On average, out of every dollar spent on compensation, 30 cents or more go to benefits. As shown above, this share has grown over the decades. These numbers indicate that an organization managing its labor costs must pay careful attention to the cost of its employee benefits.
Figure 13.2 shows the percentage of full-time workers receiving the most common employee benefits. Part-time workers often receive fewer benefits. The most widely offered benefits are paid leave for vacations and holidays, life and medical insurance, and retirement plans.
Figure 13.3 shows that the United States spends more of its total wealth on health care than other countries do. Most Western European countries have nationalized health systems, but the majority of Americans with coverage for health care expenses get it through their own or a family members’ employer. As a result, a growing number of employees whose employers cannot afford this benefit are left without insurance to cover health care expenses.
Costing of employee benefit
Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt) Professor 13-1
They are non-wage/non-salary facilities and services provided to employees Benefits are getting more expensive year after year ◦ 24.7% of pay-bill costs in 1959 were made up of benefits ◦ Today 41.3% of pay-bill costs are made up of benefits 13-2
Data required for costing health insurance benefits: Premium rates for each type of enrollment- Single- Husband/wife- Parent/child- Family Number of members enrolled in each category Premium rates for each category Total cost of health insurance = (Number of employees in each category of enrollment) X (Annual cost per category) 13-3
Assume 52 employees in organisation 48 full-time and 4 part-time Organisation to identify whether part-time employees eligible for benefits Assume organisation pay full cost of insurance benefits for all 52 employees 13-4
Type of Number of Annual Cost/ TotalEnrollment Employees Employee ($) Cost ($)Single 12 4,200 50,400Parent/Child 6 6,144 36,864Husband/ Wife 10 9,180 91,800Family 24 10,728 257,472Total 52 436,536 Total cost of medical insurance for organisation is $436,536 13-5
If employee requires to contribute 10% of premiums for dependent coverage Employee contribution can be calculated using information in previous slide Organisation’s cost for medical insurance = Total Cost – Total Employee Contribution 13-6
Type of Annual Minus Cost of 10% Number TotalEnrollment Cost/ Single Dep. Contribu of employee Employ Portion of Covera tion ($) Employe Contribu ee ($) Prem. ($) ge ($) es tion($)Parent/Child 6,144 4,200 1,944 194 6 1,164 Husband/ 9,180 4,200 4,980 498 10 4,980 Wife Family 10,728 4,200 6,528 653 24 15,672 Total 21,816 employeecontribution Organisation’s cost for medical insurance = $436,536 - $21,816 = $414,720 13-7
Cost of dental insurance can be calculated based on: Number of employees in each category of enrollment Premium rate for each category Assume dental insurance is provided for all 52 employees and their families 13-8
Type of Number of Annual Cost/ Total Enrollment Employees Employee ($) Cost ($) One person 12 463 5,556 Two persons 16 921 14,736 Three persons 24 1,314 31,536 Total 52 51,828Organisation’s cost for 52 employees are $51,828 13-9
Dollar cap limits organisation’s expenditures Actual cost will be based on dollar cap If cap applies for each employee individually, cap would not affect costs for 12 employees as cost of coverage less than $700 cap Cap would affect costs for 40 employees who have two or three persons’ coverage 13-10
Type of Number of Annual Cost/ TotalEnrollment Employees Employee ($) Cost ($)One person 12 463 5,556Two persons 16 700 (921) 11,200Three 24 700 (1,314) 16,800personsTotal 52 33,556 Organisation’s cost is $33,556 13-11