PPT.pptx

2. Employee benefits and employee welfare programs have been in
vogue in industry since long. Some of them, like provident funds and
gratuity have become statutory while others concerning housing,
education, etc. are not statutory yet. Some are called fringe
benefits which are non-wage benefits offered by the employer to
the employees; they represent “a substantial coat-expense to the
employer and a cost-saving to the employee”. The money value of
fringe benefits may usually account for around 40 percent if hot
more of the employee remuneration to certain large organizations.

3. That 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. life insurance, pension, workers’
compensation, vacation
Employee benefits, also known as perks or fringe benefits, are
provided to employees over and above salaries and wages.
These employee benefit packages may include overtime,
medical insurance, vacation, profit sharing and retirement
benefits, to name just a few.

6. Wage-price control, setting of government guidelines for limiting increases in
wages and prices. It is a principal tool in incomes policy.
Incomes policy, collective governmental effort to control the incomes of labour and
capital, usually by limiting increases in wages and prices. The term often refers to
policies directed at the control of inflation, but it may also indicate efforts to alter the
distribution of income among workers, industries, locations, or occupational groups.
Wage and Price Controls
With strict limitations on the size of wage increases, both unions and employers sought
new and improved benefits to satisfy worker demands. This was the catalyst for growth
in pensions, health care coverage, time off, and the broad spectrum of benefits virtually
unthinkable before 1950.

7. Allowances
• Dearness allowance to neutralize for rise in cost of living. As explained in the test,
the basis for neutralization varies between civil service and private/corporate sector.
• Compensator allowances paid on account of peculiar local conditions or to
compensate for other difficulties. Some of these are:
• City compensatory allowance to compensate for the higher cost of living in
bigger cities.
• Hill area allowance
• Special, compensatory (remote locality) allowance
• Special compensatory (border area) allowance
• Special (duty) allowance
• Island special (duty) allowance
• Project allowance to compensate for lack of amenities like schools, markets,
proper housing and medical facilities at the places of construction of major
projects.

8. • Tribal area allowance
• Hard area allowance
• Bad climate allowance
• Dust allowance
• Milk allowance
• Traveling allowance to meet expenses for undertaking bus, train, air or sea
journey
• Transport allowance for commuting from residence to office and back
• Non-practicing allowance for doctors and lawyers who are denied private practice
while employed in an organization
• House rent allowance to employees who have not been allotted rent tree
accommodation
• Educational allowance for the education of children of employees
• Risk allowance to employees engaged in hazardous duties or whose work will
have deleterious effect on health over a period of time. Such allowances are also
paid to, sweepers and cleaners engaged in cleaning of underground drains, sewer
lines as well as to employees working in trenching grounds and infectious diseases
hospitals.

9. • Uniform related allowances for purchase and washing of uniforms, including shoes
and shoe polish as well as for make up materials in occupations such as air hostesses
and hotel staff.
• Deputation allowance in case of appointments made in public interest outride the
normal field of deployment. This is usually paid to government employees.
• Miscellaneous allowances such as cycle allowance, cash handling allowance,
machine allowance (staff working in multi-purpose counter machines in post offices,
etc.), care taking allowance, night duty allowance and split duty (where the break in
between the shift is at least 2 hours and who have not been provided residential
accommodation within 1 km of the office premises.

10. Benefits
• Leave travel concession (For annual home leave or once in four years to travel to
anywhere in country travel subject to-certain restrictions.
• Holidays and leave facilities. Apart from weekly holidays and national holidays
people belonging to different religious denominations, employees are usually given
casual leave, sick leave and annual leave.
• Advances. A variety of interest-bearing and interest-free advances are offered in most
.organizations- Apart from advance for travel/tour on duty, these include leave salary
advance, advance for medical treatment, festival advance, advance in the event of natural
calamities like flood, drought, cyclone, etc., advance for purchase or construction or
renovation of house or flat, purchase of consumer durables (including fan, car/scooter/cycle,
refrigerator, personal computer, etc.)
• Special benefits for women. Assistance in commuting to and from the place of work, crèche,
job sharing, part-time work, long career break, transfer to place where spouse is working,
facility to retain official accommodation at a place of employees choice in case wife and
husband is separated due to transfers, etc.

11. Unions
• A primary goal of trade unions is to maintain and improve workers’ terms and
conditions, particularly workers who are members of the union, through
collective bargaining with employers.
• Whether unions are successful depends, in large part, on their bargaining
strength – which is based on their ability to restrict the supply of labour to the
employer – and the ability of employers to concede above-market wages.
• Unions’ bargaining strength is enhanced by the percentage of all workers
they represent and leads to a higher union wage premium .
• Where the vast majority of workers in a given industry are covered by
collective bargaining union-negotiated wages have less impact on the
employer’s cost competitiveness than in instances in which competing
employers have ready access to non-union labour.

12. • Unions’ success in raising wages is further enhanced if the price elasticity of
demand for products or services in the industry is low
• Might be the case where there is a monopoly or oligopolistic production, since
employers are able to meet additional costs from above-normal profits or pass
the additional costs onto consumers without undue fear of being undercut by
other producers.

