Ch. 4 - Total Rewards
What are the basic requirements of a payroll system?
- accurately calculate payments due to employees - accurately calculate statutory and voluntary deductions - track payroll tax systems owed to fed and state agencies - provide accurate reports of payroll costs to mgt - provide security for payroll information
In most, traditional defined-benefit plans, what is the retirement benefit based on?
-Salary earned during last 5 to 10 years of earnings, or -Career average earnings, or -Flat dollar amount for each year of service, or -% of earnings multiplied by years of service
What are the 3 factors that the IRS identifies as determining degree of control and independence?
1. Behavioral - does company control or have right to control how worker does job? 2. Financial - are aspects of the job controlled by the payer? 3. Type of relationship - are there written contracts or employee benefits?
What are 2 metrics that may provide useful info about comp/benefit programs?
1. Compensation as a percentage of operating expenses 2. Benefits as a percentage of operating expenses
What are the 3 commonly recognized shifts?
1. Day shift: 8am-4pm 2. Evening, or swing shift: 4pm-12am 3. Graveyard shift: 12am-8am *The setups are necessary when operating 24 hours (hospitals, airlines, etc.)
What are the 4 categories that voluntary benefits fall into?
1. Deferred compensation 2. Health and welfare 3. Work-life balance 4. Other
What are some things to consider when giving a merit-based salary increase?
1. Employee's position in salary range 2. Tenure in position 3. Skillset and performance compared to peer group
What are the 2 types of nonqualifed plans?
1. Grantor or Rabbi Trusts 2. Excess Deferral Plans
What factors should you consider when determining a promotion?
1. How long the employee has been in the current position 2. How recently a merit increase was awarded 3. Whether the new position is in the same area of the organization or a different one 4. Where the new salary will place the employee in the new salary range *Generally speaking, a 10-15% increase is provided for promotions
What are the 2 basic types of benefit programs?
1. Legally mandated 2. Voluntary
What are the 3 phases of a successful incentive plan?
1. Plan design - simple, easy for employee to understand 2. Review process - can be end of year or more frequently 3. Communication and Implementation - communicate before or at beginning of review period
What are some types of defined-contribution plans?
1. Profit-Sharing Plans (also known as discretionary contributions) 2. Money-Purchase Plans 3. Target-Benefit Plans 4. 401k plans
What are the 3 ways in which Title III of the CCPA protects employees?
1. Prohibits employers from terminating employees whose wages are garnished for any one debt, even if employer receives multiple garnishment orders for the same debt 2. Sets limits on the amount that can be garnished in any single week 3. Defines how disposable earnings are to be calculated for garnishment withholdings **The law DOES NOT protect employees from termination if the employer receives garnishments for more than one debt**
What 2 factors does the formula for a defined-benefit plan consider?
1. Salary 2. Length of service with the company
When were cash-balance plans (CBPs) approved by the IRS and what are they?
1985 - Defined benefit retirement plan that maintains hypothetical individual employee accounts like a defined contribution plan. The account accumulates interest and is portable (if employee resigns, can be withdrawn or converted to annuity). They have higher contribution limits, so are attractive to those who are behind on retirement savings.
What is best practice when ensuring you have accurate descriptions from which to conduct market research?
3-5 sources
What is a defined-benefit plan?
A retirement plan that tells participants exactly how much money they'll receive on a specific later date (usually the date they retire). In these plans, company is committed to pay a specified benefit amount when employee retires.
What is a bonus?
Additional compensation for performance above and beyond expectations and is paid in addition to employee's base pay. This is usually discretionary, so not always communicated. Ex - holiday bonus
What is a shift premium?
Additional compensation provided for employees who work other than day shift. Can be % or factored into hourly rate. Uncommon for exempt employees to receive this, but they can.
What is hazard pay?
Additional pay for dangerous and/or extremely uncomfortable working conditions. Examples - firefighters, Infectious Disease, police, federal employees in dangerous countries, etc.
What is reporting pay?
Also called a reporting premium - ensures employee receives comp for showing up for regular shift or when called to worksite. If no work is available, employer may be required by state law or employment agreements to pay for minimum # of hours of work.
