Total Rewards & Compensation
What is minimum wage?
$7.25
What are the three factors to identify an employee from an independent contractors according to the IRS?
* Behavioral - does the employer have control over what the worker does or how the worker does the job. * Financial - Are the business aspects of the worker's job controlled by the payer? * Type of relationship - written contract or employee type benefits .
What are the different definitions of " benefits"?
* Benefit programs - workers' entitlement in addition to base salary. Ex: health insurance, life insurance, retirement * Benefits - compensation that the employee receives in addition to base salary. Ex: company housing, meals, uniform allowance, gym memeberships * Employee/employer benefits - payments or allowances that organizations give to their employees. Ex: Social Security taxes, pension contributions, education reimbursement, car * Healthcare benefits - company-sponsored medical plans that help employees pay for the cost of doctor's visits, hospitalizations , surgeries, etc..
What are the different type of salary surveys?
* Employee Surveys - polling the internal workforce * Government Surveys - Data from the Bureau of Labor Statistics * Industry Surveys - industry-specific salary surveys. Ex: high-tech * Commissioned surveys - commission a third party to conduct a survey, aggregate date and supply results.
What are the types of group incentives?
* Gainsharing * Improshare * Scanlon Plan * Profit Sharing * Employee Stock Ownership Plans ( ESOPs) * Employee Stock Purchase Plans ( ESPPs)
What are the basic points covered in a salary administration handbook ?
* Organization's compensation philosophy * The roles played by HR, line managers and executives in salary administration * Basic information about pay increases * A description of how salaries or wages for new hires are determined
What are the different statutory deductions?
* Social Security * Medicare * Federal Income tax * Unemployment insurance ( in some states) * Disability insurance ( in some states) * Other state and local taxes
What are the benefits of gainsharing?
* Teamwork, sharing knowledge and cooperation * Increased motivation * Employee focus and commitment to organizational goals * Greater employee acceptance of new methods, technology and market changes * Perceived fairness of pay, which increases productivity
Job Analysis Process
1. Analyze jobs 2. Job Evaluation - identify compensable factors of a job 3. Price jobs - ensure pay is competitive 4. Create Salary Structure 5. Place jobs in pay grades 6. Communicate plan to organization: employees & managers 7. Administer Plan - create a pay administration handbook 8. Evaluate results
Why is incentive pay a key component in compensation packages?
1. Behavior: When aligned with the organization's compensation philosophy, incentive pay can help shape or change employee behavior or organizational culture by rewarding behaviors that are valued by the organization. 2. Performance : Providing meaningful rewards to employees through the merit process requires many employees to be passed over for annual merit increases so the dollars can be spent on top performers- creates competition
What metrics are used to measure whether the total rewards and compensation programs in place are working or not?
1. Business Impact measures 2. Tactical Accountability Measures: * Compensation as a Percentage of Operating Expenses * Benefits as a Percentage of Operating Expenses
How do you design a successful incentive plan?
1. Design the plan - must be kept simple and should make it as easy as possible for employees to understand and recall performance goals. Minimum 10% bonus target to work. 2. Review process - review the ability to pay the bonus. Bonus review occurs to the end of the organization's fiscal year. 3. Communication and Implementation - incentives plans are communicated before or at the beginning of the review period. Sometimes modifying bonus targets may require new employment contracts ( HR and legal help is advised)
What are the important factors to consider when giving a merit-based salary increase?
1. Employee's position in the salary range 2. Tenure in position ( Hire Date/Date of last promotion) 3. Skill set and performance compared to peer group
Job pricing four-step process
1. Review the job description required skills and responsibilities 2. Select a salary survey - consider type and number of survey participants 3. Review compensation components such as base pay. The more matches the better. 4. Recommend a salary range. Recommendation should be in alignment with the organization's philosophy of leading, matching or lagging the market.
how much is an overtime?
1.5 times regular hourly rate
What is the minimum bonus target required to influence and change behavior?
10% of base pay . Anything less does not provide sufficient motivation for employees to put forward the effort or spend the additional time to achieve the objective
Ranking Method of Job Evaluation
A job evaluation that results in the ranking of jobs into a hierarchy beginning at the highest and ending at the lowest.
sabbatical leave
A paid leave of absence intended to develop and rejuvenate an individual employee. Usually in educational institutions
Party in interest
A pension plan participant, such as a fiduciary, a person or an entity providing services to the plan, an employer or employee organization, a person who owns 50 percent or more of the business, relatives of any of these, or corporations that are involved with the plan in any of these functions.
wage garnishment
A process that requires an employer to withhold a portion of an employee's paycheck to pay a court-ordered debt settlement. Ex: child support or unpaid taxes ( IRS)
Qualified Plan
A retirement plan that meets the ERISA requirements and provides tax advantages for both employees and employers. To be classified as a qualified plan, a pension plan can't provide additional benefits for officers, shareholders, Executives, supervisors or other highly compensated employees.
