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Chapter 11

ADMS 2600 Chapter 11 notes.docx

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York University
Administrative Studies
ADMS 2600
Sung Kwon

Chapter 11:Employee Benefits Managing Employee Benefits Programs - benefits constitute 20 to 25 percent of payroll costs in Canada; higher in US, about 30 to 35 percent - difference is largely attributed to the fact that Canadian firms do not have to provide some basic health benefits as these are provided by various governments - in return, employers generally expect employees to be supportive of the organization - value of these benefits depends on how the benefits program is designed and communicated - once viewed as a gift from the employer, benefits are now considered rights to which all employees are entitled - Requirements for an Effective Benefits Program  selecting benefits that target important employee needs while promoting strategic organizational objectives  effective administration of benefits programs Strategic Benefits Planning - employee benefits program should be based on specific objectives compatible with the organization's strategy and the strategic compensation plan, including its philosophy and policies Chief objectives of most benefits programs  Improve employee work satisfaction  Meet employee health and security requirements  Attract and motivate employees  Retain top-performing employees  Maintain a favourable competitive position Development of a uniform package of benefits involves  carefully considering the various benefits that can be offered  the relative preference shown for each benefit by management and the employees  the estimated cost of each benefit  the total amount of money available for the entire benefits package Allowing for Employee Involvement - many organizations create committees composed of managers and employees to administer, interpret, and oversee their benefits policies - opinion surveys are also used to obtain employee input - having employees participate in designing benefits programs helps ensure that management is moving in the direction of satisfying employee wants Benefits for a Diverse Workforce - employee benefits programs must reflect the social changes that Canada is constantly facing o changes in the diversity and lifestyles of the workforce - changes make it necessary to develop new types of benefits to meet shifting needs - benefits plans sometimes provide little advantage to employees, limiting the organization's ability to attract and retain quality employees - a well-designed—and costly—defined-benefits pension program may not serve the needs of employees or the employer of a predominantly younger workforce Providing for Flexibility flexible benefits plans (cafeteria plans) - enable individual employees to choose the benefits that are best suited to their particular needs - prevent certain benefits from being wasted on employees who have no need for them - employees are offered a basic or core benefits package of life and health insurance, sick leave, and vacation to ensures a minimum level of coverage to protect against unforeseen financial hardships - a specified number of credits are given to “buy” whatever other benefits they need - other benefits options might include prepaid legal services, financial planning, or long-term care insurance - ideal to compensation specialists o employees select the benefits of greatest value to them, whereas employers manage benefits costs by limiting the dollars employees have to spend Advantages  Employees select benefits to match their individual needs.  Benefit selections adapt to a constantly changing (diversified) workforce.  Employees gain greater understanding of the benefits offered to them and the costs incurred.  Employers maximize the psychological value of their benefits program by paying only for the highly desired benefits.  Employers limit benefit costs by allowing employees to “buy” benefits only up to a maximum (defined) amount.  Employers gain competitive advantage in the recruiting and retention of employees. Disadvantages  Poor employee benefits selection results in unwanted financial costs.  There are certain added costs to establishing and maintaining the flexible plan.  Employees may choose benefits of high use to them that might increase employer premium costs. Communicating Employee Benefits Information - court cases in Canada have established that it is the employer's responsibility to properly inform and disclose information about benefits - differences among provinces about what must be communicated - employee's name, date of birth, and date of hire must be included in the pension statement, along with the pension plan membership date, vesting date, and normal retirement date - most provinces also require the name of the employee's spouse and/or pension plan beneficiary Employers use a number of methods to communicate benefits to employees, such as the following:  In-house publications (employee handbooks and organizational newsletters)  Group meeting and training classes  Online modules  Bulletin boards  Payroll inserts/pay stub messages  Specialty brochures  new-hire orientation programs Employee self-service (ESS) systems - have made it possible for employees to gather information about their benefits plans, enroll in their plans of choice, change their benefits coverage, or simply inquire about the status of their various benefits accounts without ever contacting an HR representative o benefits information line o networked PCs or multimedia kiosks Crafting an Effective Benefits Communication Program - a well-designed benefits communication program will greatly enhance employees’ appreciation of their benefits while ensuring that employers receive the intended value of these offerings - an effective program provides information to employees frequently and in a timely and cost-effective manner In Building an Identity  Design materials that are eye-catching and of high interest to employees.  