Chapter 12 Compensation

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Ryan, an employee of an organization, claims that he had an on-the-job hand injury. Sara is the organization's claims processor. Arrange the steps Sara should take as part of claims processing in the correct order of occurrence.

1: Sara should find out whether the act claimed by Ryan has, in fact, occurred. 2: Sara should decide whether Ryan is eligible for the employee benefit if his assertion is true. 3: Sara should calculate the payment level of the employee benefit.

Identify a statement that represents the evidence that employee benefits are cost-justified. A: Employee benefits are known for helping in the retention of workers. B: Benefit schedules are specifically designed to favor shorter-term employees. C: Tying benefits to seniority makes workers less reluctant to change jobs. D: The amount of vacation time given to employees reduces with years of service.

A - Employee benefits are known for helping in the retention of workers.

Identify the examples of employee benefits. (Check all that apply.) A: Workers' compensation B: Straight salary C: Life insurance D: Pay for time worked

A and C - Worker's Compensation and Life insurance.

Which of the following methods of financing employee benefit plans is typically preferred by organizations? A: Employee paying total costs for some benefits B: Contributory C: Noncontributory D: Employer paying total costs

B - Contributory

How does a good compensation manager consider employee benefit costs? A: As burdens on employees and employers B: As part of the marketing plan of the organization C: As part of a total package of compensation costs D: As outcomes of contributory financing

C - As part of a total package of compensation costs

To be most effective, an employee benefit manual should _____. A: be capable of assisting Development of Strategic Benefits Survey in identifying sample groups B: primarily elaborate the ways in which employee benefits can be taxable C: be followed by repetition of the message in multiple media such as newsletters and social media D: detail specific issues faced by employees such as disability, hospitalization, and unemployment

C - Be followed by repetition of the message in multiple media such as newsletters and social media.

Identify a statute that affects most employee benefits, pension administration, and various sections of the Internal Revenue Code. A: Sherman Antitrust Act B: Technical and Miscellaneous Revenue Act C: National Labor Relations Act D: Employee Retirement Income Security Act (ERISA)

D - Employee Retirement Income Security Act (ERISA)

Worker's Compensation is a (blank) plan Unemployment insurance and social security is a (blank) plan

State (Worker's Comp) Federal (Unemployment)

The first step in a cost-centered approach to employee benefits requires _____. A: policy decisions on whether high-cost benefits such as social security and workers' compensation should be offered to employees B: negotiating or providing the benefits on a package basis rather than a cost basis C: policy decisions on the level of benefit expenditures acceptable both in the short and the long runs D: recognition of the fact that any extra benefit costs beyond the amount set by employers are to be borne by employees

C - Policy decisions on the level of benefit expenditures acceptable both in the short and long runs.

What is a copay?

The practice of requiring employees to pay a fixed or percentage amount of employee benefit coverage

What is a noncontributory benefit plan?

Total costs are paid by employers

Flexible employee benefit plans are also known as _____. A: gain-sharing plans B: cafeteria-style benefit plans C: defined benefit plans D: cost-of-living adjustment plans

B - Cafeteria style plans

The Employee Retirement Income Security Act of 1974 did:

Set up the Pension Benefit Guaranty Corporation

A good compensation manager should make decisions about outlays by considering that employee benefit costs are _____. A: only one part of a total package of compensation costs B: burdens on employees and employers C: only one part of the marketing plan of the organization D: outcomes of contributory financing

A - Only one part of a total package of compensation costs

(Blank) (Blank) are that part of the total compensation package, other than pay for time worked, provided to employees in whole or in part by employer payments.

Employee Benefits

In the context of employee benefits, which of the following is a true statement about a Consumer-driven or High Deductible health care plan? A: An employee pays all health care services that cost above $12,000. B: An employee pays all health care costs up to a pre-determined amount. C: After an employee pays all health care costs up to some pre-determined rate, the employee pays a rate of 70 percent of additional medical services. D: After an employee pays all health care costs up to some pre-determined rate, the employee pays a rate of 60 percent of additional medical services.

B - An employee pays all health care costs up to a pre-determined amount.

Which of the following is a way in which employers can control spiraling employee benefit costs? A: By recognizing that any extra costs of benefits above the maximum limit set by the employers are to be borne by employees B: By adopting a broad, cost-centered approach to benefits C: By providing benefits on a package basis rather than a cost basis D: By focusing exclusively on the current costs of benefits rather than forecasts of anticipated costs in future

B - By adopting a broad, cost-centered approach to benefits.

What is administrative cost containment?

The practice of controlling costs using policies such as seeking competitive bids for program delivery.