What is variable compensation?
Also known as incentive pay or pay for performance - these programs reward employees for individual and/or organizational results. Motivates employees to achieve business objectives by providing a line of sight between performance and reward.
What is a sales bonus plan?
Alternative to commission plan - % of base pay compensates employees for sales targets achieved
When aligned with a performance-management system, what is the key determining factor for the amount of a merit increase?
An annual performance rating. Reviews may be conducted on an employee's anniversary or during a focal review period, when all employees are reviewed at the same time.
What is imputed income?
Any indirect compensation paid on behalf of employees
How does the IRS view group life insurance plans in excess of $50k when premiums are paid by the employers?
As imuputed income
What authorized FSAs and what are they?
Authorized by Revenue Act of 1978 - FSAs are also known as Section 125 plans. They allow employees to set aside pre-tax funds for medical expenses they plan to incur during the calendar year. FSAs operate on a use-it-or-lose-it principle - depending on plan, might be able rollover certain amount.
What is a dependent care FSA (DCFSA)?
Authorized by Section 129 - employees can set aside a maximum of $5k to be used to care for dependent children or elders. Unlike FSA, employees may not be reimbursed for expenses in excess of the amounts that have been withheld from their paychecks.
What is a nonqualified plan?
Benefits exceed the limitations of qualified plans or don't meet other IRS requirements for favorable tax treatment. They aren't required to include all employees, so they may provide additional benefits to officers, shareholders, executives, supervisors, etc.
What is a benefit of broadbanding?
Can lead to greater collaboration by limiting employee focus on hierarchical differences between jobs
Describe paid time off (PTO):
Combines all forms of time off into single PTO bank. Since PTO covers sick and vacation leave, it's viewed as earned leave, and employees must be compensated for all leave they have earned but not used upon resignation
Describe unlimited PTO:
Combines vacation and sick pay. Employers don't have to track accruals. Expectation is that employees will manage their time effectively and not take time off that will negatively impact the business.
What is call back pay?
Companies provide to employees who are called to work before or after scheduled hours
What are healthcare benefits?
Company-sponsored medical plans that help employees pay for the cost of doctor visits, hospitalizations, surgeries, etc.
What is projected during annual budget process?
Compensation and benefit budgets. Must consider increases to salaries and adjustments to structures to keep salary ranges competitive with current labor market trends. Budgets are also projected for incentive pay programs and planned promotions.
Define benefits:
Compensation that the employee receives in addition to base salary. Examples - health insurance, company housing, company meals, clothing allowance, pensions, gym memberships, etc.
What is necessary in order to best perform salary surveys?
Conduct compensation benchmarking to identify job responsibilities and external market value
What is an actual deferral percentage (ADP) test?
Conducted each year to ensure that 401k plans are within limits set by IRS regulations
Exclusive Provider Organizations (EPOs):
Consists of a network and includes a hospital. EPO physicians may see only those patients who are a part of the EPO. Patients in EPO may only see those healthcare providers in the network. They receive no reimbursement for healthcare obtained outside the network.
What are some examples of eligible FSA expenses?
Cost of copayments and deductibles from medical, dental, and vision-care plans, acupuncture treatments, orthodontia, psychiatric care, wheelchairs, PT, braille books/magazines, etc.
What are some reasons that base pay may be increased?
Cost of living (COL) adjustments, annual reviews, and promotions
What is cost of labor (COL)?
Cost to attract and retain individuals with these skills needed by the organization to achieve its goals. Ex - if high demand for skill set, availability of qualified individual decreases. This raises comepnsation rate for skillset, thereby increasing COL.
What is nonmonetary compensation (one of the 2 categories of rewards)?
Either intrinsic or extrinsic. Intrinsic rewards are those that encourage employee self-esteem, such as satisfaction from challenging assignments. Extrinsic rewards is when esteem is achieved from others, such as fulfillment from working with a talented team of peers. Also, relationship employees have with their supervisors, recognition of accomplishments, development and career opportunities, teamwork, and nontraditional work-life balance benefits (telecommuting, on-site childcare, and flex time) are extrinsic, nonmonetary rewards.