Which of the following expenses may generally not be used against flexible spending account? A. Gym membership B. Durable medical equipment C. Acupuncture D. Psychiatric care
A.
A total rewards philosophy can help achieve an organization's strategic goals by doing which of the following? A. Attracting and retaining employees with the necessary KSAs B. Establishing a pecking order for jobs in the organization C. Positioning the company to lead the competition for employees D. Maintaining an entitlement culture
A. A total rewards philosophy helps determine what kind of employees will be attracted to the organization. Developing a philosophy to target employees with the KSAs needed by the organization can help advance the organization's mission.
An entitlement culture is appropriate for a business that needs what type of workforce? A. One that continues to show productivity increases over time B. One that has a line of sight to retirement C. One that is highly competitive in completing daily assignments D. One that has skill set that's high demand
A. An entitlement culture rewards longevity in the job. If increased productivity is a function of time on the job, an entitlement culture will encourage employees to stay with the company. A entitlement culture is maintained by continuing to pay employees for time on the job instead of for performance.
The employer you work for has a marketing specialist who is an independent contractor. She is required to work three days a week, from 8:00am to 5:00pm. You have advised your employer that she is improperly classified and should be hired as an employee. Which IRS factor are you most likely basing this on? A. Behavioral B. Financial C. Type of Relationship D. None, her classification is legally compliant.
A. Behavioral factors include the degree of control an employer has over when and the way a worker performs the work.
Earning before taxes are most commonly referred to as which of the following? A. Gross Pay B. Net pay C. employee burden D. Wages, salaries and tips
A. Gross pay is the amount paid to an employee based on several factors, including the employee's base pay rate, shift differentials , tips and bonuses.
Which of the following is not an example of a voluntary benefit? A. Medicare B. Vision insurance C. Qualified pension plan D. Sick pay
A. Medicate is a type of involuntary benefit introduced by the Social Security Act of 1935. Along with retirement ( Social Security).
Cost-of-living adjustments are generally tied to which economic factor? A. Consumer price index B. social security index C. Employment cost index D. Producer price index
A. Wage compression occurs when employer pay rates do not keep up with external market conditions and the economy as a whole. when the cost of living goes up, pay rates should also adjust.
shift premium
Additional compensation provided for employees who work other than the day shift. It may be paid as a percentage of base pay or factored into the hourly rate.
Focal Review Period
All employees on the organization are reviewed at the same time
A company that wants to reduce the cost of its unemployment insurance should do which of the following? A. Aggressively fight unjustified claims for unemployment B. Establish an effective performance-management program C. Terminate employees who violate company policy D. All of the above
All of the above. employees terminated for a cause generally aren't eligible for unemployment insurance. Maintaining adequate records to demonstrate the reasons for termination provides tools to fight claims that are unjustified.
bereavement leave
Allow few days of time off with pay each year for employees to attend to personal needs outside of vacation, illness and other leave.
Is shift premium paid to exempt or non-exempt employees?
Although it's most common for non exempt employees to be paid shift premiums, they may also be paid to exempt employees.
Disposable earnings
Amount of employee pay left after federally mandated deductions are made, including federal and state income tax, Social Security, state and local taxes, disability insurance, and so on.
What is the relationship between economic factors and the cost of labor?
An increased demand for a skill set means decreased availability of qualified individuals so the competitive compensation rate for this skill set raises and thereby increases cost of labor.
Administrative services only ( ASO)
An insurance company or third party administrator (TPA) that delivers administrative services to an employer group for claim management and payment.
Cost-of-living adjustment (COLA)
Automatic adjustments of income to the rate of inflation
When several workers at a nuclear power plant call in sick with the flu, the manager calls James and asks him to come in three hours early. James will be paid a premium on top of his normal pay rate for these hours. This is an example of what? A. On-call pay B. Call-back pay C. Reporting pay D. Hazard pay
B. Call-back pay is a premium paid to employees who are called to work before or after their scheduled hours.
What impact does a gig economy have on an employer's compensation plan? A. Gig workers usually have a higher base pay B. HR must budget compensation costs differently C. HR must ensure they are not discriminating against gig workers D. Gig workers may still be entitled to mandated benefits
B. Depending on the nature of the contractors, the labor costs may need to be calculated on a project basis.
In a merit matrix, where would be the best position to place a fully trained employee that is meeting performance expectations who has been with the company four about three years? A. The minimum for the range B. The mid-point of the range C. The maximum point of the range D. Somewhere between the mid-point and maximum
B. For a fully trained employee with satisfactory performance who have been with the company less than five years, the mid-point of the salary range is reasonable.
