Total Rewards - Benefits PDF

Benefits are a core element of the total rewards model. Over time, employee benefits have evolved from basic fringe benefits of insurance coverage to a wide range of benefits designed to strike a balance between an employee’s personal and professional life. Benefits – Programs focused on health and...

Benefits are a core element of the total rewards model. Over time, employee benefits have evolved from basic fringe benefits of insurance coverage to a wide range of benefits designed to strike a balance between an employee’s personal and professional life. Benefits – Programs focused on health and welfare, income protection, financial preparedness, retirement and time off including leaves of absence, aimed to provide holistic well-being and security for the workforce and their families. Elements of Benefits - Benefits programs may be categorized into the following two elements: Income protection programs – designed to protect the standard of living of the employee and his/ her family as well as protect from catastrophic losses Mandatory – in some countries it is required by law to cover employees for: – Unemployment – Medical – Retirement Voluntary, or at the discretion of the employer – Many governments mandate benefits. However, many may be voluntary and offered at the discretion of the employer. Even in countries where some benefits are mandated, organizations may enhance such offerings in order to be more competitive and attract employees. Benefits that may be voluntary or discretionary include the following: Wellness Mental/behavioral health Life insurance Pay for time not worked programs – designed to protect the employee’s income during periods when the employee is not working At work – for example, training, breaks Not at work – for example, holidays, vacation Factors Influencing Benefits - A variety of factors are influencing growth and change of employee benefits: Competitive practices – All of the five total rewards elements are influenced by competitive practices and may be geographically or employer-based. Competitive practices may result in richer benefits programs in some regions. They may also cause employers to re-evaluate the level of benefits in other regions if the employer’s package is significantly more generous than that of its competitors. Employee demands – Employees often request new or different benefits. Unions sometimes represent workers in negotiating with companies for benefits. Regulatory/legal environment – In many countries, the government is the major factor influencing growth and change of employee benefits. It is also the main provider of employee benefit programs. In other countries, the government mandates or encourages employers to provide certain programs. Taxation Benefits taxation affects: – Benefits levels through the imposition of benefits limits – The source of benefits (e.g., directly from company or through a pension fund) – The employee/company cost-sharing basis Corporate philosophy/business objectives – Influences outside the organization must be reconciled with the company’s philosophy and business objectives. Costs – Rising employee benefits costs are a substantial issue in many countries. Some organizations have tried to control their expenses by passing on more costs to employees through cost sharing and managing eligibility. Perceived value – Employers sometimes reconsider offering benefits that are not perceived by the workforce to be of value. Demographic changes – As the needs of a workforce change, employee benefits also need to change. The following are examples of several economic and demographic changes influencing international benefits structures today: The growth of multinational free trade areas – European Union – North American Free Trade Agreement (NAFTA) – Mercosur (Brazil, Argentina, Uruguay and Latin America free trade area) – Association of South East Asian Nations (ASEAN) Opening and globalization of economies Major additions to global skilled workforce Aging population in many countries Multiple generations working together Increasing number of females in the workforce Increased competition has resulted in the following: – Employees often have shorter career expectations. – Companies are less paternalistic. – There is more emphasis on “today’s” paycheck. Major US Benefits Laws - In the U.S., two pieces of legislation have a great impact on benefits that employers provide for employees. ERISA – The Employee Retirement Income Security Act is one of the most extensive pieces of legislation that affects U.S. employee benefits plans. Responsibility for the interpretation and enforcement is divided among the Department of Labor, the Department of the Treasury and the Internal Revenue Service. The act is designed to: Protect the interests of participants and their beneficiaries in employee benefits plans Provide rules on the federal income tax effects of transactions associated with employee benefits plans Create federal law for employers with multiple locations to provide one contract for the same carrier instead of separate accounts Establish minimum standards for pension plans in private industry PPACA – The Patient Protection and Affordable Care Act, commonly called the Affordable Care Act, is a comprehensive legislation that affects employers, individuals, health-care providers and insurance companies. It is enforced by Health and Human Services Department and Department of the Treasury and the Internal Revenue Service. Purposes include: Expand access to coverage to uninsured Americans Reform delivery system to improve quality Lower overall costs of providing health care Income Protection Programs - In some countries there are certain income protection programs that are required by law. In addition, there are also programs that companies may offer by choice to accomplish organizational goals. These benefits can include: - Health care benefits - Welfare benefits - Retirement benefits Common Health Care Benefits Dental plans - Indemnity plans – cover preventive and limited basic and major care - Dental maintenance organization (DMO) plans – require use of participating providers Vision plans - Insured plans with periodic coverage of routine exam, lenses and frames - Discount plans with retail networks Prescription drug plans - May be covered separately from the medical plan Behavioral health plans - Covers mental health and chemical dependency treatment - May be included as part of medical plan or may be separate Common Medical Plans - Because of the rising cost of providing medical benefits, private medical plans have evolved into a more “managed care” environment. This means that some aspect of the plan is managed through the service provider and/or the organization and includes variations in plan design. Medical plan types – There are several types of medical plans that have progressed and evolved over the years. - Traditional Indemnity (not as common these days) - POS – point of service - HMO – health maintenance organization - PPO – preferred provider organization - HDHP (in U.S.)