Topic 10: Employee Benefits Flashcards
(28 cards)
What is an Employee Benefit
Any type of compensation other than direct current salary or wages
Total Compensation =
Current wages (cash) + Value of EE benefits
Why Are Employee Benefits So Important
40% of payroll
Rate of increase in cost is growing much faster than wages
Why Do Firms Offer Employee Benefits
Attract and retain capable EEs
Tax advantages
Productivity and better EE relations
ER can take advantage of group insurance
Three Types of Benefit Financing
Non-Contributory
Contributory
Voluntary
Non-Contributory Benefit Financing
ER pays full cost of plan
EE is covered without making a financial contribution
All eligible EEs must be covered
Eligibility = Participation
Contributory Benefit Financing
ER and EE share in the cost of the plan
For an eligible EE to become a participant, they must make a financial contribution
Voluntary Benefit Financing
EE pays the entire cost of the insurance plan (Pet Insurance)
Income Tax Implications For Benefit Financing
ER can deduct the cost of EE benefits as an ordinary business expense
The EE is sometimes not taxed on the value of their ER provided benefits
Method to compensate an EE tax free
Employer Provided Life Insurance
The premium cost is not taxable to the EE
Maximum FA the ER can provide tax free is group term ($50,000)
Employer Provided Disability Insurance
Benefit = monthly income payments
ER pays full cost
Premium is NOT taxable to the EE
Benefit is taxable to the EE if they become disabled
If contributory or voluntary
- Finance through a pre-tax salary reduction plan
- Benefit will be taxable to the EE if they become disabled
If EE finances with after tax dollars, income benefit is tax free to the EE if disabled
Employer Provided Health Insurance
Premium cost is entirely income tax free for the EE (no limit)
Favorable tax treatment exists only for qualified plans
Does not discriminate in favor of key EEs or highly compensated EEs (HCEs)
Group Insurance Vs. Individual
Insure group as a whole so no individual underwriting
Group underwriting looks at broad characteristics of group to determine rates (Still must control adverse selection)
Usually experience rated so the premium/rate now is based upon past claims experience of the group providing incentives to control losses
Why Are Group Insurance Rates Lower Then Individual Insurance
No Individual underwriting
Commissions tend to be lower
ER helps collect the money
Adverse Selection
Demand correlates to risk
Info is only known to the insured
Impact on price could lead to collapse of insurance pool, product, or market
Methods to Control Adverse Selection
Reason the group exists (Should exist for reasons other than the purchase of insurance)
Waiting Periods
Pre-Existing condition exclusions (Condition that has been treated and a claim filed for with an insurer)(Coverage is somehow limited)
- Prevents career disableds
Minimum group size
Minimum participation requirements
Steady flow of persons through the group
Disadvantage to Employer Benefit Plans
Coverage is temporary for the employee
People who are married may be overcompensated
Cafeteria/Flexible Benefits Plan
Any kind of EE benefits plan that allows EE to choose between types and levels of benefits and possible cash
Controls Married with Children problem
Core Plus Plan
Every EE receives a basic core of benefits
May also receive flex credits or flex $ to buy coverage not included in core
What Are The Three Types of Flexible Spending Accounts
Healthcare FSA
Childcare (Dependent Care) FSA
Transportation Spending Account
What is a Flexible Spending Account
An EE agrees to reduce their salary pre-tax by a certain amount and money is deposited into a FSA
What is Included in a Dependent Care FSA
Child care expenses
Elder care expenses
What is Included in a Medical Care FSA
Items not covered by employer medical plan
Co-Payments
What is Included in a Transportation Spending Account (Flex)
Pay for train, bus, or parking recognized expenses