Job fulfillment from working with a talented peer group is an example of which of the following types of compensation? A. Monetary B. Intrinsic C. Extrinsic D. Total rewards
B. Intrinsic rewards are driven by internal vs external; factors. Job fulfillment based on work relationships, the opportunity to use strengths ad career growth are examples of non-monetary compensation.
Which of the following is an example of an intrinsic reward? A. Recognition of accomplishments B. The satisfaction of a job well done C. A great supervisor D. An exciting assignment
B. Intrinsic rewards are those in which esteem is achieved from within oneself.
What agency regulates the distribution of profit-sharing plans? Why?
Because most profit-sharing plans are a form of defined-contribution plan, they are covered by regulations of the Employee Retirement Income Security Act ( ERISA).
Which of the following world be the best choice of a profit-sharing plan if the employer wishes to improve organizational productivity through shared management and employee efforts? A. Employee stock purchase plan B. Bonuses C. Gainsharing D. Improshare
C. A key component of a gainsharing plan is the shared responsibility of outcomes between management and employees. Productivity is reviewed, new performance is measured and both workgroups share in the gain.
ESOPs, ESPPs, and profit-sharing are all examples of which of the following? A. Deferred compensation B. Gainsharing strategies C. Group incentives D. Sales bonus options
C. Group incentives share common elements including rewards of individuals based on their collective efforts. * Gainsharing is an example of group incentive.
Prescription coverage is an example of what type of employee benefit? A. Deferred compensation B. Perquisites C. Health and wellness D. Long-term care insurance
C. Prescription medication coverage is an example of an employee health and welfare benefit
The state in which you practice HR requires a higher minimum wage than the federal government. Your employer only wants to pay the federal minimum wage. What should you do? A. Make all employees exempt from overtime to reduce hourly wages B. Conduct market research and create wage bands so he can see what his competitors are paying C. Tell your employer that paying the federal minimum wage would be unlawful and that the company is required to pay the state minimum wage D. Agree to pay the federal minimum wage rate, but gradually increase employee pay to the state minimum
C. The correct choice in this situation is to tell the employer that is paying less than the state minimum wage is illegal.
health purchasing alliance (HPA)
Coalition that makes it possible for small employers to join with other employers in a geographic area to take advantage of economies of scale. The HPA will negotiate and contract for benefit plans on behalf of all members of the group.
Difference between commission and sales bonus
Commissions is a percentage of the sale and sale bonus is a percentage of base pay after target sales are achieved. Ex: Joaquin sells new cars and has an annual quota of 100 cats, for every car he sales over 100, he received a bonus of 1% of his base salary.
Benchmarking
Comparing an organization's practices, processes, and products against the world's best.
Why would an employer choose to compensate an employee beyond what is required by the state (FLSA)?
Compensating employees in excess of FLSA requirements typically reflects common practice in an industry or market segment and also helps the employer maintain a competitive advantage to more effectively attract, motivate and retain employees.
Seniority-based compensation
Compensation system in which pay decisions are based on the length of time in the position, typically found in organizations with an entitlement culture. Employees feel " entitled to" certain pay or benefits based on length of service, not performance. Ex: In a union environment, annual increases are typically determined by seniority.
Non-Qualified Plans
Contributions cannot be tax deducted. These plans aren't required to include all employees, so they may provide additional benefits to officers, shareholders, executives, supervisors or other highly compensated employees.
cost of labor
Cost to employers of hiring and retaining employees.
What is the primary purpose of paying employees commission? A. To keep employee wages at risk B. To reward employees who work harder than others C. To keep labor costs low D. To incentivize employees to behave in a certain way
D. Commission-based pay is a form of incentive designed to drive employee behaviors specifically related to selling products.
An unlimited time-off plan has which of the following advantages for the employer? A. Employers are better able to schedule workflow B. The employee does not have to worry about timecards C. The employee is better able to achieve work-life balance goals D. The employer does not have to track time-off accruals.
D. From an employer perspective, unlimited PTO reduce administrative burden of tracking accruals.
A summary plan description is not required for which of the following? A. Defined-contribution plans B. Defined-benefit plans C. Flexible spending accounts ( FSAs) D. All of above
D. Summary plan descriptions are required only for group health plans, and not for defined contribution plans, defined benefit plans or FSAs.
What other benefits exist besides medical insurance?
Dental insurance, vision insurance , prescription coverage and life insurance.
midpoint progression
Difference between the midpoints of consecutive salary grades, which is generally narrower for lower grades and wider for higher grades. The midpoint progression ranges from 12-15% at lower grandes and to 25% at higher grades.
