Chapter 13

Consumer-driven (CDH) plan

Health plan that provides employer financial contributions to employees to help cover their health-related expenses.

Health savings accounts (HSAs)

High-deductible health plans with federal tax advantages

Preferred provider organization (PPO)

A health care provider that contracts with an employer or an employer group to supply health care services to employees at a competitive rate

Portability

A pension plan feature that allows employees to move their pension benefits from one employer to another.

401(k) plan

Agreement in which a percentage of an employee's pay is withheld and invested in a tax-deferred account.

Benefit

An indirect reward given to an employee or group of employees for organizational membership

Unemployment Compensation

Another benefit required by law is unemployment compensation, established as part of the Social Security Act of 1935. Because each U.S. state operates its own unemployment compensation system, provisions differ significantly from state to state. The tax is paid to state and federal unemployment compensation funds. The percentage paid by individual employers is based on "experience rates," which reflect the number of claims filed by workers who leave. An employee who is out of work and is actively looking for employment normally receives up to 26 weeks of pay, at the rate of 50% to 80% of normal pay. Most employees are eligible. However, workers fired for misconduct or those not actively seeking employment generally are ineligible. Only about 40% of eligible people use the unemployment compensation system. This underutilization may be due both to the stigma of receiving unemployment and the complexity of the system, which some feel is simply not worth the effort

Educational Assistance

Another benefit that saves financial resources of employees comes in the form of educational assistance and tuition aid, which pays some or all of the costs associated with formal education courses and degree programs. Some employers pay for schooling on a proportional schedule, depending on the grades received; others simply require a passing grade of C or above. Often the costs of books and laboratory materials are covered. Unless the education paid for by the employer meets certain conditions, the cost of educational aid must be counted as taxable income by employees.

Mini-Medical Plans

Another type of plan that has grown in usage in the past few years is the mini-medical plan. This type of plan provides limited health benefits coverage for employees. In the past, these plans have been used more with part-time and lower wage level employees. But more employers are using these plans for full-time employees of all types. A typical mini-medical plan limits the number of doctor visits paid per year to fewer than 10, covers only certain prescription drugs, provides very limited hospital coverage, and caps total annual health benefits costs at $10,000 or less. These limitations result in significantly fewer benefits for employees, but dramatically lower costs for employers. The HR Best Practices discusses the increasing popularity of mini-medical plans.

Managed care

Approaches that monitor and reduce medical costs through restrictions and market system alternatives.

Family Leave

As mentioned earlier in the chapter, the passage of the Family and Medical Leave Act clarified the rights of employees and the responsibilities of most employers. Even though paternity leave for male workers is available under the FMLA, a relatively low percentage of men take it. The primary reason for the low usage is a perception that it is not as socially acceptable for men to stay home for child-related reasons. That view has begun changing as the number of dual-career couples in the workforce has risen

Utilization review

Audit of services and costs billed by health care providers

Flexible spending accounts

Benefits plans that allow employees to contribute pretax dollars to fund certain additional benefits.

Disability insurance

Both short-term and long-term disability insurance provide continuing income protection for employees who become disabled and unable to work. Long-term disability insurance is much more common because many employers cover short-term disability situations through sick leave programs.

Life insurance

Bought as a group policy, the employer pays all or some of the premiums. A typical level of coverage is one and one-half or two times an employee's annual salary

Health reimbursement arrangement (HRA)

Health plan in which the employer sets aside money in a health reimbursement account to help employees pay for qualified medical expenses

Leaves of Absence

Employers grant leaves of absence, taken as time off with or without pay, for a variety of reasons. All the leaves discussed here add to employer costs even if unpaid. That is because the missing employee's work must be covered, either by other employees working additionally or by temporary employees working under contract. Leaves are given for a variety of purposes. Some, such as military leave, election leave, and jury leave, are required by various state and federal laws. Employers commonly pay the difference between the employee's regular pay and the military, election, or jury pay. Some firms grant the employees military time off and provide regular pay while the employees also receive military pay. Federal law prohibits taking discriminatory action against military reservists by requiring them to take vacation time when deployed or in training. However, the leave request must be reasonable and truly required by the military

Legal insurance

In these plans employees (or employers) pay a flat fee for a set amount of legal assistance time each month. In return, they have the right to use the service of a network of lawyers to handle their legal problems

Sick Leave

Medical and sick leave are closely related. Many employers allow employees to miss a limited number of days because of illness without losing pay. More than 50% of all U.S. workers receive paid sick leave. But U.S. employers do not provide paid sick leave to as many workers percentagewise as do the employers in other developed countries. Some employers allow employees to accumulate unused sick leave, which may be used in case of catastrophic illnesses. Others pay their employees for unused sick leave. A problem employers face is that only about 35% of unscheduled employee absences are due to illnesses. Some organizations have shifted the emphasis to reward people who do not use sick leave by giving them well pay—extra pay for not taking sick leave. Another approach is to use a paid-time-off plan.