13. Union wage Premium
A union wage premium refers to the degree in which union wages exceed non-
union member wages. Union wage premiums are one of the most researched
and analyzed issues in economics especially in labour economics. Unions and
their struggle for wages and better benefits usually target larger firms that have
a concentrated industry. Unions have an effect on wages, the probability of
gaining benefits, productivity of the worker, and workplace protections.
Wage Premium
The average amount that the wages of members of a certain group are
greater than those of the population as a whole

15. Employer Impetus
• May of the benefits in existence today were provided at employer initiative.
• Much of this initiative can be traced to pragmatic concerns about employee
satisfaction and productivity.
• Rest breaks often were implemented in the belief that fatigue increased
accidents and lowered productivity. Savings and profit-sharing plans were
implemented to improve performance and provide increased security for
worker retirement years.

16. • Indeed, many employer-initiated benefits were designed to create a
climate in which employees perceived that a management was
genuinely concerned for their welfare.
• Their costs were quite real: Without hard data about payoffs,
employee benefits slowly became a costly entitlement of the
Workforce.

17. Cost-Effectiveness of Benefit
• Another important and sound impetus for the growth of employee benefits is
their cost-effectiveness in two situations.
• The first cost advantage is that most employee benefits are not taxable.
Provision of a benefit rather than an equivalent increase in wages avoids
payment of personal income tax.
• A second cost-effectiveness component of benefits arises because many
group-based benefits (e.g., life, health and legal insurance) can be obtained at
a lower rate than could be obtained by employees acting on their own.
• Group insurance also has relatively easy qualification standards, giving security
to a set of employees who might not otherwise qualify.

18. Government Impetus
Obviously the government has played an important role in the growth of
employee benefits.
Benefits of employees should be mandated.
In addition, most other employee benefits are affected by such laws as the
Employee Retirement Income Security Act (ERISA affects pension
administration) and various sections of the Internal Revenue Code.

20.  Employees:
 Expect benefits as part of their total compensation
 Do not understand true value of benefits
 Often undervalue their benefits
 Often take benefits for granted
 Often cannot list all benefits received
 Have preferences regarding types of benefits they want
The Value of Employee Benefits

21. In the above figure, five studies show remarkable consistent results over the
Past two decades.
• For example medical payment are regularly are listed as one of the most
important benefits that employees receive. These ranking have added
significance when we note that over the past two decades health care cost
are the most rapidly growing and most difficult to control amongst all The
benefits options by employers.

25. Benefit Planning and Design Issues
• What do you want, or expect, the role of benefits to be in your overall
compensation package? “What is the best way to achieve this?”
 Example of the set up a day care center to attract more mothers of pre-school
children. Certainly this is a popular response today.
• A more prudent compensation policy would ask the question: "Is day care
the most effective way to achieve my compensation objective?" Sure, day
care may be popular with working mothers, but can the necessary
workers be attracted to the casino using some other compensation tool
that better meets needs?
• If we go to compensation experts in the gaming industry, they might say:
"We target recruitment of young females for our entry-level jobs. Surveys
of this group indicate day care is an extremely important factor in the
decision to accept a job."

26. • How do we deal with undesirable turnover?
 After looking at other alternatives to reduce turnover, the best strategy was
to design a benefit package that improved progressively with seniority, thus
providing a reward for continuing service. Keep in mind, it has to be
decided only after evaluating the effectiveness in reducing turnover of other
compensation tools (e.g., increasing wages, introducing incentive
compensation).
 ensuring that benefits are adequate is a somewhat more difficult task,
most organizations evaluating adequacy consider the financial liability of
employees with and without a particular benefit (e.g., employee medical
expense with and without medical expense benefits).

27.  There is no magic formula for defining benefit adequacy. The
answer may lie in the relationship between benefit adequacy and
the third plan objective: cost of effectiveness.
 More organizations need to consider whether employee benefits
are cost justified.
 All sorts of ethical questions arise when we start asking this
question. How far should we got with elder care? Can we justify a
$250,000 operation that will likely buy only a few months more of
life?
 Companies face these impossible questions when designing a
benefit system. And more frequently than ever before, companies
are saying no to absorbing the cost increases of benefits.

28. Benefit Administrative Issues
Four major administration issues arise in setting up a benefit package:
(1) Who should be protected or benefited?
(2) How much choice should employees have among an array of benefits?
(3) How should benefits be financed? and
(4) Are your benefits legally defensible?
Employees, of course. But every organization has a variety of employees with
different employment statuses. Should these individuals be treated equally with
respect to benefits coverage?