What is a tandard Coordination of Benefits (COB) process?
Employee is also covered as a dependent on another plan, such as that of spouse or parent. In these situations, the employee's primary coverage pays according to the plan benefits. The secondary coverage will then pay up to 100% of allowable expenses, incl. deductibles and copayments for the claim. The secondary plan will pay only up to the amount it would have paid as the primary carrier, so the total insurance payout may still be less than 100% of the claim.
What is indirect compensation?
Employee payments that are not associated with wages and salaries. Include fringe benefits: vacation, sick, and holiday pay, insurance premiums paid by the employer, leave of absence, social security, FMLA, 401k/pension, etc.
What does a payroll dept need to calculate nonexempt earnings?
Employee's base pay rate, shift diffs, tips, and bonuses; how many hours the employee worked during the pay period; and whether any paid leave was used.
What does a payroll dept need to calculate exempt earnings?
Employee's base salary, any bonus amounts, and any paid leave used
What is a downside to offering FSAs?
Employees can get reimbursed for expenses before the funds have been withheld from their paychecks. If they leave the company before the funds have been withheld, they aren't required to reimburse company for those expenses.
Volunteer time off (VTO):
Employees take paid or unpaid time off to volunteer.
Describe sick pay:
Employees use when they're ill or when they need to care for a sick child or other family member
What are some consequences of violating the CCPA?
Employer may be required to reinstate a terminated employee, pay back wages, and refund any improper garnishments
What are wage garnishments?
Employers are required by a court order or tax levy to withhold additional funds from employee's paycheck and are issued to satisfy a debt owed by the employee (i.e., child support, unpaid taxes, etc.)
Jury Duty Pay:
Employers are required to provide time off for employees who are called to jury duty. Many employers pay difference b/w employee's regular earnings and the amount they're paid for performing jury duty.
What is geographic pay?
Ensures employees in different locations are paid at rates that are competitive in labor market for specific jobs and locations. Ex - if employee moves to San Fran, comp will likely be increased.
What is a plan sponsor?
Entity that establishes the plan. Can be single employer, a labor organization, or, in the case of a multiemployer plan, a group representing the parties that established the plan
What does earned leave mean?
Ex - vacation pay. This means that employees must be paid for the leave if they don't use it upon resignation. Employees aren't compensated for sick time if they don't use it
What are total rewards?
Exchange of payment from an employer for the services provided by the employees. This is vital to attracting, retaining, and motivating employees.
What is a nonforfeitable claim?
Exists because of a participant's service. Unconditional and legally enforceable.
Describe overtime:
Fair Labor Standards Act (FLSA) requires payment only for OT exceeding 40 hrs/week. However, some states have OT laws that exceed federal requirements, and employer is to pay at more generous state law. Paying OT to exempt employees is uncommon, but not prohibited by FLSA. FLSA requires employees to keep track of hours, however.
What are monetary benefits and what are some examples?
Financial rewards provided to employees for meeting their goals (i.e., paid volunteer time, tuition assistance, etc.)
Where can you find the Federal Wage Garnishment Law and what is it?
Found in Title III of the Consumer Credit Protection Act (CCPA) of 1968 - applies to all employees and employers. Employers are required to withhold funds from employee's paycheck and send money to entity designated in court order/levy document.
What is payroll administration?
Function in the company that is responsible for calculating employee earnings and deductions and maintaing records of those payments
Describe vacation pay:
Generally earned as employees complete time on the job. Companies typically require employees to work a specific period of time, usually 3-6 months, before eligible to use any accumulated vacation pay. Some companies allow employees to accumulate vacation pay year-to-year, others have a 'use it or lose it' principle. *Typically viewed as earned leave*
What are some examples of voluntary deductions?
Health premiums (medical, dental, vision), 401k, union dues, and in some cases, contributions to charities designated by employees.
What are work-life benefits?
Help employees manage the conflict b/w work demands and family responsibilities and develop a healthful balance for many areas of their lives.
Benefits as a percentage of operating expenses:
Helps view increased benefit costs in the context of other expenses. Tracks the cost of benefits relative to other operating expenses . To calculate, divide cost of benefits (health & welfare, PTO, etc.) by total operating expenses.
