2. What Are Employee Benefits
• Employee benefits refer to all forms of compensation (cash/non-cash)
paid by an employer to employee apart from salary/wages for the
service provided to the employer.
• Offering employee benefits are essential to attract and retain the talent
for the company.
• Employees consistently rate benefits a key factor in job satisfaction.
3. What Are Employee Benefits
Example of Employee Benefits
• education reimbursement and employee training
• on-site child care services
• financial counseling
• retirement benefits
• gym membership
• Bonuses
• pension and retirement benefits schemes
• company cars and fuel
• medical insurance
• travel expenses
• food and entertainment expenses
• childcare costs
4. What Are Employee Benefits
The amount of tax which must be paid depends on the expense or
benefit; some are tax-free (e.g. mobile phones and meals in a staff
canteen).
In general, employers are responsible for reporting and paying taxes on
employee benefits
5. Benefits Administration Rules
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?
4. Are your benefits legally defensible?
6. Benefits Administration Rules
Who should be protected or benefited?
Should all employees be treated equally with respect to benefits coverage
• What probationary periods (for eligibility of benefits) should be used for various types of
benefits? Does the employer want to cover employees and their dependents immediately upon
employment or provide such coverage only for employees who have established more or less
permanent employment with the employer? Is there a rationale for different probationary
periods with different benefits?
• Which dependents of active employees should be covered?
• Should retirees (as well as their spouses and perhaps other dependents) be covered, and for
which benefits?
• Should survivors of deceased employees (and/or retirees) be covered? If so, for which
benefits? Are benefits for surviving spouses appropriate?
• What coverage, if any, should be extended to employees who are suffering from disabilities?
• What coverage, if any, should be extended to employees during layoffs, leaves of absence,
strikes, and so forth?
• Should coverage be limited to full-time employees?
The answers to these questions depend on the policy decisions regarding adequacy, competition,
and cost effectiveness
7. Benefits Administration Rules
How much choice should employees have among an array of benefits?
• 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.
• “Cafeteria-style,” or flexible benefit plans: employees are permitted great
flexibility in choosing the benefit options of greatest value to them.
Even companies that are not considering a flexible benefit program are offering
greater flexibility and choice. Such plans might provide, for example, (1) optional
levels of group term life insurance; (2) the availability of death or disability benefits
under pension or profit-sharing plans; (3) choices of covering dependents under
group medical expense coverage; and (4) a variety of participation, cash distribution,
and investment options under profit-sharing, thrift, and capital accumulation plans
8. Benefits Administration Rules
Advantages and Disadvantages of Flexible Benefit Program
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. Any 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.
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.
9. Benefits Administration Rules
How should benefits be financed?
• Non-contributory ( Employer pays total costs.)
• Contributory (Costs are shared between employer and
employee.)
• Employee financed (Employee pays total costs for some
benefits—by law the organization must bear the cost for
certain benefits.)