Short and long term disability Insurance
Disability insurance protects employees from income loss because of disability caused by illness or accident. Disability protection generally begins with sick leave provided by employers, once sick leave is exhausted they become eligible for short-term disability for 3-6 months. Employees still disabled when short-term disability ends become eligible for long-term disability coverage, which can last for anywhere from 2 years to 65 years.
Non-Qualified Plans
ERISA does not require employers to establish any sort of retirement plan. Some employers choose to create plans that do not meet ERISA standards. Plans may loose most of tax advantages afforded to employees/employers. These plans are only available to employees at the Executive level.
What does does the IRS use to make sure FSA plans are used consistently?
Eligibility tests and utilization tests.
Key components of Gainsharing
Employees and managers review organizational performance, and when improvements are achieved. They measure the success and share the financial gains.
Does the FLSA require hazard pay?
FLSA doesn't require hazard pay, but it does require employers who provide hazard pay to factor into overtime calculations.
When can an employee change the amounts of the FSA/DCA?
For either plan, FSA/DCA, EE's sign up at the beginning of the year and once a contribution has been set it must be adhered to for the full year and may only be changed as a result of a qualifying event.
What are the cons of the FSA?
For employees, if they did not project or calculated correctly the amount they plan to spend during the year and there is funds left in the FSA after all expenses for the year have been paid , the remaining amount will be forfeited and may be used by the employer to pay for the plan. For employers , sometimes employees are reimbursed for expenses before the funds have been withheld from their paychecks, so if they leave the company before the funds have been withheld, employees aren't require to reimburse the company for those expenses.
geographic pay
Form of compensation that ensures employee pay is competitive in local labor markets. Salary structures vary by location. Non-exempt pay vary by city and/or state because of local labor costs, and exempt vary by region to reflect regional labor markets like Pacific Northwest.
What are the 2 types of nonqualified plans?
Grantor or Rabbi Trusts & Excess Deferral plans
What are some of the voluntary benefits?
Health and welfare ( dental, vision, life, disability insurance) Work-life balance ( vacation leave, sick leave, PTO , paid holidays, fitness , child and elder care) Employee assistance, relocation assistance, tuition reimbursement, on-site schooling, student loan help, flexible spending accounts, adoption, section 529 plans and commuting assistance.
annual review pay increase adjustment
In a seniority based compensation system - simple - a fixed dollar amount or a percentage of base in pay increase based on time in the job. In a performance based compensation system - complex- pay increase is based on demonstrated performance.
plan administrator
In deferred compensation, the person designated by the plan sponsor to manage the plan.
Highly compensated employee (HCE)
In the context of certain fringe benefit plans, an employee who is an owner or officer of a business or whose salary exceeds a certain amount (indexed each year for inflation). Many benefits offered by employers do not qualify for favorable tax treatment if they discriminate in favor of highly compensated employees.
What are the two categories of benefits?
Involuntary ( legally mandated ) & voluntary benefits ( optionally provided)
Do exempt workers get overtime?
It is not common practice for exempt workers to get paid overtime, however, doing so by definition requires employees to keep track of their hours.
benchmark positions
Jobs common to organizations regardless of size or industry. Set to a level within the organization and the salary structure is built from there.
calculate shift pay & overtime costs: Laura works as a non-exempt technician at MonoCorp, working 8-hr shift, 5-days a week, resulting in 40-hour workweek. She makes $10/hr. Laura also works some hours on the second shift, from 4:00pm to midnight, M-F. MonoCorp pays 10% shift premium for the second shift.
M - 8 T - 8 / OT 2 hrs W - 8 T - 8 / OT 2 hrs F - 8 / OT 2 hrs Regular 40/week + 6 hrs OT Regular = 40*$10= $400 OT (1.5) = 6*( $10+$5)= $90 Shift premium 10% = $90/10= $9 Total paycheck = $400+$90+$9= 499
Total Rewards
Monetary and non-monetary rewards provided by companies to attract, motivate, and retain employees
What companies work best with a money-purchase plans?
Money-purchase plan works well for organizations with a relatively stable earnings from year to year because the percentage is fixed and, once established, contributions must be made every year.
Do organizations that use competency-based compensation use job descriptions as a guide for their pay structure?
NO. Instead of conduction a job analysis and evaluation so that a new job description can be created each time an employee's duties change, competency-based programs encourage employees to hone their KSAs s they use competency profiles instead of job descriptions.
Does the amount of overtime caps?
No, federal law allows employers to require unlimited overtime as long as employees are paid at the required wage rate.
Does HR base compensation offers on the employee's salary history?
No. HR base compensation offers on the value of the jobs in the marketplace, not on what the applicant was making at their previous job.
Is On-call pay mandatory for all jobs?
No. In certain professions, being on-call is part of the job and on-call premiums aren't paid.
