Providing Employee Benefits.docx
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Providing Employee Benefits.docx
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ProvidingEmployeeBenefits
ProvidingEmployeeBenefits
WhatDoINeedtoKnow?
Afterreadingthischapter,youshouldbeableto:
1.Discusstheimportanceofbenefitsasapartofemployeecompensation.
2.Summarizethetypesofemployeebenefitsrequiredbylaw.
3.Describethemostcommonformsofpaidleave.
4.Identifythekindsofinsurancebenefitsofferedbyemployers.
5.Definethetypesofretirementplansofferedbyemployers.
6.Describehoworganizationsuseotherbenefitstomatchemployees'wantsandneeds.
7.Explainhowtochoosethecontentsofanemployeebenefitpackage.
8.Summarizetheregulationsaffectinghowemployersdesignandadministerbenefitsprograms.
9.Discusstheimportanceofeffectivelycommunicatingthenatureandvalueofbenefitstoemployees.
Introduction
HewittAssociatessignalstoitsemployeesthatitcaresaboutthem,body,mind,andspirit.Employeesparticipateinplansthathelpthempayformedical,dental,andvisioncareexpenses,stop-smokingprograms,andcareexpensesforsickchildren.Employeeswhotravelonbusinesscanreceivereimbursementforovernightdependentcareandovernightcarefortheirpets.Employeesenjoypaidtimeoffforvacationsandholidays,plusadditional"Splash"timeoffintheirfifthyearofserviceandeveryfiveyearsafterthat.ThroughtheLifeworksreferralservice,Hewittemployeescanfindhelpwithfamily,education,legal,andfinancialissues.Atuitionreimbursementprogrampays85percentofemployees'tuitionforapprovedcourses.Thecompanyalsoencouragesemployeestoparticipateincharitableactivities.Employeeswhowishtovolunteertimeintheircommunitiescanreceiveuptotwodaysofpaidtimeoff.TheseandotherbenefitsattractqualifiedemployeesandkeepthemloyaltoHewitt.
LikeHewitt'semployees,employeesatalmosteveryorganizationreceivemorethandollarsandcentsinexchangefortheirefforts.Theyalsoreceiveapackageofemployeebenefitscompensationinformsotherthancash.Besidestheuseofcorporatefitnesscenters,examplesincludepaidvacationtime,employer-paidhealthinsurance,andpensionplan,amongawiderangeofpossibilities.
Thischarterdescribesthecontentsofanemployeebenefitspackageandthewayorganizationsadministeremployeebenefits.Webeginbydiscussingtheimportantroleofbenefitsasapartofemployeecompensation.Thefollowingsectionsdefinemajortypesofemployeebenefits:
benefitsbylaw,paidleave,insurancepolicies,retirementplans,andotherbenefits.Wethendiscusshowtochoosewhichofthesealternativestoincludeinanemployeebenefitspackagesothatitcontributestomeetingtheorganization'sgoals.Thenextsectionsummarizestheregulationsaffectinghowemployersdesignandadministerbenefitsprograms.Finally,weexplainwhyandhoworganizationsshouldeffectivelycommunicatewithemployeesabouttheirbenefits.
TheRoleofEmployeeBenefits
Asapartofthetotalcompensationpaidtoemployees,benefitsservefunctionssimilartopay.Benefitscontributetoattracting,retaining,andmotivatingemployees.Thevarietyofpossiblebenefitsalsohelpsemployerstailortheircompensationtothekindsofemployeestheyneed.Differentemployeeslookfordifferenttypesofbenefits.Employersneedtoexaminetheirbenefitspackageregularlytoseewhethertheymeettheneedsoftoday.Atthesametime,benefitspackagesaremorecomplexthanpaystructures,sobenefitsareharderforemployeestounderstandandappreciate.Evenifemployersspendlargesumsonbenefits,ifemployeesdonotunderstandhowtousethemorwhytheyarevaluable,thecostofthebenefitswillbelargelywasted..Employersneedtocommunicateeffectivelysothatthebenefitssucceedinmotivatingemployees.
Employeeshavecometoexpectthatbenefitswillhelpthemmaintaineconomicsecurity.SocialSecuritycontributions,pensions,andretirementsavingsplanshelpemployeespreparefortheirretirement.Insuranceplanshelptoprotectemployeesfromunexpectedcostssuchashospitalbills.Thisimportantroleofbenefitsisonereasonthatbenefitsaresubjecttogovernmentregulation.Somebenefits,suchasSocialSecurity,arerequiredbylaw.Otherregulationsestablishrequirementsthatbenefitmustmeettoobtainthemostfavorabletaxtreatment.Laterinthechapter,wewilldescribesomeofthemostsignificantregulationsaffectingbenefits.
Eventhoughmanykindsofbenefitsarenotrequiredbylaw,theyhavebecomesocommonthattoday'semployeesexpectthem.Manyemployersfindthatattractingqualifiedworkersrequiresthemtoprovidemedicalandretirementbenefitsofsomesort.Alargeemployerwithoutsuchbenefitswouldbehighlyunusualandwouldhavedifficultycompetinginthelabormarket.Still,thenatureofthebenefitspackagechangesovertime,aswewilldiscussatvariouspointsthroughoutthechapter.