What is performance based compensation?
How well individual employees perform against company's process for measuring performance. This includes merit increases and promotions.
Point-of-Service (POS) Plans:
Hybrid of HMO and PPO. Employee gets to choose which service to use each time they see a provider. Like HMOs, POSs require a PCP and referrals to specialists in the network when needed. Like PPOs, employee can see specialist outside of network as well. When employee see out-of-network provider, they must submit reimbursement claims to insurance company themselves.
What are sabbaticals and leaves of absence (LOA)?
In educational institutions, sabbaticals allow educator to receive a year off with pay to pursue further education, conduct research, write books, etc. after working for a specified period of time. Encourages professional development.
What is an experience rating?
In managed-care settings, providers often determine premiums based on costs incurred by the group during the current coverage period. The costs are analyzed by type, and premiums for the following period are adjusted based on this. Some organizations implement wellness programs to improve the experience rating and lower premiums.
What is monetary compensation (one of the 2 categories of rewards)?
Includes any costs the organization incurs for the benefit of employees, such as all forms of cash compensation, 401k matching, healthcare premiums, pension plans, and PTO. Others are benefits that support the organization's culture - stock options, employee stock ownership programs (ESOPs), and incentive plans
What is one of the clearest indicators of a problem with the total rewards package?
Increase in turnover and exit interviews that indicate dissatisfaction with comp/benefits
What is a defined contribution plan?
Individual plan in which the amount of funds contributed is known but the amount of the benefit that is eventually paid out isn't known because it depends on the investment returns that are earned. The funds are accounted for in individual accounts for each participant.
What internal and external factors are considered when determining compensation?
Internal: importance of jobs relative to eachother External: economics, labor market, competition in product market, tax/accounting requirements, and government legislation and regulations
What is O*Net Online?
Job database maintained by DOL. This and other local/regional resources are valid sources when accessing pay trends by geographic locations.
Who developed the Scanlon plan and when?
Joseph Scanlon in the 1930s
What do employers use to determine base pay?
KSAOs, previous earnings, and internal equity. Changes to base pay are typically based on performance, seniority, and increased skills.
Parental leave:
Leave for parents of newborns or newly adopted children
What is a domestic partnership?
Legal or personal relationship b/w 2 people who aren't legally married or in a legally recognized civil union.
What are some examples of nonmonetary benefits?
Location of facilities, length of daily commute for employees, 'dress down' days,
What is the labor market?
Made up of any sources from which an organization recruits new employees. The combination of supply and demand for a certain skillset in the labor market impacts what the employers competing for those skills must pay to individuals who possess them. A single organization may find itself recruiting from several different labor markets, depending on the availability of skills for different positions.
Health Maintenance Organization (HMO):
Managed care plan that focuses on preventive care and controlling health costs. Generally use a gatekeeper, or Primary Care Physician (PCP), to determine whether the patient needs to be seen by a specialist.
What is narrowbanding, or traditional pay classification?
Many levels and are organized in hierarchical and vertical fashion. May not facilitate lateral movement and can create an employee focus on the organizational structure, rather than job responsibilities.
What is the goal of a total rewards package?
Maximize return on investment (ROI) of resources spent on employee rewards
What is a party in interest?
May be a fiduciary, a person or an entity providing services to the plan, an employer or employee organization, a person who owns 50% or more of the business, relatives of any of the above, or corporations that are involved with the plain in any of these functions
What is a qualified plan?
Meets ERISA requirements and provides tax advantages for both employers and employees. To be classified as a qualified plan, all employees must be eligible for all plan benefits.
What is a qualified deferred compensation plan?
Meets all ERISA requirements and protects employees from loss of benefits due to employer mismanagement of pension funds
What is the difference between commissions and sales bonuses?
Method of calculation
Who developed improshare and when?
Mitchell Fein in the 1970s
What are the 2 categories of rewards?
Monetary and nonmonetary compensation
What are some examples of non-eligible FSA expenses?
