Chapter 10.docx

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Department
Management and Organizational Studies
Course
Management and Organizational Studies 4485F/G
Professor
Linda Eligh
Semester
Fall

Description
Chapter 10 – Employee Benefits Microsoft  Moving to Flexible Benefits o Better accommodate their employees o Update content of the plan o Get more bang for buck  One to one approach when implemented to overcome skepticism  Hotline implemented for help o Managers informed adding depth to the communication process  Outsourcing claims o HR team freed up Introduction  Employee benefits: part of an organization’s total compensation package and include both mandatory government-sponsored benefits and voluntary benefits such as life and disability insurance, extended health coverage, additional vacation pay and a range of other options. o Counts towards an employee’s total compensation package o Usually around 30% o Controlling costs means also controlling benefits  Flexible benefits plan: a benefits plan design that provides employees the chance to choose (within limits) among benefits offered by the employer, to help ensure the plan will more effectively meet the needs of all employees and to help the employer contain costs. o Different than direct compensation, some mandated by law  Pension  Employment Insurance  Have become institutionalized  Medical insurance has become obligatory Reasons for Benefits Growth  While cash is less restrictive, benefits are preferred. Why? o Tax treatment is more favourable for employees o Marginal Tax Rate: The percentage of an additional dollar of earnings that goes to taxes o Companies can provide more benefits for that $1000, than if they gave it to the employee as cash because it would be taxed o Deferring compensation until retirement o Cost Advantage for employers as they’re buying group insurance rates at much lower rates because of economies of scale o Unions used benefits as a key negotiation objective  Better than a wage increase that would have no significant value vs. healthcare o Differentiation for Employers  Toyota – Employee Discount on leases, Four seasons – a free stay at any hotel Benefits Programs Mandatory Government-Sponsored Benefits  Canada/Quebec Pension Plan (CPP/QPP) o A mandatory government-sponsored pension plan funded by employers and employees that provides a basic level of income security for working Canadians when they retire or become disabled; administered separately in Quebec. o To qualify must have paid at least once into the plan during their working years.  Self-employed persons can contribute both parts (employer/employee’s) @ 9.9% of wage o Benefits level according to the length of individual’s contributory period and level of earnings over the years. o Funded from both employees and employers Employment Insurance (EI)  A mandatory, government-sponsored plan funded by employee and employer contributions that offsets lost income to eligible employees for reasons of job loss, illness or compassionate leave, and that provides maternity and parental benefits and a variety of other employment initiatives. o Help unemployed workers find new jobs  Financed through federal and provincial funding supported by payrll deductions of employee and employer contributions  Unemployed workers are eligible o Previous attachment for workforce o Are available to work each day o Actively seeking employment o Were not discharged for cause  Usually 55% of eligible earnings  Has created issues with maternity and paternal leave for employers/managers Workers’ Compensation  A mandatory government sponsored insurance plan funded by employers that provides wage- loss benefits, health care, survivor benefits and rehabilitative services to eligible employees with work-related injuries or diseased. o Replaced lawsuits for damages against employers o In return, employers are immunity from lawsuits, no fault liability o Not covered when injuries are self-inflicted or obvious disregard for safety rules  Benefits fall into four categories: o Wage loss benefits o Health care o Survivor benefits o Rehabilitative services  Contrast to unemployment insurance benefits, disability benefits are tax free.  Greater risk, the greater the premium that an employer has to pay  Workplace redesign and training to reduce workplace injuries is important o Make managers accountable for making the workplace safer Voluntary Employer-Sponsored Benefits Private Group Insurance  Medical insurance and disability are not legally required, offered on digression of employers o Group benefits, economies of scale utilized by employers  Extended Medical Insurance o Most important benefit to the average person o Challenge of offering quality medical while controlling costs  Disability Insurance o Short-Term Disability Plan: benefits plans that provide income security to employees for short periods of absence from work due to nonwork-related illness or injury  Benefits for 6 months or less, then long term plan kicks in o Long-Term Disability Plan: A form of income for longer periods of absence from work due to nonwork-related chronic illness or disability  Benefits are taxable if the employer pays the premium o Vast majority paid for by employers Retirement  CPP can be a large component of elderly’s overall retirement income, Private pension plans have grown in importance  No legal obligation for employers to offer private retirement plans, but may do  Registered pension Plan o Retirement plans sponsored by employers that are registered according to the Income Tax Act and subject to federal and provincial pension standards legislation  Defined-Benefit Pension Plan o An employer-sponsored and registered pension plan that guarantees a specified retirement benefit level to employees typically based on a combination of years of service and age as well as the employee’s earnings level (usually the five highest earnings years)  Can use flat rate in calculation o Insulates employees from investment risk  In the employers best interest to invest the pension effectively as they have to pay out the cash on retirement  If the company has to reduce the plan due to fiscal troubles, employees could be at risk  If company goes bankrupt, employees are last creditors on the list o New plan that has given employees credit priority for certain things, but still does not protect pensions  Defined-Contribution Pension Plan o An employer-sponsored and registered pension plan in which an individual account is set up for each employee, to whom the employer provides a guaranteed size of contribution; it may also include employee contributions.  Do not provide a specific benefit level for employees upon retirement  Investment risk is shifted to employee, wise investing is needed  Avoids long term obligation o Money Purchase plan: employer specifies a level of annual contribution.  At retirement age, the employee is entitled to the contributions plus the investment returns  Pension Design and Education o Not mandatory, must meet cetain requirements in legislation o Eligibility  Who can join the plan and when  How many years does one have to work before he becomes eligible to join the plan? o Funding  Plan design must include provisions for how the plan will be financed  Will it include employers contributions or both?  What rate of contribution is appropriate for the plan? o Benefit Formula  If a defined-benefit plan, the plan must specify how
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