What is a Contributory benefit plan?

Employers and employees share the total costs

The Family Medical Leave Act of 1993 did

Mandates 12 weeks of time off for all workers at companies that employee 50 or more people.

The Patient Protection and Affordable Care Act of 2010 did

Requires individuals to maintain minimal essential health insurance coverage or pay a penalty unless exempted for religious beliefs or financial hardship

What is an employee financed benefit plan?

Employees pay total cots for some benefits.

The Fair Labor Standards Act of 1938 did:

Introduced time-and-a-half overtime pay.

In the context of the impact of legislation on employee benefits, discrimination legislation states that _____. A: overtime must be paid to workers who work beyond the standard work hours B: employers must provide 12 weeks of leave to all working mothers to allow them time to fulfill their responsibilities at home C: benefits must be administered in a manner that avoids differentiating against protected groups D: employers must establish 401(k) pension plans for all employees over the age of 55 to safeguard them against age discrimination in future

C - Benefits must be administered in a manner that avoids differentiating against protected groups.

What do most organizations consider when evaluating the adequacy of employee benefits? A: The financial liability of employers after outsourcing benefits B: The total reduction possible in benefits costs because of adverse selection C: The financial liability of employees with and without a particular benefit D: The financial liability of employers with legally mandated benefits of health care, maternity leave, and pension

C - The financial liability of employees with and without a particular benefit.

Many of the employee benefits that exist today were provided at employer initiative. Why did employers implement savings and profit-sharing plans? (Check all that apply.) A: To improve job performance B: To provide greater security for worker retirement years C: To create a climate of ethnocentrism D :To increase disparate impact

A and B

What is a probationary period?

The practice of excluding new employees from employee benefit coverage until some term of employment is finished.

Many of the employee benefits that exist today were provided at employer initiative. Why did employers implement savings and profit-sharing plans? (Check all that apply.) A: To provide greater security for worker retirement years B: To create a climate of ethnocentrism C: To increase disparate impact D: To improve job performance

A and D

During World War II and the Korean War, the climate fostered by wage and price controls provided a perfect opportunity for unions to flex the muscles they had gained under the _____. A: Sherman Antitrust Act of 1890 B: Revenue Act of 1943 C: Wagner Act of 1935 D: Tax Adjustment Act of 1966

C - Wagner Act of 1935

Identify a true statement about the role of employee benefits in attraction, retention, and motivation. A: Retirement benefits reduce with years of service. B: Retention is increased by benefits. C: Higher benefits increase employee mobility. D: The amount of vacation time reduces with years of service.

B - Retention is increased by benefits.

Which of the following is an assumption of the demographic approach to determine employee preferences? A: There are meaningful differences between groups in terms of benefit preferences. B: Employee preferences for various benefit options seldom vary on the basis of gender and marital status. C: Surveys can be used to determine the needs of individuals in an inexpensive way. D: A wide variation exists among individuals with respect to the benefits desired.

A - There are meaningful differences between groups in terms of benefit preferences.

Which of the following are features of a flexible employee benefit plan? (Check all that apply.) A: Benefit managers are capable of controlling benefit costs by constraining the dollars employees have to spend. B: Benefit managers are able to avoid the problem of adverse selection as employees can pick only those benefits that they will use. C: This plan is exempt from the nondiscrimination requirements in Section 125 of the Internal Revenue Code. D: Employees are allowed to directly identify the benefits of greatest value to them.

A and D

Identify a true statement about employee benefit costs between 1955 and 1975. A: They reduced at a rate almost five times slower than employee wages. B: They increased at a rate almost four times greater than employee wages. C: They reduced at a rate almost three times slower than the consumer price index. D: They increased at a rate almost ten times greater than the consumer price index.

B - They increased at a rate almost four times greater than employee wages.

Identify a true statement about the cost effectiveness of employee benefits. A: Provision of employee benefits involves payment of federal personal income tax. B: Provision of employee benefits involves payment of state personal income tax. C: The majority of employee benefits are not taxable. D: Group-based employee benefits are costlier than individual-based benefits.

C - The majority of employee benefits are not taxable.

A true statement about the cost effectiveness of employee benefits is that _____. A: provision of employee benefits involves payment of state personal income tax B: the majority of employee benefits implemented by employers are taxable C: group-based employee benefits can be obtained at a lower rate than individual-based benefits D: provision of employee benefits involves payment of federal personal income tax

C - group-based employee benefits can be obtained at a lower rate than individual-based benefits.

The Maintenance Act of 1973 did:

Mandated employers to provide alternative health coverage options to employees.

