Employee Benefits And Services Administration Handout

EMPLOYEE BENEFITS AND SERVICES ADMINISTRATION

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Definition

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♦In the past was called fringe benefits ♦Primarily the in-kind payments employees receive in addition to payments in the form of money

♦Employee benefits are those compensation components made available to employees that provide (1) protection in case of health and accident-related problems and (2) income at some future date or occasion (upon retirement, termination of employment, or meeting of certain objective criteria).

♦Employee services are compensation components that contribute to the welfare of the employee by filling some kind of demand. These services usually enable the employee to enjoy a better lifestyle or to meet social or personal obligations while minimizing the employmentrelated costs Principles Governing Benefits 1. The benefit should have mutual value to the employer and the employee. – Whenever the employer spends an amount for benefits, he should receive something of value in return. 2. The benefit should not interfere with the operation of the business. 3. The cost of the benefit must be calculable and its financing within the capacity of the firm. 4. The benefit must be capable of being uniformly and equitably administered. – The rules and procedures followed in administering benefits should be uniform and equitable to all to prevent discrimination or abuse. A poorly administered benefit program can be a source of serious employer-employee relations’ problem and a drain on company finances as well. 5. Benefits should be based on something measurable. – The conditions and requirements for the grant of any benefit should be made clear and preferably in writing to avoid any misunderstanding and to facilitate its administration.

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Employees should take part in the administration of certain benefit programs. Employees must be made aware of the cost of the benefits. – The employees will be aware of the costs involved and appreciate management’s efforts to promote their welfare. With the employees sharing in the costs, it is possible to adjust assessments in relation to the benefits received, thereby minimizing favoritism. Employee benefits and services must suit employee needs and preferences in order to provide maximum incentives.

Reasons for Granting Benefits 1. Provision for the need of employees. 2. Meeting union demands. 3. Maintaining the worker’s living standards. 4. Management’s willingness to grant benefits. 5. Increased government regulation of business and industry. 6. Boosting employee morale. 7. Effects of WWII. 8. Effects of inflation and other economic causes. 9. To attract and retain employees. Why the Growth in Employee Benefits

♦Wage and Price Controls ♦Unions ♦Employer Impetus ♦Cost effectiveness of benefits ♦Government Impetus Benefits Administration Issues

♦Who should be protected or benefited? ♦How much choice should employees have among an array of benefits?

♦How should benefits be financed? Advantages of Flexible Benefit Programs •Employees choose packages that best satisfy their unique needs. •Flexible benefits help firms meet the changing needs of a changing workforce.

•Increased involvement of employees and families improves understanding of benefits. •Flexible plans make introduction of new benefits less costly. The new option is added merely as one among a wide variety of elements from which to choose. •Cost containment: Organization sets dollar maximum. Employee chooses within that constraint. Disadvantages of Flexible Benefit Programs

•Employees make bad choices and find themselves not covered for predictable emergencies. •Administrative burdens and expenses increase. •Adverse selection. Employees pick only benefits they will use. The subsequent high benefit utilization increases its cost. •Subject to nondiscrimination requirements in Section 125 of the Internal Revenue Code. Factors Influencing Choice of Benefits Package Employer Preferences

♦Relationship to Total Compensation Costs ♦Costs Relative to Benefits ♦Competitor Offerings ♦Role of Benefits in Attraction ♦Legal Requirements ♦Absolute and Relative Compensation Costs Employee Preferences

♦Equity ♦Personal Needs of Employees Benefits Administration

♦Human Resource Department

–HR director (and perhaps the compensation manager) administers the firm’s compensation program –The Personnel, in conjunction with top management, formulates compensation policies, conducts wage surveys to find prevailing wage rates, implements job evaluation programs to determine the comparable worth of each job in the firm, and chooses the benefit packages for the firm’s employees

Planning ♦Key Issues that must be addressed: –Business Objectives •Organization’s HRM philosophy •Organization’s strategic business plan –Work Force Characteristics –Competition –Cost –Cost Containment –Probationary Periods –Benefits limitations –Co-pay –Administrative cost containment –Total Compensation Strategy Implementation ♦involves putting the program into operation and outlining the necessary policies and procedures ♦Employee Benefits Communication –Employee benefits handbook –Benefits statement –In-house benefits consultant –Ad hoc employee meetings –Notices Management -it must be continuously managed to ensure that it meets the organization’s needs -Through the use of audits and budgets, compensation managers can determine just how effective the program really is Categorization of Employee Benefits 1. Legally required payments (employers’ share only) a.Old-age, survivors, disability, and health insurance (employer FICA taxes) and railroad retirement tax b.Unemployment compensation c.Workers’ compensation (including estimated cost of self-insured) d.State sickness benefits insurance 2. Retirement and savings plan payments (employers’ share only) a. Defined benefit pension plan contributions (401K type) b. Defined contribution plan payments c. Profit sharing