Excess Deferral Plans
Non-qualified deferred compensation plans that allows the organization to make contributions to a non-qualified plan in order to reduce the impact of discrimination testing on HCEs. Organizations make 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.
Top hat plan
Nonqualified deferred compensation plan that provides retirement benefits to select group of management or highly compensated employees.
What are organization incentives used for?
Organization or group incentives are used to increase productivity , foster teamwork and share financial rewards with employees. They are not individual incentives.
What are the different types of pay differentials?
Overtime, shift pay, on-call pay, call-back pay, reporting pay, hazard pay and geographic pay.
stop-loss insurance
Partially self-funded plan. Insurance purchased by self-funded employers to prevent a single catastrophic claim from devastating the claim fund. The employer agrees on a preset maximum coverage amount that will be paid from the claim fund for each participant before the insurance company begins to pay the claim.
jury duty pay
Pay an employee receives (usually full regular salary) when absent from work because of a summons to appear for jury duty.
Hazard pay
Pay earned by employees who work in an environment that is considered more risky from a safety or health point of view.
Reporting pay
Pay provided to employees who report for work as scheduled but then find that no work is available.
Call-back pay
Pay that employees receive when they are called back for an extra shift in the same workday.
On-call pay
Pay that employees receive when they can be called in to work but are not working before receiving the call to return to work.
What are the two types of base pay compensation?
Performance-based compensation & seniority-based compensation
Section 125 plan
Plan authorized by the Revenue Act of 1978 that allows employees to set aside pretax funds for medical expenses they plan to incur during the calendar year. Ex: flexible spending account (FSA).
What are the different defined-contribution plans?
Profit-Sharing Plans ( discretionary contribution plans), Money-Purchase Plans, Target-Benefit Plans and 401K Plans
What companies work best with a profit-sharing plan?
Profit-sharing plans work well for companies with erratic profit levels.
Employee Assistance Program (EAP)
Program to help employees and their families with work or personal problems.
pros and cons of ranking method of job evaluation
Pros: simple and cost-effective for small organizations Cons: not useful for bigger organizations and very difficult to compare unrelated jobs. It is a subjective method so preconceptions can impact how jobs are ranked. Ex: compare a file clerk with an admin assistant
Federal Wage Garnishment Law
Protects employees having wages garnished in 2 ways: 1. restricts the amount of the paycheck that can be used to pay off a debt in a single week 2. Prohibits employers from terminating employees whose wages are garnished for any one debt, even if the employer receives multiple garnishments orders for the same debt.
Qualified deferred compensation plan
Retirement benefit offered to all employees in the organization; provides tax advantages and is protected under Employee Retirement Income Security Act, which means employees are protected from loss of benefits due to employer mismanagement of pension funds
What are salary surveys used for?
Salary surveys are used by firms to collect data on employee benefits as well as wage rates for the purpose of pricing jobs
Direct Compensation
Salary/wage Overtime pay Bonuses/Stock Options
What group-incentive plan requires the disclosure of financial information and productivity metrics to employees?
Scanlon plan because the group incentive is based off cost savings gains suggested by employees.
Dependent-care account (DCA)
Section 129, EE's set aside a maximum $5,000 to be used for dependent children or elders. Unlike FSA, EE may not be reimbursed for excess expenses that have been taken out of their checks.
403b retirement plan
Similar to 401k, but used for nonprofits
shift pay
Supplemental pay paid to employees who work less-desirable hours. A shift is any scheduled block of time during the work week when employees perform job-related duties. Shift pay is application to non-exempt workers.
Private Letter Ruling (PLR)
The IRS's written response to a taxpayer's inquiry as to how the tax law applies to a proposed transaction.
compensable factors
The characteristics of jobs that an organization values and chooses to pay for. Factors that distinguish jobs from one another.
What happens when ADP test indicates that HCE participants have greater benefits from 401K than non-HCE?
The company must take action to correct this or they will lose tax benefits. To correct the problem: - The company may refund the excess contributions to HCE participants, which will increase their taxable income for the prior year - The company may increase matching contributions to non-HCE employees in order to pass the test. - Aggregate the plan with other plan benefits sponsored by employer, if available.
Why is Compa-Ratio used for?
This measure is used to compare employee salaries and is useful when providing recommendations for pay adjustments.
Debt Garnishment Calculations
Two methods for Calculating debt garnishment: - 25% of disposable earnings - Federal minimum wage ($7.25/hr) x 30 (7.75x30=217.50) that total is subtracted from disposable earnings. The lesser of the two is used and any disposable earnings exceeding that amount must be sent to the recipient.
Flexible Spending Account (FSA)
Type of Section 125 plan that allows employees to use pretax dollars to pay for out-of-pocket health and dependent-care expenses.