Develop a graphic logo for all material.  Identify a theme for the benefits program. In Writing Benefits Materials  Avoid complex language when describing benefits. Clear, concise, and understandable language is a must.  Provide numerous examples to illustrate benefits specifics.  Explain all benefits in an open and honest manner. Do not attempt to conceal unpleasant news.  Explain the purpose behind the benefit and the value of the benefit to employees. In Publicizing Benefits Information  Use all popular employee communication techniques.  Maintain ESS technology to disseminate benefits information and to update employee benefits selections.  Use voice mail to send benefits information.  Employ presentation software to present information to groups of employees.  Maintain a benefits hot line to answer employee questions. HRIS and Employee Benefits - software programs represent a cost-effective way to manage employee benefits programs when employers lack the resources or expertise Concerns of Management - union demands - benefits other employers are offering - tax consequences - rising costs Cost containment strategies by the Conference Board of Canada:  Contribution changes, such as increasing deductibles  Dollar limits, such as a dollar cap on specific benefits, such as eyeglasses  Coverage changes (e.g., limits on hospital upgrades)  Benefit caps (e.g., on dispensing fees)  Use of preferred providers and flexible benefits Benefits Planning: From Entitlement to Self-Responsibility - drivers of change o aging population o double-income families o diverse workplace o benefits being taxed to greater extents o human rights legislation is changing with respect to who should be covered - shift in responsibility from the provinces to third parties and individuals due to the high costs of providing benefit coverage - increased sensitivity to the magnitude of these trends and the resulting benefit cost impacts - employees are making employment decisions based on benefits - increase in flexible benefit plans especially employers who have employees with spouses who work elsewhere - increase in health promotion o wellness programs - stress reduction, fitness in the workplace, and smoking-cessation programs o employers seeing the value in keeping employees healthy and productive to prevent the claims costs Benefits Fraud - most common type of fraud o malingering  exaggerating illnesses or injuries to collect additional disability benefits  doctor shopping o collecting multiple prescriptions o misrepresenting dependents  making claims for children who are no longer dependent or not coordinating spousal plans o submitting false claims - ways to combat fraud o implement whistle-blowing policies o continue to educate their employees about the costs of fraudulent activities o establish a code of ethical conduct for employees o work with providers to ensure that fraud detection mechanisms are in place Employee Benefits Required by Law - amount to 12 percent of the benefits packages that Canadian employers provide  employer contributions to the Canada and Quebec pension plans  employment insurance  workers’ compensation insurance  provincial medicare Canada and Quebec Pension Plans (CPP/QPP) - cover almost all Canadian employees between the ages of 18 and 70 (certain migratory and casual workers who earn less than the specified amount may be excluded) - to receive a retirement benefit, an individual must apply to HRSDC at least six months in advance of retirement - both plans require employers to match the contributions made by employees - revenues generated by these contributions are used to pay three main types of benefits: o retirement pensions o disability benefits o survivors’ benefits - governments do not subsidize these plans; all contributions come from employers and employees - self-employed individuals can also contribute to the plan - funds from CPP will not be able to meet the needs of retirees unless those currently working, and their employers, significantly increase their contributions - contributor's rights to benefits under CPP or QPP are not affected or impaired in any way by a change in employment or residence in Canada - all Canadian workers have “universal portability,” that is, the right to claim benefit credits wherever they are employed in Canada Employment Insurance (EI) - payable to claimants who are unemployed and are actively seeking employment - amount of benefit paid is determined by the number of hours of employment in the past year and the regional unemployment rate - individuals are entitled to unemployment insurance after they have contributed enough for a qualifying period and after a waiting period - employees who resign from their jobs or who are terminated for cause may be ineligible for benefits unless they can prove there was no reasonable