Benefits and Services

Topic - 10

Policy Issues in Designing Benefit

Packages
Which benefits to
offer

Who will be covered

Whether to include
retirees

Coverage during
probation

Policy
Issues

How to finance
benefits

Degree of employee
choice

Cost containment
procedures

Communicating
benefits options
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Benefits
Types of Employee
Benefits

Pay for time

not worked
(Supplement
al
pay
benefits )

Insurance
benefits

Retirement
benefits

Personal
services

Pay For Time Not Worked

Vacations and
holidays

Unemployment
insurance

Sick leave

Severance pay

Supplemental
Pay Benefits

Parental leave

Supplemental
unemployment
benefits

Pay for Time Not Worked

Unemployment Insurance
Provides benefits if a person is unable to work through
some fault other than his or her own.
The benefits derive from a tax on employers that can range from
0.1% to 5% of taxable payroll
An employers unemployment tax rate reflects its rate of
employee terminations.

Vacations and Holidays

Number of paid leave days and holidays varies by employer.
Qualification for and calculation of holiday and leave pay varies
by employer.
Premium pay for those who work on holidays.

Pay for Time Not Worked (contd)

Sick Leave
Provides pay to an employee when he or she is out of work due to
illness.
Usually up to 12 days per year
Costs for misuse of sick leave

Parental Leave
The Family Medical Leave Act of 1993 (FMLA)
Up to 12 weeks of unpaid leave within a one-year period.
Employees on leave retain their health benefits.
Employees have right to return to their previous job or equivalent
position.
The costs associated with hiring temporary replacements, training
them, and compensating for their lower productivity can be
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considerable.

Pay for Time Not Worked (contd)

Severance Pay
A one-time payment when terminating an employee.
Reasons for granting severance pay:
Acts as a humanitarian gesture and good public
relations.
Mirrors employees two-week quit notice.
Avoids litigation from disgruntled former employees.
Reassures employees who stay on after the employer
downsizes its workforce of employers good intentions.
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Pay for Time Not Worked (contd)

Supplemental Unemployment Benefits (SUB)
Payments that supplement the laid-off or furloughed
employees unemployment compensation to help the
person maintain his or her standard of living while out
of work.
SUB payments are made to employees for the time the
employee is out of work due to layoffs, reduced workweeks, or
facility relocations.

Insurance Benefits
Workers Compensation
Provides income and medical benefits to work-related accident
victims or their dependents, regardless of fault.
In the event of a workers death or disability, the persons dependents
receive a cash benefit based on the workers earnings per week of
employment.
In addition to these cash benefits, employers must provide medical,
surgical and hospital services as required for the employee.

Controlling workers compensation costs

Screen out accident-prone workers.
Make the workplace safer by instituting effective safety and health
programs and complying with government safety standards.
Investigate accident claims thoroughly.
Use case management to return injured employees to work as soon as
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possible.

Insurance Benefits (contd)

Hospitalization, Health, and Disability Insurance
Helps protect employees against hospitalization costs
and the loss of income arising from off-the-job
accidents or illness.
Most employers health plan cover health-related expenses
like doctors visits, eye care and dental services.
Disability insurance provides income protection for salary loss
due to illness or accident.

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Insurance Benefits (contd)

Health Maintenance Organization (HMO)
A medical organization consisting of specialists
(surgeons, psychiatrists etc.) operating out of a health
care center.
Provides routine medical services to employees who pay a
nominal fee.
Receives a fixed annual contract fee per employee from the
employer (or employer and employee), regardless of whether
it provides that person with service.

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Insurance Benefits (contd)

Preferred Provider Organizations (PPOs)
Groups of health care providers that contract with
employers, insurance companies or third-party payers
to provide medical care services at a reduced fee.
Employees can select from a list of preferred individual
health providers.
Providers agree to provide discounts.

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Trends in Employer Health Care

Cost Controls
Premiums and copayments from
employees
Communication and
empowerment

Cost-Control
Trends

Wellness programs
Health savings
accounts
Claim audits
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Other Benefits Issues

Long-Term Care
Long-term care insuranceto support things like nursing assistance
to former employees in their old ageis a key benefit.
Employers can provide insurance benefits for long-term care such
as adult day care.

Life Insurance
Types
Group life insurance Offers lower rates
Accidental death and dismemberment coverage Provides lump-sum
benefit in addition to life insurance benefits in case of accidental
death, loss of limbs or sight.

Benefits for Part-Time and Contingent Workers

Leave and health care benefits available to part-time workers.
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Retirement Benefits
Social Security
A federal payroll tax paid by both the employee and
the employer on the employees wages.
Three types of benefits:
Retirement benefits at the age of 62
Survivors or death benefits paid
to the employees dependents
Disability payments to disabled employees
and their dependents

The Medicare program

Health services to people age 65 or older
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Pensions and Early Retirement

Early Retirement Windows
Offer specific employees (often age 50-plus) an
incentive
to voluntarily retire earlier than usual.
Offer a combination of improved or liberalized
pension benefits plus a cash payment.
Require careful program construction to avoid
oversubscription.