What are the major differences in compensation for vacation pay, sick pay and Paid Time Off(PTO)?
Vacation pay is considered an earned leave, meaning that employees must be paid for the leave if they don't use it. Sick leave is viewed differently and employees are not paid for sick leave not used PTO is also considered an earned leave and employees must be compensated for all leave they have earned but not used.
Business Impact Measures
Ways of measuring HR initiative success. One of the clearest indications that there is a problem with the compensation & rewards program in a organization is an increase in turnover and exit interviews that indicate employees are easily able to find higher compensation somewhere else.
In which cases would organizations use the market median or fiftieth percentile as data-comparison point for a job analysis?
When an organization decides to use a higher point of comparison for jobs is because highly skilled positions are in short supply or the compensation philosophy of the company is to lead the market.
Why do companies request a private letter ruling?
When an organization wants to make changes to compensation or benefit programs, it may want to find out how the IRS will view this changes by requesting a private letter ruling before changes are made.
Improshare plan
a group-based incentive plan based on a established baseline for organization productivity and a baseline for productivity costs. The different between the baseline productivity and the resulted output is used to calculate the group's performance.
Gainsharing Plan
a group-based incentive plan that rewards groups for productivity improvements
Scanlon Plan
a group-based incentive plan used to help reduce costs and increase productivity levels based on employee suggestions. Employees receive a portion of cost savings achieved through productivity and cost saving gains.
Employee Stock Ownership Plan (ESOP)
a group-incentive benefit plan in which employees acquire stock, often at below-market prices, as part of their benefits ESOPs are taxable when they are distributed.
Employee Stock Purchase Plan (ESPP)
a group-incentive benefit plan under which all employees are given the opportunity to use after-tax payroll deductions to purchase company stock at a discounted rate of up to 15%.
gig economy
a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.
Physician-Hospital Organization (PHO)
a medical insurance plan in which physicians join with a hospital and together rely on the PHO structure to develop and market their services and to negotiate and sign contracts. PHOs contract directly with businesses to provide services
sales bonus
a percentage of base pay compensates the employee for sales targets achieved.
401(k) plan
a retirement plan that allows contributions from both employers and employees. Employees may defer part of their pay before taxes up to predetermined limits. Employers may make contributions as well.
Defined-benefit plan
a retirement plan that tells participants exactly how much money they will receive when they retire. Employers take the risk for paying out the promised benefit at retirement. A defined-benefit plan is based on a formula that takes into account the length of service and salary.
Pay ranges
a set of possible pay rates defined by a minimum, maximum, and midpoint of pay for employees holding a particular job or a job within a particular pay grade
Competency Profile
a set of proficiency ratings related to a function, job, or employee. A competency profile consists of 10-12 key competencies identified by those who know the job best or current employees who are performing a high level.
Merit Matrix
a tool used by managers and compensation professionals to determine the merit increase combining performance rating with the employee's position in the salary range.
Pay Differential (P383)
adjustment to a pay rate to reflect differences in working conditions, inconvenient times, or hazardous environment. A pay differential provides additional pay for work that is considered beyond the minimum requirements of the job.
When is overtime paid?
after 40 hrs in a week according to Fair Labor Standards Act ( FLSA)
profit-sharing plan
also known as discretionary contributions. It is an organization-wide program that allow employers to contribute deferred compensation based on a percentage of company earnings each year. A maximum contribution of 25 percent may be made for an individual employee each year, which means the maximum tax deduction for contributions that can be taken by the employer is 25 percent of total employee compensation. Occurs annually after the close of the fiscal year
cafeteria plans
an arrangement that allows employees to make their own choices about benefit options
How often is base pay reevaluated?
annually through a performance- or seniority based process. Promotions/demotions can also cause changes in base pay.
Grantor or Rabbi Trusts
are non-qualified deferred-compensation plans established to provide 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 are paid to the beneficiaries.
Types of compensation
base pay, wage and salary add-ons, incentive pay, benefits
Nonmonetary Compensation
benefits and services.
Cash-balance plan ( CBPs)
benefits are determined by using a hypothetical personal pension account ( PPA); each month, this account is increased by a set rate and accumulates interest. Similar to a savings account. Pros: portable, high contribution limits.
Indirect compensation
benefits, pension plans, medical leaves
Child-Support Garnishment Calculation
child-support garnishments can be up to 50% of an employee's disposable earning if the employee is supporting a child or a spouse and up to 60 percent if not. If support payments are more than 12 weeks behind, wages may be garnished an additional 5 percent. There are no restrictions on child support garnishments.
company affordability factor
company's ability to pay the bonus. Many bonus-based incentive programs define desired financial metrics that must be achieved before incentives are paid.
bonus
compensation for performance beyond expectations and is paid in addition to an employee's base salary or hourly rate. Most bonuses are considered discretionary ( optional)
Performance-based compensation
compensation paid solely because the recipient employee attained a performance goal . When using performance-base compensation, it is important to keep records that justify reasons for disparity in salaries between employees in the same positions.