Holiday Pay

Most employers provide pay for a variety of holidays. In the United States, employers commonly offer 10 to 12 holidays annually. Employers in many other countries are required to provide a significantly higher number of holidays, approaching 20 to 30 days in some cases. In both the United States and other countries, the number of holidays offered can vary depending on state/provincial laws and union contracts. As an abuse-control measure, employers commonly require employees to work the last scheduled day before a holiday and the first scheduled workday after a holiday to be eligible for holiday pay. Some employers pay time-anda- half to hourly employees who must work holidays. Also, some employers provide company holiday parties and holiday bonus programs such as food gifts (e.g., turkeys at Thanksgiving) or holiday gift cards

Vacation Pay

Paid vacations are a common benefit. Employers often use graduated vacation-time scales based on employees' lengths of service. Some organizations have a "use it or lose it" policy whereby accrued vacation time cannot be carried over from year to year. One survey found that workers on average forfeit three vacation days per year. Some employers have policies to "buy back" unused vacation time. Other employers, such as banks, may have policies requiring employees to take a minimum number of vacation days off in a row. Regardless of the vacation policies used, employees are often required to work the day before and the day after vacation time off

Noncontributory plan

Pension plan in which all the funds for pension benefits are provided by the employer

Contributory plan

Pension plan in which the money for pension benefits is paid by both employees and the employer

Stock purchase plan

Plan in which the employer provides matching funds equal to the amount invested by the employee for the purchase of stock in the company

Paid-time-off (PTO) plan

Plan that combines all sick leave, vacation time, and holidays into a total number of hours or days that employees can take off with pay

Health maintenance organization (HMO)

Plan that provides services for a fixed period on a prepaid basis

Flexible benefits plan

Program that allows employees to select the benefits they prefer from groups of benefits established by the employer

Relocation Assistance

Relocation benefits of various types are offered by many firms. Some employers offer temporary relocation benefits, while others provide assistance in finding a job for the spouse of a transferred employee. Numerous other financial-related benefits may be offered as well, including the use of a company car, company expense accounts, and assistance in buying or selling a house.

Pension plan

Retirement program established and funded by the employer and employees.

Cash balance plan

Retirement program in which benefits are based on an accumulation of annual company contributions plus interest credited each year

Defined-benefit pension plan

Retirement program in which employees are promised a pension amount based on age and service

Defined-contribution plan

Retirement program in which the employer makes an annual payment to an employee's pension account

Vesting

Right of employees to receive certain benefits from their pension plans

Severance pay

Security benefit voluntarily offered by employers to individuals whose jobs are eliminated or who leave by mutual agreement with their employers

Workers' compensation

Security benefits provided to persons who are injured on the job

Family and Medical Leave Act

The FMLA covers all federal, state, and private employers with 50 or more employees who live within 75 miles of the workplace. Only employees who have worked at least 12 months and 1,250 hours in the previous year are eligible for leave under the FMLA.

Social Security

The Social Security Act of 1935, with its later amendments, established a system providing old-age, survivor's, disability, and retirement benefits. Administered by the federal government through the Social Security Administration, this program provides benefits to previously employed individuals. Employees and employers share in the cost of Social Security through a tax on employees' wages or salaries.

FMLA Leave Provisions

The law requires that employers allow eligible employees to take a total of 12 weeks' leave during any 12-month period for one or more of three situations: • Birth, adoption, or foster care placement of a child • Caring for a spouse, a child, or a parent with a serious health condition • Serious health condition of the employee A serious health condition is one requiring in-patient, hospital, hospice, or residential medical care or continuing physician care, or problems that exist beyond three days including treatment provided. An employer may require an employee to provide a certificate from a doctor verifying such an illness. The FMLA provides a number of guidelines regarding employee leaves • Employees taking family and medical leave must be able to return to the same job or a job of equivalent status or pay. • Health benefits must be continued during the leave at the same level and conditions. If, for a reason other than serious health problems, the employee does not return to work, the employer may collect the employer-paid portion of the premiums from the nonreturning employee. • The leave may be taken intermittently rather than in one block, subject to employee and employer agreements, when birth, adoption, or foster child care is the cause. For serious health conditions, employer approval is not necessary. • Employees can be required to use all paid-up vacation and personal leave before taking unpaid leave. • Employees are required to give 30-day notice, where practical.

Employee Retirement Income Security Act

The widespread criticism of many pension plans led to passage of the Employee Retirement Income Security Act (ERISA) in 1974. The purpose of this law is to regulate private pension plans so that employees who put money into them or depend on a pension for retirement funds actually receive the money when they retire. ERISA essentially requires many companies to offer retirement plans to all employees if they offer retirement plans to any employees. Accrued benefits must be given to employees when they retire or leave. The act also sets minimum funding requirements, and plans not meeting those requirements are subject to financial penalties imposed by the IRS. Additional regulations require that employers pay plan termination insurance to ensure payment of employee pensions should the employers go out of business. To spread out the costs of administration and overhead, some employers use plans funded by multiple employers.

Long-term care insurance

Usually voluntary, these plans allow employees to purchase insurance to cover costs for long-term health care in a nursing home, an assisted-living facility, or at home. Though employees pay for the premiums, they may get cheaper rates through employer sponsored group plans