Designing

and
Administering
Benefits

12
© 2004 by Prentice Hall 12 - 1
Terrie Nolinske, Ph.D.
 Challenges

• How are benefit packages designed to support

firm’s overall compensation strategy and other
HRM policies?
• What are the strengths and limitations of
traditional benefit packages and new menu
plans?
• What is HR’s role in keeping accurate records of
employee benefits and informing employees
about their benefits?

© 2004 by Prentice Hall 12 - 2

Terrie Nolinske, Ph.D.
 How the Benefit Dollar Is $pent

Payment for Medical

time not and Related
Life Insurance worked Benefits
1% 24.8% 23.3%

Miscellaneous
4.8% Legally
Retirement Required
Paid Rest and Savings 28.5%
Periods 4.8%
Plans 12.8%

© 2004 by Prentice Hall 12 - 3

Terrie Nolinske, Ph.D.
 Contributions
Payments made for benefits
coverage.Contributions
coverage. Contributionsfor
fora a
specificbenefit
specific benefitmay
maycome
comefromfrom
theemployer,
the employer,employee
employee,
oror both.
both.

© 2004 by Prentice Hall 12 - 4

Terrie Nolinske, Ph.D.
 Cost of Employee Benefits in the
United States, 1929-2000

2000
1984 37.
5
1975 33.8
30.0
1965
1955 21.5
17.0

1929 3.0

0 5 10 15 20 25 30 35 40 45
© 2004 by Prentice Hall 12 - 5
Terrie Nolinske, Ph.D.
 Percentage of Employers Providing
Selected Benefit Plans
Medium and Small State and
Large Private Local
Private Firms1 Firms2 Governments3
1997 1996 1998
Health Insurance 76 64 86
Retirement Plans
Defined Benefit Plans 50 15 90
Defined Contribution Plans 57 38 14
Insurance Plans
Life Insurance 87 62 89
Long-term Disability Ins 43 22 34
Time-off Plans
Paid Vacations 95 86 67
Paid Holidays 89 80 73
Paid Sick Leave 56 50 96
Flexible Benefits Plans 13 4 5
© 2004 by Prentice Hall 12 - 6
U.S. Sept. of Labor, Bureau of Labor Statistics (2000). Employee Benefits in state
Terrie Nolinske, Ph.D. and local governments, 1998.
 Companies with Best Benefits
*Company offers a flexible benefits plan.

1. Xerox*
2. Quaker Oats*
3. John Hancock
4. DaimlerChrysler
5. Merck*
6. Bell Atlantic
7. AT&T*
8. Citibank
9. Johnson & Johnson
10. Hewlett-Packard

© 2004 by Prentice Hall 12 - 7

Terrie Nolinske, Ph.D.
 Legally Required Benefits

• Social Security
• Retirement Income
• Disability Income
• Medicare
• Survivor Benefits
• Unpaid Leave
• Workers’ Compensation
• Unemployment Insurance
© 2004 by Prentice Hall 12 - 8
Terrie Nolinske, Ph.D.
 Social Security Benefits:
Retirement Income

• Age 65 - 67 (full benefits)

• Monthly payments for life beginning at

retirement

• About 25% of earnings prior to retirement

© 2004 by Prentice Hall 12 - 9

Terrie Nolinske, Ph.D.
 Social Security Benefits:
Disability Income

• Totally, continuously disabled for 5 months

• Disability lasts at least 12 months
• Disability results in death
• Monthly payments comparable to
retirement benefits

© 2004 by Prentice Hall 12 - 10

Terrie Nolinske, Ph.D.
 Social Security Benefits: Medicare

• Age 65 or receive Social Security disability

payments for 24 months
• Covers hospital, nursing home and home
health agency expenses with deductible
• Monthly premium

© 2004 by Prentice Hall 12 - 11

Terrie Nolinske, Ph.D.
Social Security: Survivor Benefits
• Family members of deceased
• Widow[er] 60 and over; [grand]child under
18; dependent parent 62 or older
• Monthly payment
related to deceased
worker’s Social
Security retirement benefit

© 2004 by Prentice Hall 12 - 12

Terrie Nolinske, Ph.D.
Voluntary Benefits

Health Insurance
• Traditional Health Insurance
• Health Maintenance Organizations (HMOs)
• Preferred Provider Organizations (PPOs)
• Health Insurance Coverage of Employees’
Partners

© 2004 by Prentice Hall 12 - 13

Terrie Nolinske, Ph.D.
 0
2
4
6
8
10
12
U.S. 14
Canada

© 2004 by Prentice Hall

Terrie Nolinske, Ph.D.
France
Germany
Sweden
Iceland
Netherlands
Austria
Australia
Italy
Norway
Belgium
Switzerland
Finland
Ireland
N.Z.
Luxembourg
Denmark
Health Spending in