Identify an assumption of the demographic approach that is used to gauge employee preferences. A: Demographic groups can be recognized for which benefit preferences are fairly consistent across members of the group. B: There exists homogeneity among demographic groups in terms of benefit preferences. C: Surveying individuals about needs can provide information about benefit preferences in an inexpensive way. D: Employee preferences for various benefit options are seldom determined by individual needs.

A - Demographic groups can be recognized for which benefit preferences are fairly consistent across members of the group.

What is a benefit limitation?

The practice of limiting disability income payments to some maximum percentage of income.

In the process of auditing employee benefits for cost containment opportunities, employers _____. A: avoid negotiating lower fees by providers B: include new employees in employee benefit coverage C: accept service for pre-existing conditions D: outsource benefits and administration

D - Outsource benefits and administration.

Employee benefits slowly became a costly entitlement of the American workforce because _____. A: they were taken on faith without hard data about payoffs B: they failed to provide security for the retirement years of workers C: they were implemented by employers to increase ethnocentrism in the workplace D: they failed to create the impression that management valued employees' welfare

A - They were taken on faith without hard data about payoffs.

What are the factors that need to be included in the employee benefits planning process? (Check all that apply.) A: Plans to ensure external competitiveness B: Integration of benefits with other compensation components C: Strategies for ensuring adequacy of benefits D: Plans to promote ethnocentrism through benefits E: Strategies for taxing employee benefits

A, B, and C

The Consolidated Omnibus Budget Employees Reconciliation Act (COBRA) of 1984 did

Makes employees who resign or are laid off through no fault of their own eligible to continue receiving health coverage under the employer's plan at a cost borne by the employees.

What are the disadvantages of flexible employee benefit plans? (Check all that apply.) A: They seldom allow cost containment. B: They are subject to the nondiscrimination requirements in Section 125 of the Internal Revenue Code. C: They increase administrative burdens and expenses. D: They make the introduction of new benefits more costly than standard benefit plans.

B and C

True or false: Historically, organizations have provided equal employee benefits for both part-time workers and full-time workers.

False - This is false. Every organization has a variety of employees with different employment statuses. Historically, companies have provided far fewer benefits for part-time workers than for full-time workers.

Identify a true statement about the choice available to employees in the plan coverage of a standard benefit package. A: Employees typically are not offered a choice among employee benefits in a standard benefits package. B: Employees have more flexibility in a standard benefit package than in a cafeteria-style benefit plan. C: Employees have the flexibility to choose only those benefits that they will use, thereby reducing adverse selection. D: Employees typically are not provided with an upper limit on the cost of benefits that they can choose to avail.

A - Employees typically are not offered a choice among employee benefits in a standard benefits package.

In the context of benefit administration issues, what are the major questions that arise in setting up an employee benefit package? (Check all that apply.) A: Who should be benefited or protected? B: How much choice should employees have from a range of benefits? C: What are the ways to choose individual-based benefits over group-based benefits? D: Are the selected benefits legally defensible? E: How should benefits be taxed? F: How should benefits be financed?

A, B, D, and F.

Identify a true statement about a flexible employee benefit plan. A: It assumes that meaningful differences exist between demographic groups in terms of benefit preferences. B: It allows employers to eliminate the problem of adverse selection as employees can pick only those benefits that they will use. C: It assumes that demographic groups can be identified and that benefit preferences are fairly consistent across members of each group. D: It allots employees a fixed amount of money and allows them to spend that amount in the purchase of benefit options.

D - It allots employees a fixed amount of money and allows them to spend that amount in the purchase of benefit options.

An employer adopts new employee benefits offered by a competitor without careful consideration, just because the employer needs to avoid hard feelings. This is seen particularly among employers who _____. A: have strong commitments to having a totally or partially nonunion work force B: attempt to ensure job security in the public sector C: have the potential to provide benefits as a safety measure only to union members D: attempt to maintain a totally or partially union work force

A - Have strong commitments to having a totally or partially nonunion work force.

Identify the ways in which employers can increase the effectiveness of employee benefits. (Check all that apply.) A: By educating and creating awareness among employees about benefits B: By providing benefits such as cash balance plans that require employees to pay the entire cost of the benefit C: By increasing the value of mandatory benefits such as health care and reducing the value of voluntary benefits such as workers' compensation D: By planning, designing, and administrating benefits in a better way

A and D

Which of the following is a way to improve employer return on investment in employee benefits? A: Requiring employees to finance the total cost of social security B: Increasing the value of mandatory benefits such as health care and reducing the value of voluntary benefits such as unemployment insurance C: Allowing employees to choose the benefits they receive by introducing a flexible benefits package D: Implementing lower deductibles and copays

C - Allowing employees to choose the benefits they receive by introducing a flexible benefits package.