Base pay
consists of the basic wage or salary paid employees in exchange for doing their jobs
What are the three common shifts?
day shift 8am-4pm evening or swing shift 4pm-12am Graveyard shift 12:00am-8:00am
benefits as a percentage of operating expenses
helps view increased benefit costs in the context of other expenses. = dividing the cost of benefits(health and welfare, paid time off and so on) divided by the total operating expenses.
nonforfeitable claim
in deferred compensation, a claim that exists because of a participant's service. Nonforfeitable claims are unconditional and legally enforceable
variable compensation
incentive pay - reward the employee for individual and/or organizational results
Commissions
incentive pay calculated as a percentage of sale price for products and services sold to a customer. Compensation for sales employees paid on a commission basis only must meet at least the minimus wage.
Monetary compensation
includes direct payments, such as salary, wages, and bonuses
Imputed Income
income from an economic benefit the taxpayer receives indirectly rather than directly.
how does product market competition affect the labor market?
increased competition creates pressure to do everything faster, better and cheaper. These added pressures place a strain on the employee population. Strong competition with low demand for the product means issues to the financial health of the organization. Ex: wage freezes or not incentives. Strong competition with high demand for the product means increased financial rewards
Accidental Death and Dismemberment Insurance ( AD&D)
insurance for employees and their dependents in the event of an accident that results in the 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.
Target Benefit Plan
is a hybrid plan with similarities to a defined-benefit plan and a money-purchase plan. Instead of using a fixed percentage of contribution amounts, the target benefit plan calculates the contribution amount needed to reach a predetermined benefit amount at retirement. Formula takes into consideration the current age of each employee, so different amounts are distributed to to employees with similar wage.
domestic partnership
is a legal or personal relationship between two people who aren't legally married or in a legally recognized civil union.
Exclusive Provider Organization (EPO)
is a medical insurance plan that consists of a network and includes a hospital. EPO physician sonly see patients part of the EPO , and patients receive no reimbursement for healthcare outside the network.
Fee-for-service (FFS)
is a medical insurance plan that is typically the most expensive to employers and employees because it places no restrictions on the doctors or hospitals available to the patient. These plans require patients to pay for services out-of-pocket and submit claims to the reimbursed for expenses.
Deferred Compensation Plan
is a type of employee pension that is tax-deferred. This plan allows employees to contribute a portion of income over time to be paid as a lump sum at retirement when the employee's income tax rate will be lower.
defined contribution plan
is an individual pension plan in which the amount of funds contributed is known but the amount of the benefit that is eventually paid out at retirement isn't because it depends on the investment returns that are earned. These funds are accounted for in individual accounts for each participant. The employee takes the risk for having funds available at retirement
Plan sponsor
is the entity that establishes the plan. This may be a single employer, a labor organization, or, in the case of a multiemployer plan, a group representing the parties that established the plan.
Classification Method of job evaluation
job evaluation method that involves identifying key benchmark positions ( positions that are common in all organizations regardless of the size like accountants or admin assistants). Once the job is matched to a benchmark position then it can be classified according to value on a vertical scale. Classification method relies on internal equity
Executive order 13658
mandates individuals working on or as part of a federal contract to be paid a minimum wage of $10.35/hr. This EO also requires that tipped employees working on or part of a federal contract cannot be paid less than the federal minimum wage $ 7.25/hr
Health Maintenance Organization (HMO)
medical insurance plan that focuses on preventive care and controlling health costs. HMOs generally use a gatekeeper, most often the patient's primary care physician to determine if referral to specialist is necessary.
Point of Service (POS)
medical insurance plan that is a hybrid between an HMO and PPO where the employee gets to choose which service to use each time they see a provider. POS plans include network physicians but also allow for outside network referrals. POS require employees to select a primary care physician (PCP) from doctors in the network and get PCP referral to see a specialists that could be outside the network. When an employee sees a physician outside the network, they must submit a claim to the insurance company themselves.
Preferred Provider Organization (PPO)
medical insurance plan that uses a network of healthcare providers for patient services and don't require patients to be referred by a primary care physician. 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 by the provider.
individual incentive plans
motivation systems based on individual work performance
Broadbanding
non-traditional salary classification that splits position into a few wide salary bands. Ex: contributor, manager, director and VP. All jobs in the company fit into these classifications. Broadbanding facilitates lateral career movements and can lead to greater collaboration.