Japan
Spain
Various Countries, 1990

Portugal
U.K.
Greece
Turkey
12 - 14
 Voluntary Benefits (cont’d)

• Insurance Plans
• Life Insurance
• Long-Term Disability Insurance
• Paid Time Off
• Sick Leave
• Vacations
• Severance Pay
• Holidays and Other Paid Time Off
• Employee Services

© 2004 by Prentice Hall 12 - 15

Terrie Nolinske, Ph.D.
 Voluntary Benefits (cont’d)
Retirement Benefits
• Defined Benefit Plans
• Defined Contribution Plan
• 401(k) Plan
• IRA
• SEP
• Profit-Sharing Keogh Plan
• Hybrid Pension Plans
© 2004 by Prentice Hall 12 - 16
Terrie Nolinske, Ph.D.
Defined Contribution Retirement Plans:
401(k)

• For employees of for-profit business

• For everyone who qualifies

• Up to 15% of salary up to $11,000 in 2002

• Tax break on contributions / earnings

© 2004 by Prentice Hall 12 - 17

Terrie Nolinske, Ph.D.
Defined Contribution Retirement Plans:
IRA
• For anyone with earned income
• For those without company pension plans
or who have maximum in company plan
• Up to 100% of salary up to $6,000;
$3000 if joint with spouse
• May get tax break on contributions / get tax break
on earnings

© 2004 by Prentice Hall 12 - 18

Terrie Nolinske, Ph.D.
Defined Contribution Retirement Plans:
SEP
• For self employed and staff of small
businesses
• For sole proprietor
• Up to 100% of gross self-employment
income or $40,000, whichever is less
• Tax break on contributions / earnings
© 2004 by Prentice Hall 12 - 19
Terrie Nolinske, Ph.D.
Defined Contribution Retirement Plans:
Profit Sharing Keogh
• For self employed and staff of
unincorporated small businesses

• For small business owner who is funding

a plan for self and staff

• Same as SEP

• Tax break on contributions / earnings

© 2004 by Prentice Hall 12 - 20
Terrie Nolinske, Ph.D.
 Personal Account vs. Deferred Comp
Plan Personal Deferred
Compensation
Account Plan
Salary Set Aside Annually ($100/mo.) $1,200 $1,200
336 0
Less Taxes (28%) 864 1,200
Salary Set Aside Annually ($100/mo.) $1,200 $1,200
Net Amount
Less TaxesInvested
(28%) Annually 336 0
Net Amount Invested Annually 864 1,200

$57,266

$67,514
Personal Account

$141,761
Deferred Compensation Plan

$31,933
$18,128
$11,609
$1,251
$891

Account Value
at the end of:
Year 1 Year 10 Year 20 Year 30

© 2004 by Prentice Hall 12 - 21

Terrie Nolinske, Ph.D.
 Annual Number of Vacation Days in Various
Countries for Employees of One Year of
Service
Australia 20
Austri 30
Belgium
a 20
Canada 10
Finland 20
France 25
Germany 18
Japan 10
Mexico 6
Netherlands 24
Norway 21
Spain 22
Sweden 30
United Kingdom 22
United 10
States
0 5 10 15 20 25 30 35

© 2004 by Prentice Hall 12 - 22

Terrie Nolinske, Ph.D.
 Tax-Free or Tax-Preferred
Employee Benefits

1. Charitable contributions
2. Counseling
3. Parking
4. Tax preparation
5. Education subsidies
6. Child care or adoption
7. Elder care
8. Subsidized food service
9. Discounts on merchandise
10. Physical fitness programs

© 2004 by Prentice Hall 12 - 23

Terrie Nolinske, Ph.D.
 Tax-Free or Tax-Preferred
Employee Benefits (cont’d)

11. Social, recreational opportunities

12. Travel expenses
13. Clothing allowance
14. Equipment allowance
15. Relocation expenses
16. Emergency loans
17. Credit union
18. Housing
19. Employee assistance programs
20. On-site health services

© 2004 by Prentice Hall 12 - 24

Terrie Nolinske, Ph.D.
 Selected Methods of Employee
Benefits Communication
• Fliers or newsletters mailed to staff homes
• Payroll stickers or posters
• Wallet cards
• Provide toll-free employee assistance program
phone
• Multi-media present concepts in upbeat way and
ensure all employees at different locations get
same info

© 2004 by Prentice Hall 12 - 25

Terrie Nolinske, Ph.D.
 Case

In small groups, discuss how a Web site

could be used to pose information about
employee pay and benefits.

• What type of pay info would you post?

• What type of pay info would you not post?
• What info about employee benefits would
you post?
© 2004 by Prentice Hall 12 - 26
Terrie Nolinske, Ph.D.