– high deductible health plan o Note: High deductible plans can be found in HMOs and PPOs as well. o Consumer driven health plans (CDHPs)- a form of high deductible plans eligible for HRAs and HSAs. ▪ HRA – Health reimbursement account ▪ HSA – Health savings account These medical plan types have traditionally been offered in a defined benefit model. There has been an interest by some employers to move to a defined contribution model. For some employers, this transition has been made easier by migrating to a private health-care exchange (a marketplace of health insurance and other products offered through a third party, such as a consulting firm, insurer or other service partner). Welfare Benefits - The factors that influence health benefits may also affect other benefits, such as life insurance, disability and time off. Mandated life insurance and disability coverage varies across countries and regions and is typically provided through a combination of mandatory and company-provided plans. Depending on the type of benefit, statutory requirements, coordination with government programs, collective bargaining agreements and other influences may shape or define the final program, limiting employer flexibility in plan design. Death benefits – Company-provided death benefits are prevalent in most countries. - Benefits vary in both form and amount. - Not always insured, not necessarily provided through a life insurance policy - May be offered in some countries as a social program; human resources should examine benefits available in each country to avoid over-insuring employees. Italy is among the countries with the highest benefits (five to six times pay). - Payout relative to annual salary; one to two times pay is common; fixed amount in some countries, regardless of salary - Payout options: Lump sum or installment/annuity Disability insurance – This is also known globally as long-term disability, invalidity or permanent ill health. It typically refers to injuries or illnesses that are nonoccupational. - Determination and definition of disability will differ. For example, short- or long-term disability. - Payments may be minor or substantial; not yet provided in some countries o Often on a scheduled basis and range from 30% to 100% of pay o Typically limited to base pay - Local workers’ compensation may provide benefits for work-related disability Retirement Benefits Sources of retirement benefits – An initial assessment of retirement programs by country will include statutory social security programs that pay benefits upon retirement, death or disability. Additionally, there may be mandatory requirements exclusive of social programs. Common program features include varying benefits by income level and maximum benefits. - Government programs – Government programs and corresponding procedures and coverage vary by country. Sources of retirement benefits cont’d - Company-provided programs – Company-sponsored retirement programs present challenges in both the determination of appropriate benefit levels and alignment with local practices. - Some government programs may reduce benefits when coverage is provided by company plans. - Plan design should consider: o Eligibility for social security and other mandatory benefits o Effect of other governmental restrictions (e.g., tax treatment)  o Competitive practices o Union/work council directives o Cost o Business need - Defined benefit, defined contribution and hybrid programs (e.g., cash balance) are all used globally. o Example: Defined contribution is popular in countries with a British influence and defined benefit plans are found in parts of Europe and the Americas. Qualified retirement plans include both the traditional defined benefit (DB) pension plans and defined contribution (DC) plans. Defined benefit (DB) plans – generally provide better benefits to employees with longer service - Benefit at retirement is based on a formula that considers pay and service (i.e., one percent of compensation for each year of continuing service). - Plan sponsor is at risk for financial resources. - Predominant plan varies by location and government-required regulations. - Integration with government-sponsored programs is very important and complex. - Companies have terminated or amended their defined benefit plans to reduce their potential costs. - In some countries, the plan is at risk for the investment performance. Defined contribution (DC) plans – characterized by employee and employer contributions made to individual participant accounts - No promise of a specific benefit at retirement - Employee is at risk for financial resources. - Sometimes replace or supplement defined benefit plans - Individual accounts must be maintained for each participant. - Becoming increasingly popular worldwide - Types o Savings/thrift plans o Profit-sharing plans o Money purchase plans - In the U.S., the 401(k) is the most prevalent DC plan offered by private-sector employers. Hybrid plans – combine elements of defined benefit and defined contribution plans - Cash balance plans Pay for Time Not Worked Programs - Time off with pay is provided for a variety of situations in different countries and refers to any nonworking period for which the regular rate of pay is earned. At work – For U.S. employers, many items are guided by the Fair Labor Standards Act (FLSA). - Training - Rest periods - Wash-up time  - Clothes changing time - Travel time - Coffee/smoke breaks - Birthday celebrations Not at work – often guided by company policy, practice or union contract. Practices vary regarding holiday and vacation entitlements across countries and regions. In addition, in many countries the term “vacation” can also be referred to as “holiday.” - Primary - Vacations - Holidays - Sick - Minor - Personal leave - Jury duty - Bereavement - Company shutdown - Sabbatical - Reserve duty and military leave - Family/medical - Religious observations - Paid time off (PTO) bank – collapses separate programs into one policy. It replaces what are traditionally segregated time-off programs into a single block of time. - Combines vacation, sick, personal days and sometimes holidays into one bank - Severance allowance – a continuation of an employee’s salary after termination that is paid either in a lump sum or on a continuation basis