chapter 12 - the benefit determination process

Question 1

Are Benefits Important?

Answer 1

Very

Survey of employees ranking top 6 rewards contributing to employee satisfaction:
- Compensation
- Benefits
- Job Security
- Flexible Work
- Growth & Development
- Communication between employee and senior management

75% of employees say they are extremely or very important in decisions to join or stay with a company

Question 2

What are employee benefits?

Answer 2

Part of the total compensation package (other than pay for time worked) provided to employees in whole or in part by employer payments (e.g., vacation time off, life insurance, pension, workers’ compensation, etc.)

Question 3

Why the growth in employee benefits?

Answer 3

• employees wanted to improve conditions and show care for employee welfare real breaks)
• during the 30s-40s controlled wages increases lead to increases in benefits
• not taxable; group rates, generally no eligibility/qualification requirements
• WC, social security, UI insurance

Question 4

THREE MAJOR Advantages to Group Benefits

Answer 4

1. Most benefits are not taxable – provision of a benefit rather than an equivalent wage increase avoids payment of federal and state personal income tax
2. Many group-based benefits, health, life, legal insurance etc., can be purchased at lower rates than could be obtained by employees acting on their own
3. Group insurance also has relatively easy qualification standards, giving security to a set of employees who might not otherwise qualify

Question 5

the bottom line

Answer 5

Impact:
- Employees rate benefits a key factor in job satisfaction
- Yet less than half are satisfied with their benefits
- There is a mismatch between cost to employer and perceived value to employee

Costs
- The average costs of benefits accounts for ~30% of total compensation
- Benefits add 42 cents to every dollar of wages and salaries (see next slide)

cost of employer benefits over time image:
- benefits as percentage of salaries and wages has increased
- benefits as percentage of total comp has stayed relatively the same since 1929

Question 6

What should you expect for employee benefits?

Answer 6

5 Years Ago:
Education reimbursement
On-site childcare
Car cleaning
Financial counseling
Concierge services
Retirement benefits

2 Years Ago:
12 weeks paid leave for new parents – either gender
$500 in “Baby Bonding Bucks”
Liberal policies for volunteering
On-site fitness centers and medical care
Lavish paid daily lunches
College tuition reimbursement

2021-2022:
Remote Work Stipend
Well-Being Benefits
Mental Health Support
Subsidized Childcare
Student Loan Payment Plans
College Counseling services
Home Office Design Advisor
LIFESTYLE PERKS (more on this later)

Question 7

Considerations in Planning and Designing Employee Benefits

Answer 7

Do they help with attraction and retention?
- Probably
- There is no definitive research that supports what we believe is true – that benefits do impact decisions to join or stay
- Like compensation, as long as an organization’s benefits are reasonably competitive (not significantly under market), they are likely not a primary reason for attracting or retaining talent

So, if this is the case
- How are they integrated with other compensation components – basket of rewards or “total rewards”
- Are they externally competitive?
- Are benefits costs justified?

Question 8

Costs of Benefits for Government and Private Sectors

Answer 8

IMAGE: benefit type, private sector average, government average

highest government average is insurance and the lowest is social security

In general:
- Government jobs generally have higher level of (richer) benefits than private sector
- Larger companies generally offer more and richer benefit packages

Question 9

Flexible Benefits - the answer?

Answer 9

First, who should be protected or benefited?
- Probationary periods, dependents, retirees, survivors, workers with disabilities, and even layoffs offer challenges

Employees often undervalue the benefits provided, but introducing choice increases the perceived value

How much choice should employees have?
- Employees are not necessarily looking for more benefits but rather for greater choice in the benefits they receive
- Key to any reward (including benefits) is their visibility; communication critical; total rewards statements

Question 10

Benefits Administration - Financing and Legal Issues

Answer 10

How are benefits financed?
- Noncontributory: employer pays total costs
- Contributory: costs are shared between employer and employee
- Employee financed: employee pays total costs for some benefits

Are the benefits legally defensible?
- Benefits must comply with hundreds of arcane sections of the tax code among other things
- Benefit administrators may develop compliance checklists and conduct audits to ensure compliance with new and existing requirements.

Question 11

Cost Containment Levers

Answer 11

Probationary periods
Deductibles: First $X paid by employee
Benefit limitations
Co-pays: $X of any visit/treatment paid by employee
Co-insurance: Portion of the insurance premium paid by employee/employer

Administrative cost containment:
- Deny service on pre-existing conditions
- Negotiate lower fees by providers
- Develop programs that encourage wellness
- Outsource benefits and administration
- Self-insure