alternative to leaving their jobs o sexual harassment o health concerns o moving to another town or city because of a spouse's reassignment - additional benefits may be extended for situations involving illness, injury, or quarantine or for maternity, parental, or adoption leave - benefit amount, which is calculated on the same basis as the regular benefit, varies across jurisdictions - sickness or disability benefits are available for up to 15 weeks - combination of maternity, parental, or adoptive benefits may be available up to a cumulative maximum of one year in some provinces - employees and employers both contribute to the EI fund, and there are numerous types of EI plans Workers’ Compensation Insurance - based on the theory that compensation for work-related accidents and illnesses should be considered one of the costs of doing business and should ultimately be passed on to the consumer - individual employees should not be required to bear the cost of their treatment or loss of income; nor should they be subjected to complicated, delaying, and expensive legal procedures - created by an act of Parliament to help workers injured on the job return to the workplace - each provincial and territorial board is empowered by the relevant legislation to o amend and collect assessments (i.e., insurance premiums) o determine the right to compensation o pay the amount due to the injured worker - employers’ contributions are assessed as a percentage of their payroll (varies with nature of the industry) Workers’ compensation is based on the following principles:  Employers share collective liability, although contributions may vary among employers in the same industry (e.g., some provinces punish employers who do not maintain a safe and healthy work environment by levying additional fines).  This compensation is based on loss of earnings.  The system is no fault and nonadversarial and thus offers no recourse to the courts. Benefits - paid out of an employer-financed fund - include medical expenses stemming from work-related injuries, survivors’ benefits (including burial expenses and pensions), and wage loss payments for temporary, total, or partial disability - permanent disability benefits may be disbursed as a lump-sum payment or as a permanent disability pension with rehabilitation services - amount paid depends on the employee's earnings and provincial legislation - employees cannot be required either to make contributions toward a workers’ compensation fund or to waive their right to receive compensation benefits - payments made to claimants are effectively nontaxable - premiums paid for by the employer may be deducted as expenses and are not deemed a taxable benefit for employees Reducing Workers’ Compensation Costs: Key Areas  Perform an audit to assess high-risk areas in the workplace.  Prevent injuries by proper ergonomic design of the workplace and effective assessment of job candidates.  Provide quality medical care to injured employees from physicians with experience and preferably with training in occupational health.  Reduce litigation by ensuring effective communication between the employer and the injured worker.  Manage the care of the injured worker from the time of the injury until the return to work.  Keep a partially recovered employee at the worksite.  Provide extensive worker training in all related health and safety areas. Provincial Hospital and Medical Services - resident in a Canadian province for three months are eligible to receive health care benefits - benefits include o services provided by physicians, surgeons, and other qualified health professionals o hospital services such as standard ward accommodation and laboratory and diagnostic procedures o hospital-administered drugs - third-party benefit coverage entitles employees to additional benefits such as o semiprivate or private accommodation o prescription drugs o private nursing o ambulance services o out-of-country medical expenses that exceed provincial limits o vision and dental care o paramedic services Discretionary Major Employee Benefits  health care  dental plan  payment for time not worked  life insurance  retirement programs  pension plans Health Care Benefits - used to cover only medical, surgical, and hospital expenses - employers are under pressure to include prescription drugs as well as dental, optical, and mental health care benefits in the packages they offer their workers - drugs now represent the second largest health expenditures, second only to hospital costs Cost Containment - growth in health care costs can be attributed to a number of factors o greater need for health care by an aging population o costs associated with technological advances in medicine o growing costs of health care labour o overuse of costly health care services - approaches used to contain the costs of health care benefits include o reductions in coverage o increased deductibles or copayments o increased coordination of benefits to ensure that the same expense is not paid by more than one insurance reimbursement o employee assistance programs and wellness programs Cost Containment Strategies  Education and Motivation o Communicate the costs of benefits. o Provide incentives to employees to reduce costs. o Teach employees how to live healthy lifestyles and how to plan for retirement.  Change Coverage o Introduce dollar limits on b
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