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Stock bonus and employee stock ownership plans (ESOP) e. Pension plan premiums (net) under insurance and annuity contracts (insured and trusted) f. Administrative and other costs 3. Life insurance and death benefits (employers’ share only) 4. Medical and medical –related benefit payments (employers’ share only) a. Hospital, surgical, medical, and major medical insurance premiums (net) b. Retiree hospital, surgical, medical, and major medical insurance premiums (net) c. Short-term disability, sickness or accident insurance (company plan or insured plan) d. Long-term disability or wage continuation (insured, selfadministered, or trust) e. Dental insurance premiums f. Other (vision care, physical and mental fitness benefits for former employees) 5. Paid rest periods, coffee breaks, lunch periods, wash-up time, travel time, clothes-change time, get-ready time, etc. 6. Payments for time not worked a. Payments for or in lieu of vacations b. Payments for or in lieu of holidays c. Sick leave pay d. Parental leave (maternity and paternity leave payments) e. Other 7. Miscellaneous benefit payments a. Discounts on good and services purchased from company by employers b. Employee meals furnished by company c. Employee education expenditures d. Child care e. Other Employee Services ♦Pay for Time Not Worked –Holidays –Vacations –Jury Duty –Election Official –Witness in court –Civic duty –Military duty –Funeral leave –Personal leave –Sabbatical leave –Illness in the family leave

–Marriage leave –Paternity leave –Maternity leave –Sick leave –Wellness leave –Time off to vote –Blood donation –Grievance and contract negotiations –Lunch, rest and wash-up periods Other Services –Charitable Contributions –Counseling –Tax preparation –Education subsidies –Child adoption –Child care –Elderly care –Subsidized food service –Discounts on merchandise –Physical awareness and fitness programs –Social and recreational opportunities –Parking –Transpoortation to and from work –Travel expenses –Clothing reimbursement/allowance –Tool reimbursement/allowance –Relocation expenses –Emergency loans –Credit union –Housing Top Ten Companies in Employee Benefits •Philip Morris •Procter & Gamble •XEROX •Intel •TIAA_CREF •Dell Computer •Chevron •Boeing •BellSouth •Duke Energy Example ♦Philip Morris

♦Headquarters: New York City ♦Industry: Tobacco ♦US Employees: 57,000 ♦Retirement Plans

–Outstanding profit-sharing plan, including annual contributions equal to 13 percent to 15 percent of an employee’s pay. Employees may contribute an additional 8 percent of their salary into a tax-deferred savings plan. A traditional pension plan is offered.

♦Health Care –Philip Morris employees receive family health coverage: $77 for fee-for-service, HMO, and POS plans. There is a staff ombudsman available to assist employees in resolving problems with health care providers. An employer-sponsored health plan is offered for retirees.

♦Special Features –The company offers free life insurance with death benefit equal to twice the employee’s annual salary, with no cap. Top and middle managers are granted stock options. The Labor Code of the Philippines ♦Book Four: Health, Safety and Social Welfare Benefits ♦Title II Employees Compensation and State Insurance Fund ♦Chapter V Medical Benefits –Art. 185 Medical Services –Art. 186 Liability –Art. 188 Refusal of examination or treatments –Art. 189 Fees and other charges –Art. 190 Rehabilitation Services

♦Chapter VI Disability Benefits –Art. 191. Temporary total disability –Art. 192 Permanent total disability –Art. 193 Permanent partial disability ♦Chapter VII Death Benefits –Art. 194 Death

♦Tax-exempt system aimed at providing meaningful protection to its members and their beneficiaries against the hazards of disability, sickness, maternity, old age, death and other contingencies resulting in loss of income or financial burden. ♦Compulsory to all employees not over sixty years of age and their employers ♦Social Security Law of 1997

Medicare

♦Health insurance program for SSS members and their dependents who get sick and injured and require hospitalization.

♦Every employer is also required to pay

monthly contributions and to deduct or withhold from the employee’s monthly compensation his or her contribution Employees Compensation Program

♦Aims to assist workers who suffer work connected sickness or injury resulting in disability or death

♦Coverage in the EC Program is compulsory for all employers and employees (a) not over 60 yrs of age, and (b) an employee over 60 yrs of age if he/she has been paying contributions to the SSS prior to age 60 and has not been compulsorily retired PAG-IBIG Fund

♦Home Development Mutual Fund ♦Mandatory upon all employees covered by the SSS

•(d) Funeral Benefit

♦Title III Medicare –Art. 209 Medical Care ♦Title IV Adult Education –Art. 210 Adult Education ♦Apendix XX –XI Maternity Benefits Social Security System

Sources: The Labor Code of the Philippines 2004 Edition Milkovich, George T. and Jerry M. Newman. 2002. Compensation.7th Edition. New York: McGraw-Hill Companies Inc. Henderson, Richard I.1997. Compensation management in a knowledge-based world.7th Edition. New Jersey: Prentice-Hall Inc.

Javier, Nancy Joan M. 2000.Tourism Laws: Focus on the Philippines.Quezon City: Lex Tourismo Publications