Monthly premiums, gym memberships, babysitting, elective cosmetic surgery, weight-loss programs, and nonprescription drugs
What are health purchasing alliances (HPAs)?
Negotiates and contracts for the plans on behalf of all members of the group. Smaller companies may use these to take advantage of economies of scale and form HPAs with other employers in the geographic area.
What is the entitlement compensation philosophy?
Often a result of seniority compensation - employees feel entitled to certain pay/benefits based on length of service as opposed to individual performance.
What is broadbanding?
Often used in conjunction with competency-based compensation program. Splits positions in the company into a few specific pay ranges. Each range includes a variety of jobs. Facilitates lateral career movement. Ex - if 4 levels, could be individual contributor, manager, director, and VP. All jobs in company fit into 1 of 4 categories
What is a common benefit funding method for smaller organizations?
Organization purchases insurance coverage for the plan. The organization pays premiums for all participants and the insurance company manages payment to the service provider and manages claim issues. Insurer assumes the risk for any unusual claims that may result in claim costs exceeding premiums received. Insurers keep track of the claim history and adjust premiums in subsequent years to recover any losses.
What is EO 13658 and when was it passed/effective?
Passed in 2017 and went into effect in 2018 - Mandated that individuals working on or part of federal contract be paid minimum wage of $10.35/hr. Also, tipped employees must make $7.25/hr.
What is the Earned Sick Time Act?
Passed in NY - requires that workers earn one hour of paid sick time for every 30 hours worked
What is seniority compensation?
Pay decisions are based on length of time employees have been in position and on years of experience.
What is direct compensation?
Payments made to employees that are associated with wages and salaries. Includes base pay, variable compensation, and pay for performance.
What are employee/employer benefits?
Payments or allowances that organizations give to their employees. Examples - medical insurance, SS taxes, pension contributions, education reimbursement, car/clothing allowance, etc.
What is a plan administrator?
Person designated by the plan sponsor to manage the plan
Physician Hospital Organizations (PHOs):
Physicians join with a hospital and together rely on the PHO structure to develop and market their services and to negotiate/sign contracts. PHOs are unique in that they contract directly with the employer organizations to provide services.
What is a Highly Compensated Employee (HCE) and how do 401k treat them?
Plan participant who, during the current or prior year, earned $125k (if the preceding year is 2019) or more, owns 5% or more of the company, and, at the company's discretion, is one of the top paid 20% of employees. 401ks require that HCEs are not provided greater benefits.
When were the first involuntary, or legally mandated, employee benefits introduced and by whom?
President Franklin Delano Roosevelt's (FDR's) New Deal programs during the mid-1930s to aid in the millions of Americans who lost their jobs and were unable to find work during the Great Depression.
What is the goal of a health and wellness program?
Prevent employee illnesses and lower employee and employer healthcare costs
What is comparable worth, or pay equity?
Principle that men and women should be compensated equally for work requiring comparable skills, responsibilities, and effort.. It's about the inherent value of the job's content to society, so it doesn't reflect supply and demand in the labor market.
What is benchmarking?
Process of validating existing JDs in order to identify external market rate for each position
Short and Long-Term Disability Insurance:
Protects employees from income loss because of disability caused by illness or accident. Generally begins with sick leave provided by employers. When employee has exhausted their sick leave, they may become eligible for STD, which can be in effect for anywhere b/w 3 and 6 months. Employees still disabled when STD ends become eligible for LTD, which can last anywhere from 2 years until age 65.
What are commissions?
Provide incentives to sales employees by paying them % of sale price for products/services sold to customer
What are pay differentials?
Provides additional pay for work that is considered beyond the minimum requirements of the job and is uncomfortable, out of ordinary, inconvenient, or hazardous.
What is a third party administrator (TPA)?
Provides claim-management services only and isn't part of an insurance company
What is a spot bonus plan?
Provides immediate reward for outstanding performance
Compensation as a percentage of operating expenses:
Provides info about cost of human capital relative to other operating expenses for an organization. The higher the comp costs are, the more impact HR programs can have on the bottom line. To calculate, divide total compensation costs (base salary, variable pay, and any deferred comp) by total operating costs.