Wage compression
occurs when new employees require higher starting pay than the historical norm, causing narrowing of the pay gap between experienced and new employees
retention bonuses
one-time special incentive paid in exchange for remaining with the company. Ex: used in acquisitions so key employees stay
Red circle rate of pay
pay that falls above the maximum of the salary range. Ex: a demoted employee without a decrease in pay or a transfer
Green circle rate of pay
pay that falls below the minimum of the salary range. Ex: experience or skills don't meet the requirements of the position
defined benefit plan
pension plan that guarantees a specified level of retirement income. The employer provides a specific benefit upon retirement. The funds in these plans aren't accounted for individually.
actual deferral percentage test
prevent discrimination in favor of highly compensated employees
Wage compression can be avoided by ...
providing salary adjustments for the incumbent employees.
Job Evaluation Methods
ranking method, classification method, Point factor and HAY system
labor market
represents the people available for hire by the organization
Welfare and Pension Plan 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 Department of Labor.
Personal Responsibility and Work Opportunity Reconciliation Act
requires employers to report all new hires within 20 days of their hire date to the State Department of New Hires. As a side benefit for employers, the new hire reporting database has reduced and prevented fraudulent or erroneous unemployment payments that would otherwise be charged to the employers unemployment insurance account.
ERISA (Employee Retirement Income Security Act)
requires pension funds to be separated from business operation funds and sets standards for fund management
Competency-based compensation
salary pay system that rewards skills, knowledge, and behaviors. Places responsibility for advancement on each employee: the greater the level of competence , the higher level of pay is available. competency-based compensation is often combined with cash incentive programs to reward desired performance.
captive plan
self-funded plan
457 Plan
similar to 401k, but used for public employees
What are some of the Involuntary Benefits?
social security , Medicare , unemployment insurance , family and medical leave, workers compensation and COBRA and paid sick leave for some states.
External value of jobs
supply and demand of jobs
when is a group life insurance considered imputed income?
the IRS views group life insurance in excess of $50,000 as imputed income when premiums are paid by the employers.
promotions
the advancement of an employee to a position with greater responsibility. Generally speaking , an increase of 10-15% is provided for promotions.
comparable worth (pay equity)
the belief that wages ought to reflect the worth of a job, not the gender or race of the worker. Jobs with similar levels of knowledge, skill and ability should be paid similar. Comparable worth does not reflect supply and demand because it is about the value of the job in society.
Compensation as a percentage of operating expenses
the cost of human capital relative to other operating expenses for an organization. = total compensation costs ( base salary, variable pay, and any deferred compensation) divided by total operating expenses
Internal value of jobs
the importance of a job relative to another
extrinstic rewards
the personal satisfaction you feel from others. Ex: working with a talented group of people
instrinsic rewards
the personal satisfaction you feel when you perform well and complete goals. Ex: challenging assingments
Compa-Ratio (CR)
the ratio of average pay to the midpoint of the pay range. A CR of 100 means the base pay equals the midpoint of salary range. Compa-Ratio ( CR) = (Pay Rate/Midpoint ) x 100%
Gross Pay
the total amount of an employee's earnings before deductions are taken out
Internal equity
the value of the job to the organization
Unlimited Paid Time Off pros and cons
they combine both vacation and sick pay. Pros: employees dont have to track accruals Positive morale cons: this system is difficult to apply consistently with precise fairness. Defining what is "unlimited" means can also back employers into a corner when complying with medical and other leave policies
parental leave
time off from work to care for a newborn child or newly adopted children
What is the most cost-effective method for a small organization to manage the cost of benefits ?
to purchase insurance coverage for the plan. The organization pays premiums for all participants in the plan, and the insurance company manages payment to the service provider and manages claim issues. The 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 to recover any losses.
What is the most cost-effective method for a large size organization to manage the cost of benefits?
to self-fund the insurance plan. A self-funded plan or captive plan is one in which the employer creates a claim fund and pays all claims through it. Self-funded plans must conduct annual discrimination tests to ensure that HCEs aren't using the plan disproportionately to non-HCEs. The employer assumes the risk for unusual claims that may exceed the amount budgeted for the plan.
Narrowbanding
traditional salary classification has many levels and is organized in a hierarchical and vertical fashion.
Why do employers use Volunteer Time Off ( VTO) as a benefit?
used to attract socially conscious and committed employees as well as to increase their loyalty over the long term.
HAY system of job evaluation
uses a complex point-factor system. Jobs are evaluated using three factors: knowledge, problem-solving and accountability.
Money Purchase Plan
uses a fixed percentage of employee earning to defer compensation.
Point-factor method of job evaluation
uses a system of points that are assigned to the position being evaluated. Based on the number of points the position received a pay grade/range. Evaluate the following factors: Education, Skill, effort, responsibility and working conditions.
Compensantion benchmarking
validating existing job descriptions in order to identify the external market rate for each position
