plans, listing their advantages and disadvantages.

Chapter Review

HRM Experience

HRM Experience

Understanding Employer Benefit Programs

This exercise will help you more fully understand the benefits discussed in this chapter. Additionally, you will explore, in detail, the benefits and services offered by your employer and other employers in your area.

Assignment

Working in teams of four to six individuals, obtain information on the benefits package offered by your employer or other employers in your area. Once the information is gathered, be able to identify

1. each benefit offered,

2. what the benefit provides the employee,

3. employee eligibility (if required), and

4. how the benefit is paid for (employer, employee, or a combination of both).

Compare benefit packages. Be prepared to discuss your findings with the class.

Chapter Review

Case Study 1

Case Study 1

Adobe’s Family-Friendly Benefits: An Unexpected Backlash

Adobe Consulting Services (ACS), a provider of HR software application systems, prides itself on the variety of benefits it offers employees. In addition to health care, pension, and vacation benefits, the company also offers an attractive family-friendly benefits package including flexible schedules, child and elder care assistance, counseling services, adoption assistance, and extended parental leave. Unfortunately, sometimes the company’s progressive work-life policy experiences a backlash from several employees, as the following case illustrates.

In March 2011, Teresa Wheatly was hired by Adobe as a software accounts manager. With excellent administrative and technical skills, plus 4 years of experience at Adaptable Software, Adobe’s main competitor, Teresa became a valued addition to the company’s marketing team. As a single mother with two grade-school children, Teresa received permission to take Fridays off. She was also allowed to leave work early or come in late to meet the demands of her children. Teresa is one of 11 software account managers at Adobe.

The problem for Adobe, and particularly for Janis Blancero, director of marketing, began in the fall of 2011. On September 15, Dorothy McShee, citing “personal reasons”—which she refused to discuss—requested a 4-day workweek for which she was willing to take a 20 percent cut in pay. When Dorothy asked for the reduced work schedule, she sarcastically quipped, “I hope I don’t have to have kids to get this time off.” On October 3, Juan Batista, a world-class marathon runner, requested a flexible work hours arrangement to accommodate his morning and afternoon training schedule. Juan was registered to run the London, England, marathon in May 2013. Just prior to Juan’s request, Susan Woolf asked for and was granted an extended maternity leave to begin after the birth of her first child in December.

If these unexpected requests are not enough, Blancero has heard comments from senior account managers about how some employees seem to get “special privileges,” while the managers work long hours that often require them to meet around-the-clock customer demands. Janis has adequate reason to believe that there is hidden tension over the company’s flexible work hours program. Currently, Adobe has no formal policy on flexible schedules. Furthermore, with the company’s growth in business combined with the increasing workload of software account managers and the constant service demands of some customers, Blancero realized that she simply cannot grant all the time-off requests of her employees.

Questions

1. Do managers like Janis Blancero face a more complicated decision when evaluating the personal requests of employees versus evaluating employees’ individual work performance? Explain.

2.

1. Should Adobe establish a policy for granting flexible work schedules? Explain.

2. If you answered yes, what might that policy contain?

3. If you were Janis Blancero, how would you resolve this dilemma? Explain.

Chapter Review

Case Study 2

Case Study 2

Evaluate the Work-Life Climate in Your Company

What is the quality of the work-life environment in your company? The following survey provided by the Work and Family Connection will help provide a “case analysis” of the climate in your organization. Answers to the 20 questions will provide clear insights about your company’s position in the work-life area.

Agree or Disagree with the Following Statements

1. My manager or supervisor treats my work-life needs with sensitivity.

2. It is usually easy for me to manage the demands of both work and home life.

3. My career path at this company is limited because of the pressure of home life demands.

4. My job at this company keeps me from maintaining the quality of life I want.

5. My manager or supervisor is supportive when home life issues interfere with work.

6. My manager or supervisor focuses on results, rather than the time I am at my desk.

7. My manager or supervisor has a good understanding of flexible work hour practices.

8. If I requested a flexible work arrangement, my manager or supervisor would support me.

9. My manager or supervisor is often inflexible or insensitive about my personal needs.

10. I believe my manager or supervisor treats me with respect.

11. My manager or supervisor allows me informal flexibility as long as I get the job done.

12. My manager or supervisor tends to treat us like children.

13. My manager or supervisor seldom gives me praise or recognition for the work I do.

14. My manager or supervisor seems to care about me as a person.

15. I would recommend this company to others.

16. The work I do is not all that important to this company’s success.

17. If I could find another job with better pay, I would leave this organization.

18. If I could find another job where I would be treated with respect, I would take it.

19. If I could find another job where I could have more flexibility, I would take it.

20. I am totally committed to this company.

For a perfect score, you should answer “Disagree” to questions 3, 4, 9, 12, 13, 16, 17, 18, and 19 and “Agree” to all the rest, 1, 2, 5, 6, 7, 8, 10, 11, 14, 15, and 20.

To score, begin by giving yourself 20 points. Then deduct one point for every “wrong” response from the total score.

If your score is 18 to 20: Congratulations! Your organization is leading the nation in flexibility and supportiveness.

If your score is 14 to 17: Your organization is probably more supportive and flexible than most, but you have room to grow.

If your score is 11 to 13: You could be open to other job offers in the race for talent among employees.

If your score is 10 or less: Your managers will need help to manage the twenty-first-century workforce.

Source: Used with permission of the Work and Family Connection, 5195 Beachside Drive, Minnetonka, Minnesota 55343; 1-800-487-7898, or http://www.workfamily.com.