What is Accidental Death and Dismemberment (AD&D) Insurance?
Provides insurance for employees and their dependents in the event of an accident that results in death of the covered person or the loss of a bodily function. AD&D does not pay benefits in the event of death due to an illness.
What are some types of voluntary, deferred compensation plans?
Qualified pension plans & nonqualified pension plans
What is a defined-contribution plan?
Relies on contributions from employees and employers to fund IRAs. The contribution amount is fixed, but the amount of the benefit available upon retirement can vary based on type of investments made and returns earned on them.
What is a competency profile?
Replaces JDs in competency-based compensation programs. Consists of 10-12 key competencies identified by those who know the job requirements best. A career ladder then identifies specific levels of competency required at various stages. The profile describes the level of fully functional competence expected from employees at each stage and the corresponding pay for each level.
General end-of-quarter process for payroll:
Reports of gross payroll and withheld taxes are filed to federal, state, and local taxing authorities. These reports reconcile amount of tax withheld to amounts deposited during the quarter. At the end of the year, W2 forms are prepared and submitted to federal and state tax agencies.
What is the Welfare and Pension Plans Disclosure Act (WPDA)?
Requires administrators of health insurance, pension, and supplemental unemployment insurance plans to file descriptions of the plans and annual financial reports with the DOL
What is the Personal Responsibility and Work Opportunity Reconciliation Act of 1996?
Requires employers to report all new hires within 20 days of their hire date to the State Department of New Hires. Requires only that employers forward the W4 form to the state.
What are individual incentives?
Reward employees who achieve set of goals and objectives. Powerful tools for motivating performance.
What are examples of statutory deductions?
SS, Medicare, Fed income tax, state income tax, unemployment insurance (in some states), disability insurance (in some states), and other state/local taxes
What is a competency-based compensation program?
Salary is based on demonstrated skills and knowledge. This program places responsibility for advancement on each employee: the greater the level of competence, the higher the level of pay.
What is a helpful tool in forecasting changes to salaries and salary structure adjustments?
Salary surveys
What are some state and federal agencies that affect compensation and benefit decisions?
Securities and Exchange Commission (SEC), Financial Accounting Standards Board (FASB), and IRS. They all affect comp/benefits through enforcement of federal tax legislation (i.e., SS/Medicare taxes), pension regulation, and rules about benefit programs.
Employee Assistance Programs (EAP)?
Sponsored by employer as benefit and are generally low-cost for employer. Offer variety of counseling services for problems ranging from alcohol/drug abuse to legal assistance for financial counseling. Most often provided through 3rd party to ensure confidentiality of employee info.
What is a retention bonus?
Structured so full bonus is paid if employee remains with company through certain date, but entire amount is forfeited if employee leaves before date. Ex - in acquisition, offer retention bonus to executive to keep them around or if company is closing doors, offer to accounting manager to complete final tasks.
When there are competing federal and state laws, which one do you comply with?
The law that gives the greatest benefit to the employee
What is a partially self-funded plan?
These plans use stop-loss insurance to prevent a single catastrophic claim from devastating the claim fund. Employer agrees on preset maximum coverage amount that will be paid from the claim fund fo each participant before the insurance company begins to pay the claim.
What are nonqualified deferred-compensation, or top hat, plans?
They're not protected by ERISA and usually only made available to a limited number of employees at the executive level. These benefits provide retirement funds that supplement qualified retirement benefits and aren't subject to ERISA discrimination testing requirements. These plans allow highly compensated employees to defer income in excess of limits placed on qualified plans.
What is base pay?
This is the amount of compensation that employer and employee agree will be paid for performance of particular job duties. In the form of a salary or hourly wage.
Bereavement leave:
Time off with pay to attend funeral services for close relatives
What are some examples of work-life benefits?
Time-off programs, wellness benefits, and assistance with childcare or eldercare needs
Child-Support Garnishment Calculations:
Title III allows child-support garnishments of up to 50% of an employee's disposable earnings if employee is currently supporting a spouse or child and up to 60% of not. If payments are more than 12 weeks in arrears, wages may be garnished an additional 5%. There are no restrictions on child-support garnishments.
