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chapter

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12

Employee Benefits and


Services

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Unemployment Insurance
Unemployment

tax paid by employer

Unemployment

tax rates, eligibility requirements,


weekly benefits, and duration of regular benefits
vary from state to state

Employee

receives compensation for a limited


time typically a maximum of 26 weeks

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Social Security
Social Security
Retirement income
Disability benefits
Death benefits
Survivors benefits
6.2% of eligible earnings
up to
$84,900 (2002)
$87,000 (2003)

Employee

funded

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Medicare
Hospital insurance
(Medicare, Part A)
Medical Insurance
(Medicare, Part B)
1.45% of eligible
earnings (unlimited)
Employee and
employer funded

and employer
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Workers Compensation (1 of 2)
Based

on the principle of liability without fault


Employer absolutely liable for providing
benefits to employees that result from
occupational disabilities or injuries regardless
of fault
Employers assume costs of occupational
injuries and accidents

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Workers Compensation (2 of 2)
Employers

pay premium to insurance


company or state fund
experience-rated

(5-10 year period)

Disability

must be work related


Benefits include:
medical

care
disability income
rehabilitation
death benefits
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Voluntary Benefits Programs


Insurance Protection

Retirement Plans

Compensation for
Time Not Worked
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Compensation for Time Not Worked

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Paid
Holidays

Paid
Vacations

Sick
Leave
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Personal
Time Off

Family
Leave

Maternity
and Parental
Leave

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Family Leave Policies Around the World


Country

Duration of Leave
(Weeks)

Number of Paid
Weeks

Percent of Normal
Pay

Canada

17 - 41

15 weeks

60%

France

18

16 weeks

90%

Germany

14 - 26

14 19 weeks

100%

Japan

12

12 weeks

60%

Sweden

12 - 52

38 weeks

90%

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Employer-Purchased Insurance
Health Insurance

Life Insurance

Disability Income
Replacement
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Health Insurance (1 of 2)
Traditional

membership programs

Pay

for both physician and hospital expenses as


these costs are incurred
Approach is not preventive
Health

maintenance organizations (HMO)

Outpatient

and hospital coverage offered for a


fixed monthly fee
Prepayment for comprehensive health care that
promotes preventive care
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Health Insurance (2 of 2)
Preferred

provider organizations (PPO)

Health

care plan based on agreements between


doctors, hospitals, and other related medical
service facilities with an employer or an insurance
company
Services provided for a fixed fee
Incentives to use selected providers
Emphasis on cost control

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Consolidated Omnibus Budget


Reconciliation Act (COBRA) of 1985

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Section

162 (k) stipulates that employers with


more than 20 employees are required to offer
continuation of health coverage for 18 to 36
months after termination of an employee
At

the employees expense

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12 - 14

Income in Retirement Programs

Retirement
Income from
Savings &
Work
Simplified
Employee
Pension
IRAs
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Individual
Retirement
Accounts
(IRAs)

401 (k)
Plans

Private
Pensions

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12 - 15

Government Regulation of Private Pensions


Employment

Retirement Income Security Act


(ERISA) of 1974 (as subsequently amended)
Eligibility

requirements
Benefits formula
Vesting
Portability
Fiduciaries
Reporting/disclosure
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Pension Benefits
Defined

benefit pension plan

Specifies

the benefit employees will receive at


retirement

Defined

contribution pension plan

Specifies

the employers contribution


Cannot predetermine the employees actual
pension benefit

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12 - 17

Stock Ownership
Plans

Employee
Services

Education
Programs
Pre-retirement
Programs
Childcare

Social and
Recreational
Programs
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Eldercare
Financial Services
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Flexible Benefits (Cafeteria) Plans


Allow

employees to choose between two or


more types of benefits
Common choices include:
health

care
life insurance
disability insurance
option of receiving cash to spend on coverage in
the open market
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Reimbursement Accounts
Also

known as flexible spending accounts


Provide funds from which employees pay for
expenses not covered by the regular benefits
package
Usually pretax deductions
Funds can be allocated for:
unreimbursed

health care

childcare
care

for elderly or disabled relatives

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Managing an Effective Benefits Program


Step

1: Set Objectives and Strategy for


Benefits
Pacesetter

strategy
Comparable benefits strategy
Minimum benefits strategy
Step

2: Involve Participants and Unions


Step 3: Communicate Benefits
Step 4: Monitor Costs Closely
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Cost Analysis of Benefits


1. Total cost of benefits annually for all
employees
2. Cost per employee per year
basis

1 divided by number of employee hours worked

3. Percentage of payroll
basis

1 divided by annual payroll

4. Cost per employee per hour


basis

2 divided by employee hours worked

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12 - 22

Summary (1 of 2)
Top

managers must consider the following


when making decisions about benefits:
Mandated

programs must be funded


There is little evidence that benefits and services
really motivate performance
Benefits do not necessarily increase satisfaction
Most employees view benefits and services as
entitlements

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12 - 23

Summary (2 of 2)
Unions,

competitors, and industry trends continue


to pressure employers to provide or increase
voluntary benefits
Costs of benefits and services continue to
escalate dramatically
To avoid

administrative nightmares,
employers should concentrate on fewer
benefits plans
If

possible, implement those preferred by most


employees

McGraw-Hill/Irwin

2004 The McGraw-Hill Companies, Inc. All rights reserved.

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