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Setting the Stage for Employee Benefits Design and Planning

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This chapter addresses the concept of employee benefits, presents various categories of employee benefits, discusses the employee benefit environment, discusses the strategic considerations in designing employee benefit programs, explains the integrated system approach to plan employee benefits, and discusses the cost dimension of employee benefits.
This chapter is from the book

Aims and objectives of this chapter:

  • Set the stage for the discussions in the book
  • Address the concept of employee benefits
  • Present various categories of employee benefits
  • Discuss the employee benefit environment
  • Discuss the strategic considerations in designing employee benefit programs
  • Explain the integrated system approach to plan employee benefits
  • Discuss the cost dimension of employee benefits

At their inception, employee benefits were considered “fringe benefits,” a mere afterthought to cash wages. Employers who were concerned about their employees’ welfare, of their own accord, handed out “fringes” to them. As time has gone by, however, these benefits have evolved into a significant portion of a worker’s total official compensation package, sometimes making up as much as 35% or more.

In their book Compensation, authors Milkovich, Newman, and Gerhart provide their definition of employee benefits within a total employee compensation package as “all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.”1

Others have offered separate definitions for employee benefits, including programs financed by employers that cover situations such as death, accidents, sickness, retirement, or employment.

A broader definition states that employee benefits include all services outside of cash wages, received by a worker from their employer directly or through outside agencies.

The broadest categorization of benefits, therefore, would resemble the following list:2

  1. Legally required governmental programs

    1. Social Security
    2. Medicare
    3. Unemployment compensation
    4. Workers’ compensation
    5. Temporary disability insurance
  2. Company-sponsored loss-exposure insurance and retirement benefits

    1. Death
    2. Disability
    3. Long-term care protection
    4. Medical care
    5. Dental benefits
    6. Group Legal benefits
    7. Property and liability insurance
  3. Payment for time not worked

    1. Vacation
    2. Holidays
    3. Jury duty
    4. Maternity/paternity leave
    5. Reserve/National Guard duty
    6. Military leave
  4. Additional cash payments

    1. Educational assistance
    2. Moving expenses
    3. Suggestion awards
    4. Christmas bonuses
  5. Additional services

    1. Subsidized cafeterias
    2. Employee discounts
    3. Wellness programs
    4. Employee assistance programs
    5. Daycare services
    6. Adoption assistance
    7. Financial planning assistance
    8. Retirement counseling
    9. Free parking

Functional Categories of Employee Benefits

The categorization laid out in the preceding list is too broad and covers many items and services that are not within the purview of this book. However, you can see that employee benefits cover many individual plans, as outlined.

The broader categories of these plans can be grouped as follows:

  1. Legally mandated plans such as Social Security and other government programs
  2. Private plans sponsored by employers, either exclusively paid for by employers or fully/partially paid by employees
  3. Employee services—programs provided to assist with employees’ life conveniences (for example, employee cafeterias, purchase discounts, childcare, education assistance, and the like)
  4. Payments for time not worked, such as paid rest, sick leave, maternal/paternal leave, and vacation time, among others

This book focuses primarily on the second category of benefits (private plans sponsored by employers) because the bulk of expenses rests in this category. This book covers the accounting, finances, and related subject matter, as delineated in the preface.

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