Debt Garnishment Calculations:
Title III defines 2 methods for calculating max weekly garnishment: 1. allows garnishment of up to 25% of disposable earnings 2. multiplies the federal minimum wage ($7.25 as of 2018) by 30. Total is subtracted from disposable earnings. Any disposable earnings that exceed the amount must be sent directly to recipient designated in order and not employee. The maximum amount of garnishment allowed is the lesser of those 2 calculations
What is a merit matrix?
Tool for managers to use in planning increases for their work units. Combines a performance rating with the employee's position in the salary range to recommend the amount of increase.
What are salary surveys?
Tool used to define a fair and competitive salary for the employees of a company. The survey output is data on the average or median salary for a specific position, taking into consideration the region, industry, company size, etc. They allow organizations to gather compensation and benefits data that reflects current trends in the labor market.
What is a defined benefit plan?
Traditional pension plan in which the employer provides a specific benefit upon retirement. The funds in these plans aren't accounted for individually.
Profit-Sharing Plans, or discretionary contributions:
Type of defined contribution plan - allows employers to contribute deferred contribution based on % of company earnings each year. A maximum contribution of 25% may be made for an individual employee each year. Work well for companies with erratic profit levels, as the contributions may vary from year to year.
401k Plans:
Type of defined contribution plan - allows for contributions from both employees and employers. Employees may defer part of their pay before taxes up to predetermined limits. Employers may make contributions as well. Employees are ultimately responsible for ensuring that the funds in their 401k are properly managed and available for use when they're ready to retire.
Target-Benefit Plans:
Type of defined contribution plan - hybrid plan with similarities to a defined-benefit plan and a money-purchase plan. Actuarial formulas calculate the contribution amount needed to reach a predetermined benefit amount at retirement. Since this amount takes into consideration the current age of each employee, different amounts will be contributed for employees with equal compensation packages.
Money-Purchase Plans:
Type of defined contribution plan - uses fixed % of employee earnings to defer compensation. Works well for organizations with relatively stable earnings from year to year because the % is fixed, and once established, contributions must be made every year.
What is deferred compensation?
Type of employee pension that is tax-deferred, such as individual retirement accounts (i.e., IRA, 401k). They allow an employee to contribute a portion of their income over time to be paid as a lump sum at retirement when the employee's income tax rate will be lower.
What is a Excess Deferral Plan?
Type of nonqualified deferred compensation plan - allows organization to make contributions to a nonqualified plan in order to reduce the impact of discrimination testing on HCEs. This is done by making up the difference between what the executive could have contributed to the plan and what was actually allowed because of limits required by the qualified plan.
What is a Grantor or Rabbi Trust?
Type of nonqualified deferred compensation plan - provides retirement income for officers, directors, and HCEs. The funds are unsecured and therefore subject to claims made by the organization's creditors. Benefits are taxable as ordinary income at the time they're paid to beneficiaries.
What are Employee Stock Purchas Plans (ESPPs)
Type of organization/group incentive - allows employees to use after-tax payroll deductions to purchase company stock at discounted price. Typically an offering period in which employee deductions are accumulated until purchase date, when $ is used to purchase company stock at discounted rate of up to 15%.
What is improshare?
Type of organization/group incentive - established baseline for organization productivity and baseline for productivity costs. Difference between baseline productivity and new output is used to calculate organization's performance?
What is gainsharing?
Type of organization/group incentive - involves employees and managers in improving organization's productivity and sharing of success
What is the Scanlon Plan?
Type of organization/group incentive - one of earliest pay-for-performace plans. Increase productivity and decrease costs through employee involvement. Employees receive portion of costs savings achieved through productivity gains and costs savings. Requires disclosure of financial information and productivity metrics to employees.
What is profitsharing?
Type of organization/group incentive - shares company profits. Typically qualified plans that distribute pre-tax dollars to eligible employees, typically based on % of employee's base salary. The distribution typically occurs annually, after the close of the fiscal year. It's typical for there to be a vesting schedule. Most are defined-contribution plans and therefore covered by regulations of Employee Retirement Income Security Act (ERISA).
