Textbook Notes (369,067)
Canada (162,366)
Commerce (1,696)
Chapter 10

CHAPTER 10 EMPLOYEE BENEFITS

7 Pages
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Department
Commerce
Course Code
COMMERCE 2BC3
Professor
Frances L Tuer

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CHAPTER 10 EMPLOYEE BENEFITS 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 - Cost objectives: controlling labour costs is not possible without controlling benefit costs - Behavioral objectives: benefits influence whether employees come to work for a company, whether they stay, when they retire etc - Employees look for different types of benefits so employers need to re-examine their benefits to see if they meet today's needs. Flexible Benefits Plan - Benefits plan design that provides employees the chance to choose among benefit s offered by the employer. Aspects of Benefits - Legal Compliance - although direct compensation is subject to government regulation, the scope and impact on benefits is great - Some benefits are mandated by law while others are subject to significant regulation and must meet a certain criteria - Benefits have become institutionalized - some benefits are so typically offered [medical/retirement benefits] and not providing them is highly unusual --> can lead to trouble attracting and retaining a quality workforce - Complexity compared to other forms of compensation - Employees might not be aware of the value of their benefits or even that they have certain benefits. Thus return on employer’s investment will not be great. Some employers are giving employees more choice – but employees might not fully understand the implications of their choices. Tax Advantages of benefits 1. Significant growth occurred following WWII during which there were wage and price controls and labour market shortages. 2. Tax treatment of benefits is often better than the tax treatment of wages and salaries for both employee and employers. 1. Cost advantage that groups realize over individuals. Bulk Buying Power 2. Growth of organized labour from the 1930s to 1950s. 3. Employers might use benefits to differentiate themselves from other employers. 4. Keeping employees at work Benefits Programs : Mandatory Government sponsored, Employment Insurance, Workers' Compensation Mandatory Government-Sponsored Benefits Canada/Quebec Pension Plan (CPP/QPP) - Mandatory government sponsored pension plan funded by employees and employers that provide a basic level of income security for working Canadians when they retire - CPP/QPP is designed to replace about 25% of a person's earnings from employment up to a maximum amount Behavioural consequences: Because they are legally mandated employers don't have discretion in designing this aspect of their benefits programs. - Recent changes in eligibility age and benefit levels will help older Canadians who wish to remain in the workforce longer Employment Insurance (EI) Main Objectives: 1. Offset lost income during involuntary unemployment 2. Provide maternity and parental benefits off the job 3. Help unemployed workers find new jobs 4. Provide an incentive for employers to stabilize employment 5. Preserve investments in worker skills by providing income during short-term layoffs [allows workers to return to their employer] - Financed through federal and provincial funding supported by payroll deductions of employee and employer contributions Unemployed workers are eligible for benefits if they: 1. Have a prior attachment to the workforce 2. are available and willing to work each day 3. are actively seeking work 4. were not fired for misconduct Workers' Compensation Four Main Categories 1. Wage loss benefits 2. Health care 3. Survivor benefits 4. Rehabilitative services - Financed by employers who pay premiums Cost to Employers is based on: 1. Nature of the occupation and risked attached 2. Province where the work is located 3. Employee experience rating Voluntary Employer Sponsored Benefits Private Group Insurance Group insurance rates usually lower than individual rates due to economies of scale, the ability to pool risks and the greater bargaining power of a group. Two Major Types: 1. Extended Medical Insurance - Most important benefit to the average person - Covers: hospital expenses not covered by provincial plans, Dental/Vision care, Prescription drug programs 2. Disability Insurance Short Term Disability Plan: Benefits plans that provide income security to employees for short periods [6 months or less] of absence from work due to non-work-related illness or injury Long Term Disability Plan: A form of income for longer periods of absence from work due to non work related chronic illness or disability Retirement Employers have no legal obligation to offer private retirement plans if they do they have to be a registered pension plan. Registered Pension Plan - 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 - employer sponsored RPP that guarantees a specified retirement benefit level to employees based on combination of years of service and employees earnings level - Insulate employees from investment risk Defined Contribution Pension Plan - sponsored RPP in which an individual account is set up for each employee to which the employer provides a guaranteed size of contribution - may also include employee contributions - money purchase plan - simplest form of DCPP. an employer specifies a level of annual contribution. Employees sue the money to purchase an annuity rather than taking it as a lump sum - Defined contribution plans continue to grow in importance while defined benefit plans are viewed as riskier because of the huge responsibility to adequately fud such plans into the future\ Factors that affect the amount of income that will be available: 1. Age at which the investment is made 2. Different investments have different historical rates of return 3. The need to counteract investment risk by diversification because stock and bond prices can be volatile in the long run Pension Design and Education: Private pensions must meet certain requirements contained in legislation and must also meet strategic objectives. 1. Eligibility - Policy concerning who can join the plan and when 2. Funding - How the plan will be financed? What rate? Who will contribute? 3. Benefit Formula - Plan must specify how the amount of pension benefits will be calculated 4. Vesting: Vesting Rights: Rights to a pension to be paid upon retirement earned by members of a pension plan once a specified minimum period of time has been worked with the employer sponsoring the plan (up to tw
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