Likeotherformsofcompensation,benefitsimposesignificantcost.Onaverage,outofeverydollarspentoncompensation,about27centsgotobenefits.AsFigure13.1shows,thissharehasgrownoverthepastdecades.Thesenumbersindicatethatanorganizationmanagingitslaborcostsmustpaycarefulattentiontothecostofitsemployeebenefits.
Whydoorganizationspayagrowingshareofcompensationintheformofbenefits?
Itwouldbesimplertopayallcompensationincashandletemployeesbuytheirowninsuranceandcontributetotheirownsavingsplans.Thatarrangementwouldalsogiveemployeesgreatercontroloverwhattheircompensationbuys.However,severalforceshavemadebenefitsasignificantpartofcompensationpackages.Oneisthatlawsrequireemployerstoprovidecertain,suchascontributionstoSocialSecurityandunemploymentinsurance.Also,taxlawscanmakebenefitsfavorable.Forexample,employeesdonotpayincometaxesonmostbenefitstheyreceive,buttheypayincometaxesoncashcompensation.Therefore,anemployeewhoreceivesa$1000,butanemployeewhoreceivesanadditional$1000worthofbenefitsreceivesthefullbenefits.Anothercostadvantageofpayingbenefitsisthatemployers,especiallylargeones,oftencangetabetterdealoninsuranceorotherprogramsthanemployeescanobtainontheirown.Finally,someemployersassemblecreativebenefitspackagesthatsetthemapartinthecompetitionfortalent.ExamplesincludeHewittAssociates,describedintheIntroduction,andSASInstitute,describedintheBusinessWeekcaseattheendofthischapter.
BenefitsRequiredbyLaw
Thefederalandstategovernmentsrequirevariousformsofsocialinsurancetoprotectworkersfromthefinancialhardshipsofbeingoutofwork.Ingeneral,SocialSecurityprovidessupportforretiredworkers,unemploymentinsuranceassistslaid-offworkers,andworkers'compensationinsuranceprovidesbenefitsandservicestoworkersinjuredonthejob.Employersmustalsoprovideunpaidleaveforcertainfamilyandmedicalneeds.Becausebenefitsarerequiredbylaw,employerscannotgainanadvantageinthelabormarketbyofferingthem,norcantheydesignthenatureofthesebenefits.Rather,theemphasismustbeoncomplyingwiththedetailsofthelaw.Table13.1summarizelegallyrequiredbenefits.
BENEFIT
EMPLOYERREQUIREMENT
SocialSecurity
Flatpayrolltaxonemployeesandemployers
Unemploymentinsurance
Payrolltaxonemployersthatdependsonstaterequirementsandexperiencerating
Worker'scompensationinsurance
Providecoverageaccordingtostaterequirements.Premiumsdependonexperiencerating
Familyandmedicalleave
Upto12weeksofunpaidleaveforchildbirth,adoption,orseriousillness
SocialSecurity
In1935thefederalSocialSecurityActestablishold-ageinsuranceandunemploymentinsurance.Congresslateramendedtheacttoaddsurvivor'insurance(1939),disabilityinsurance(1956),hospitalinsurance(MedicarepartA,1965),andsupplementarymedicalinsurance(MedicarePartB,1965)fortheelderly.Together,thelawanditsamendmentscreatedwhatisnowtheOldAge,Survivors,Disability,andHealthInsurance(OASDHI)program,informallyknownasSocialSecurity.Thisprogramcoversover90percentofUSemployee.Themainexceptionsarerailroadandfederal,state,andlocalgovernmentemployees,whooftenhavetheirownplans.
Workerswhomeeteligibilityrequirementsreceivetheretirementbenefitsaccordingtotheirageandearningshistory.Iftheyelecttobeginreceivingbenefitsatage65,theycanreceivefullbenefits,oriftheyelecttobeginreceivingbenefitsatage62,theyreceivebenefitsatapermanentlyreducedlevel.Theamountriseswiththeperson'spastearnings,butthelevelgoesupverylittleafteracertainlevel,andin2002,themaximummonthlybenefitswas$1660.Thegovernmentincreasesthepaymentseachyearaccordingtothegrowthintheconsumerpriceindex.Also,spousesofcoveredearnersreceivebenefits,eveniftheyhavenocoveredearnings.Theyreceiveeitherthebenefitsassociatedwiththeirownearningsorone-halfoftheamountreceivedbythecoveredearner,whicheverisgreater.
Benefitsmaybereducediftheworkerisstillearningwagesaboveamaximum,calledtheexempt.In2002,theexemptamountwas$11280forbeneficiariesaged62to64.Abeneficiaryinthatagerangewhoearnsmorethantheexemptamountseesareductioninhisorherbenefit.Theamountofthereductionis$1forevery$2thepersonearnsabovetheexemptamount.Forexamplea63-year-oldwhoearned$13280in2002wouldhaveearned$2000abovetheexemptamount,sotheperson'sSocialSecuritybenefitswouldhavebeenreducedby$1000.Duringtheyearaworkerreaches65,themaximumuntaxedearningsare$30000(in2002),andbenefitsarereduced$1forevery$3inearnings.AsofJanuary2000,workersaged65orolderfacenopenalty.Forworkersundertheage
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