What are Employee Stock Ownership Plans (ESOPs)?
Type of organization/group incentive - tax-qualified, defined contribution plan that allows employees to own share in company. At termination, retirement, or death, employees receive vested portion, which becomes taxable at time funds are distributed.
What is an industry survey?
Type of salary survey that is used for certain jobs as it may be important to consider industry-specific salary surveys. High-tech and hospitality are known for using these.
What are commissioned surveys?
Type of salary survey that is used when organization operates in industry with very specific skill requirements and may be difficult to match in readily available surveys. Commission 3rd party to conduct survey, aggregate data, and supply results to organization. Can be costly and time consuming.
What is an employee survey?
Type of salary survey that polls the internal workforce to gauge employee satisfaction with pay structures. Helps identify current needs of workforce as it relates to comp/benefits.
What is a government survey?
Type of salary survey. Bureau of Labor Statistics (BLS) is an independent statistical agency whose mission is to collect, analyze, and distribute statistical data. The BLS is a statistical resource to the DOL as well as a source for salary survey data.
What is a self-funded, or captive, plan?
Typical in larger organizations - employer creates a claim fund and pays all claims through it. These plans must conduct annual discrimination tests to ensure that HCEs aren't using the plan disproportionately to non-HCEs. Employer assumes risk for unusual claims that may exceed amount budgeted for the plan.
Fee-for-Service (EFS) Plans:
Typically most expensive to employers and employees b/c it places no restrictions on doctors/hospitals available to the patient. These plans require patients to pay for services out-of-pocket and submit claims to be reimbursed for expense.
What are cost of living (COL) adjustments?
Used during periods of high inflation to reduce the effects of wage compression
What are organization, or group, incentives ?
Used to increase productivity, foster teamwork, and share financial rewards with employees. Used to reward group performance.
Preferred Provider Organizations (PPO):
Uses a network of healthcare providers for patient services and don't require patients to be referred by PCPs. Employees who use healthcare services within the network make copayments. Out-of-network providers may be used, but the insured will have to pay the difference between the fees negotiated by the plan and those charged by the provider.
What is one of the lowest-cost benefits available?
Vision insurance
What are disposable earnings?
What is left in an employee's paycheck after all legally mandated deductions have been made
What's an example of seniority based compensation in an organization?
When a union is representing an organization's workers. In union context, long-term and short-term compensation decisions are the result of negotiations between the union and the employer. In a union environment, annual increases are typically determined by seniority.
What is a promotion?
When employees are moved into new positions with different duties and greater responsibilities OR when they develop a level of experience enabling them to assume added responsibilities in their current positions. Typically accompanied by change in title and salary.
Describe on-call pay:
When employees are required to respond on short notice (typically emergencies) and must be available via pager, cell, or email and are paid an hourly or daily premium.
Why would an employer request a private letter ruling from the IRS?
When organization wants to make changes to compensation or benefit programs, they may request this to find out how the IRS will view the changes before it makes them.
What is an Administrative Services Only (ASO) plan?
When self-funded organizations decide to contract with an insurance company to manage and pay claims.
What is a gig economy?
Where traditional workforce is being replaced with independent contractors and freelancers. Changes the way jobs are priced.
What is one of the first decisions to be made when conducting/participating in salary survey?
Which jobs will be priced. Most accurate data would be obtained by including all of organization's jobs, but this isn't realistic. Generally, ~65-70% of organization's jobs in survey provides solid base for use in creating a salary structure.
SS, Medicare, and federal income tax:
Withheld from employee's earnings and remitted to IRS at regular intervals. Failure to remit taxes on time results in penalties for employers.
State and local taxes:
Withheld from employee's earnings and remitted to appropriate govt agency according to payment schedules established by each agency.
What are benefit programs?
Workers' entitlements in addition to base salary. Examples - health insurance, life insurance, disability pay, retirement pension, etc.
What are some types of voluntary, health & welfare benefits?
dental, vision, life, AD&D, short/long-term disability, and long-term care insurance
What are some types of voluntary, work-life balance benefits?
vacation leave, sick leave, PTO, paid holidays, childcare, fitness, elder care