29. The figure illustrates that companies do indeed differentiate treatment based on
employment status. Across the board, far fewer part-time workers are eligible for
the benefits regularly given to full-time employees.
Part Time Vs Full Time Workers Benefits

31. • The second administrative issue concern choice (flexibility) in plan coverage.
• In the standard benefit package, employees typically have not been offered-a
choice among employee benefits.
• Rather, a package is designed with the average employee in mind, and any
deviations in needs simply go unsatisfied.
• The other extreme is represented by "Cafeteria-style", or flexible benefit plans.
• Under this concept employees are permitted great flexibility-in choosing the
benefit options of greatest value to them.
• Picture an individual allotted x dollars walking down a cafeteria line and
choosing menu items (benefits) according to their attractiveness and cost. The
flexibility in this type of plan is apparent.

32. Possible options of employees under a flexible benefit system
*AE= Average Earnings.

33. Imagine an employee whose spouse works and already has family coverage for
health, dental and vision. The temptation might be to select package A. An
employee with retirement in mind might select option B with its contribution to a
401 (k) pension plan.
Even companies that are not considering a flexible benefit program are offering
greater flexibility and choice. Such plans might provide,
 Optional levels of group term life insurance;
 The availability of death or disability benefits, under pension or profit-sharing
plans;
 Choices of covering dependents under group medical expense coverage; and
 A variety of participation, cash distribution, and investment options under profit-
sharing, thrift and capital accumulation plans.

34. Advantages
1.Employees choose packages that best satisfy their unique needs.
2.Flexible benefits help firms meet the changing needs of a changing
workforce.
3.Increased involvement of employees and, families improves understanding
of benefits.
4.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.
5.Cost containment: Organization sets dollar maximum; employee chooses
within that constraint.
Advantages & Disadvantages of Flexible Benefit Program

35. Disadvantages
1.Employees make bad choices and find themselves not covered for predictable
emergencies.
2.Administrative burdens and expenses increase.
3.Adverse selection; Employees pick only benefits they will use; the subsequent
high benefit utilization increases its cost.
4.Subject to nondiscrimination requirements

36. • Many companies cite the cost savings from flexible benefits as a primary
motivation.
• Companies also offer flexible plans is response to cost pressures related to
the increasing diversity of the workforce.
• Flexible benefit plans, it is argued, increase employee awareness of the true
costs of benefits and, therefore, increase employee recognition of benefit
value.

37. Another way to increase employee awareness, and probably the biggest trend
today in health care, is to offer market-based, or customer-driven health care.
Although there are many variants on consumer-driven health care, here are the
basic choices:
 Full-defined Contribution—The employee is responsible for finding and
purchasing individual medical coverage. The employer provides funding
through either direct compensation or a voucher.
 Tiered Networks—The employer offer employees a choice of medical plans,
which include medical systems of varying costs.
 Menu-driven—Employers provide online information to help employees
customize their own benefit plan by selecting co-pays, deductible and so forth.
 Managed Competition—The employer provides a subsidized basic medical
plan with buy-up options. Plans can be from the same or multiple insurers.
 Health Savings Accounts—A fund is created by the employer, employee, or
jointly that is used to pay the first x dollars of health care expenses.

39. Innovation
Organizations are enlarging the scope of fringe benefits and have begun to
experiment with innovation. New dimensions are being added to certain benefits
with the availability of innovative individual/group insurance benefits for life cover,
health care and pension funds.
New benefits are being invented to cater to specific organizational problems like
redundancy, redeployment and relocation. If people are redundant, one option is
to retrench them by paying suitable compensation or announcing special benefits
under a voluntary separation (Golden Handshake) scheme.
The other option is to promote "outplacement". This means, train surplus staff in
marketable skills at the cost of the organization, assist them actively in seeking
placement outside the organization by meeting interview costs, waiving notice
period and grant of lieu on jobs for 6 months to an year so that employees do not
stop from availing of the new options opportunities for fear of uncertainty about
new job and new organizations.

40. Flexibility
• Organizations are realizing the need to be sensitive to tailor-make the benefits
to suit the needs of individual employees rather than offer a common, standard
package.
• With the result, flexible compensation packages have been gaining widespread
acceptance among managerial employees.
• Typically in a flexible compensation package, the total pay packet is decided or
negotiated and employee is given option to distribute it under different items like
pay, house rent, conveyance, entertainment, journal allowance, membership in
club, furnishing allowance, drivers salary, etc.
• Most of the items represent a variety of reimbursement accounts which
constitute expenses that do not form part of taxable income.
• The scope of flexible compensation package, as practiced in India for
managerial cadres, often extends beyond fringe benefits.

41. Harmonization
• It is a process of bringing blue and white-collar conditions of service into some
kind of alignment. The objective is to have a single status for all employees.
• In terms of conditions of service, whether it is blue-collar workers getting the
same conditions as white-collar workers or vice versa or a compromise
between the two is reached is a matter of corporate strategy.
• Though harmonization process may extend to all conditions of service and
even work practices, usually it covers time (working hours, 'time-office'
practices such as punching in and punching out, deductions for lateness, etc.),
and a variety of fringe benefits including transport (bus facility), catering,
uniforms, medical care and educational facilities for children.
• Harmonization seeks to bring in a measure of equity and fair play and
supposedly contributes to improvements in employee attitudes and
performance and simplification of payroll procedures and fringe benefit
administration.