True or false: The federal government loosened wage and price controls during World War II and the Korean War.

False - This is false. During both World War II and the Korean War, the federal government instituted strict wage and price controls. The compliance agency charged with enforcing these controls was relatively lenient in permitting reasonable increases in benefits.

In the context of benefit administration issues, what are the major questions that arise in setting up an employee benefit package? (Check all that apply.) A: Who should be benefited or protected? B: What are the ways to choose individual-based benefits over group-based benefits? C: Are the selected benefits legally defensible? D: How should benefits be financed? E: How should benefits be taxed? F: How much choice should employees have from a range of benefits?

A, C, D, and F

Which of the following is an advantage of flexible employee benefit plans? A: They are exempt from the nondiscrimination requirements in Section 125 of the Internal Revenue Code. B: They help firms meet the changing needs of a changing workforce. C: They seldom allow employers to set dollar maximum, thereby allowing employees to choose any benefits they want. D: They are insusceptible to the problem of adverse selection.

B - they help firms meet the changing needs of a changing workforce.

What are the factors that need to be included in the employee benefits planning process? (Check all that apply.) A:Strategies for taxing employee benefits B: Integration of benefits with other compensation components C: Plans to ensure external competitiveness D: Plans to promote ethnocentrism through benefits E: Strategies for ensuring adequacy of benefits

B, C, and E.

An employer adopts new employee benefits offered by a competitor without careful consideration, just because the employer needs to avoid hard feelings. This is termed a _____. A: bandwagon effect B: domino effect C: streisand effect D: halo effect

A - Bandwagon effect

Which of the following is a true statement about an employee benefit handbook that communicates employee benefits? A: It details employee preferences, proving that differences exist between demographic groups in terms of benefit preferences. B: It consists of a description of all benefits, including coverage levels and eligibility requirements. C: It primarily elaborates the ways in which employee benefits can be taxable. D: It has the main objective of assisting Development of Strategic Benefits Survey.

B - It consists of a description of all benefits, including coverage levels and eligibility requirements.

In the context of the impact of legislation on employee benefits, the tax reforms of 1982 and 1986 _____. A: mandated employers to provide a pension to all employees and vesting rights to employees with a tenure of over five years B: permitted individual retirement accounts (IRAs) for eligible employees and established 401(k) programs C: required employers to offer reimbursement for job-related injuries and provide health care coverage to employees D: set up the Pension Benefit Guaranty Corporation and created time-and-a-half overtime pay

B - Permitted individual retirement accounts (IRAs) for eligible employees and established 401(k) programs.

When an employee asserts that a specific event, such as disability, hospitalization, unemployment, has occurred and demands that the employer fulfill a promise of payment, a (blank)(blank) arises

Claims processing

Which of the following is a true statement about an employee benefit handbook that communicates employee benefits? A: It details employee preferences, proving that differences exist between demographic groups in terms of benefit preferences. B: It has the main objective of assisting Development of Strategic Benefits Survey. C: It primarily elaborates the ways in which employee benefits can be taxable. D: It consists of a description of all benefits, including coverage levels and eligibility requirements.

D - It consists of a description of all benefits, including coverage levels and eligibility requirements.

Identify a true statement about the cost-centered approach to employee benefit programs. A: It views the costs of a particular benefit inclusion in isolation without reference to forecasts of rising costs in future years. B: It negotiates or provides benefits on a package basis rather than a cost basis. C: It views the costs of a particular benefit inclusion in isolation, without reference to total package costs. D: It requires benefit administrators to decide the cost commitments for an existing benefit package.

D - It requires benefit administrators to decide the cost commitments for an existing benefit package.

An employee pays all health care costs up to some pre-determined rate in a Consumer-driven or High Deductible health care plan. After that amount, the employee _____. A: pays a rate of 40-60 percent of any additional medical services B: is responsible for paying 70 percent of any additional medical services C: is responsible for paying 90 percent of any additional medical services D: pays a rate of 10-35 percent of any additional medical services

D - Pays a rate of 10-35 percent of any additional medical services.

True or false: According to the cost-centered approach to employee benefit programs, if a benefit forecast implies future cost containment may be difficult, the benefit should be given to employees only on a cost-sharing basis.

True - This is true. According to the cost-centered approach to employee benefit programs, if a benefit forecast suggests future cost containment may be difficult, the benefit should be offered to employees only on a cost-sharing basis. Management determines what percentage of cost it can afford to bear within budget projections, and the option is offered to employees on a cost-sharing basis, with projected increases in both employer and employee costs communicated openly.


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