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Personal Services
Credit Unions
Separate businesses established with the employers assistance to
help employees with their borrowing and saving needs.

Employee Assistance Programs (EAPs)

Provide counseling and advisory services:
Personal legal and financial services
Child and elder care referrals
Adoption assistance
Mental health counseling
Life event planning
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Family-Friendly (or WorkLife) Benefits

Subsidized child care
Sick child benefits
Elder care
Time off
Subsidized employee transportation
Food services
Educational subsidies
Fitness and medical facilities
Flexible work scheduling
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Flexible Benefits Programs

Cafeteria (Flexible Benefits) Approach
A cafeteria plan is one in which the employer gives each employee
a benefits fund budget and lets the person spend it on the benefits he
or she prefers, subject to two constraints.
The employer must limit the total cost for each employees benefits
package.
Each employees benefits plan must include certain required items such
as Social Security, workers compensation and unemployment
insurance.

Employee Leasing
Employee leasing firms are also called Professional employer
organizations or staff leasing firms.
Handle human resources functions (such as recruiting, hiring etc.)
for leased employees of small firms.
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Flexible Work Schedules

Flextime
Compressed workweeks
Workplace flexibility
Job sharing
Work sharing

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Provident Fund
Provident fund (PF)

Is a special retirement savings scheme sponsored by the employer

which allows an employee to save certain percentage (5% to 10%) out
of their basic income every month. This saving will be matched by the
employer with 100% contribution.
- The total savings will be due to the employee upon his or her
retirement / resignation / termination*.
*sometimes employer does not pay his/her portion of PF contribution during
termination, only employees contribution is paid back
- Say, the employee contributes TK 500/ month, the employer would also
contribute TK 500 / month. The total contribution to PF would be:
(Employees TK 500 + Employers TK 500) = Contribution to PF is TK 1,000
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Provident Fund
Total Salary

Tk 70,000
Basic
Tk 40,000
House Rent
Tk 20,000
Telephone
Tk 2.000
Medical
Tk 5,000
Miscellaneous Tk 3,000

Provident Fund @ 5% of Basic

Employees contribution 5% of 40,000

Employers contribution
Total contribution to PF/ month
Total contribution to PF/year (Tk 4,000*12)

= Tk 2,000
= Tk 2,000
= TK 4,000
= Tk 48,000
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Provident Fund
Assuming that the employee gets an increment of 10% every year

over his/her basic salary.

Year

Basic
Salary

Employee's
Contribution
(5%)

1st

TK 40000

TK 2000

TK 44000

TK 2200

2nd
(10%
increase)
3rd
(10%
increase)

TK 48400

TK 2420

Employer's Provident
Provident
Contribution
Fund/
Fund/ year
(5%)
month
2000+2000 4000*12 =
TK 2000
= TK 4000 TK 48000
TK 2200

2200+2200 4400*12 =
= TK 4400 TK 52800

TK 2420

2420+2420
4840*12 =
=
TK 58080
TK 4840

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Provident Fund
If you have served for an unbroken period with clean record, then you

will get the employers contribution , for example if you have served
for more than or equal to 5 years then you are entitled to the entire
amount of employers contribution. Usually there is a schedule that
organizations follow, for example:
Vested Schedule
Proportion of employer's
No. of years served
contribution
5 years +
100% match
4 years
80%
3 years
60%
2 years
20%
less than 2 years
0%

Q: After 3rd year the employee decides to quit. How much PF s/he
will get?
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Provident Fund
Ans:

Year
1st
2nd
(10%
increase)
3rd
(10%
increase)

Employee's Employee's Employer's Employer's

Contributio Contributio Contributio Contributio
n (5%)
n Total
n (5%)
n Total
2000*12 =
2000*12 =
TK 40000
TK 2000
TK 2000
24000
24000
Basic
Salary

TK 44000

TK 2200

2200*12 =
26400

TK 2200

2200*12 =
26400

TK 48400

TK 2420

2420*12 =
29040

TK 2420

2420*12 =
29040

Total

TK 79440

Total

TK 79440

As per the schedule, for the PF calculation after 3 rd year, employee

would get his/her entire contribution and employer will pay 60% .

Hence PF would be: TK 79,440 + (60% of TK 79,440) = TK 127,104

Employers usually put the money in Banks and can get returns. For example big
corporates like Beximco can pool the money received from employees
for PF and can
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invest/ save the money in Banks to earn returns.

Gratuity
Gratuity: Is a onetime lump-sum payment given to the employees on

the last day of their employment as a gift for their valuable service to
the organization. Usually an employee becomes eligible between 5-10
years of continuous employment. It is one of the retirement benefits
offered by the employer to the employee upon leaving his/ her job.
If an employee quits after 10 years:

Gratuity amount = {5*5th years basic salary} + {5*10th years basic salary}
If an employee quits after 8 years:
Gratuity amount = {5*5th years basic salary} + {3*8th years basic salary}

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If s/he quits before 5 year of service, s/he is not entitled to Gratuity