Chapter 5
Cash - Balance plans (CBPS)
less costly for employers. They are a hybrid between defined benefit and defined contribution plans (google for clarity)
Plan sponsor
the entity that established the plan
Payroll Administration
the function in the company that is responsible for calculating employee earnings and deductions and maintaining records of those payments.
A pay range-
the spread between the minimums and maximum pay for a job for a pay grade. Ranges can be hourly for hourly workers. monthly, semimonthly, biweekly or annual for salaried workers. An entry level ranges are the narrowest as employees will build KSAs and are expected to move up. AT highest grades spread is wide to allow for growth over time. The spread is calculated by the midpoint established by the market. For example: The pay grade for a group of midlevel professional positions may have a 18% spread. At a midpoint of 50,000 the minimum would be 82 percent of the midpoint or 41,000 and the maximum will be 118 percent of the midpoint of 59,000
Employee Earnings
to calculate nonexempt earnings the payroll department must know base salary, shift differentials, tops, bonusesetc,. bonus amount and any paid leave during the pay period.
Money purchase plans
uses a fix percentage of employee earnings to defer compensation. Does good for organization that has stable levels of income yearly.
Disposable earnings
what is left in an employee's check after legally mandated deductions have been made such as federal and state income tac, SS, disability etc.
Promotions
when employees are moved into a new position with different duties and greater responsibilities or when they develop a level of experience and skill enabling them to assume added responsibilities in similar positions. Usually accompanied with a change in title and salary level. For traditional structures it also increases salary grade. In consideration of pay increase for promotion, factors considered are: o How long an employee has been in the current position o How recently was merit awarded o Whether the position is in the same area of organization or different o Where the new salary will place the employee in the new salary range. Increase of 10-15 percent is provided for promotions.
Wage compression
when new employees are hired at a rate of pay greater than that earned by the incumbent employees for similar skills, education and experience. A way to counter this would be to provide salary adjustments for the incumbent position.
Geographic Pay
when organizations pay employees according to the different locations they are in and based on the competitive market in their respective labour markets. Exempt may be structured by region to reflect regional labour markets.
Qualified Deferred Compensation Plans-
A qualified deferred compensation plan meets all ERISA requirements and protects employees from loss of benefits due to employer mismanagement of pension funds. Employers have a number of options to choose from when designing a plan that meets the needs of their particular workforce.
Salary Structure Development
Provides an organized, systematic way of identifying base pay for employees in different jobs throughout the organization. The structure consists of a specified number of salary grades with a range of compensation attached to each. Using the grouped jobs as a starting point, midpoints are established for each job grade. The midpoint progression or difference between the midpoints of consecutive grades is generally for lower grades and increases for higher grades. Typically the midpoint progression ranges from 12-15 percent at lower grades to 25 percent at higher grades. Once grades are established, a pay range is developed for each grade.
Traditional Pay Structures Salary administration
(or compensation administration or pay administration- the way an organization develops pay structures and use them to administer pay on a day-today basis.
ERISA (Employee Retirement Income Security Act-
- replaced the WPDA and required companies to fo more reporting and to have a separate account from which to pay pension funds.
Compensation benchmarking
- the process of validating existing job description in order to identify the external market rate for each position. Benchmarking requires the date be obtained through the job analysis process. Best practice suggests you use 3-5 sources to ensure you have an accurate description from which to conduct market research. Reliable sources- O*NET Online which is linked to Career Stop and will sort salary data by state. Example- Local manufacturing company needs to hire a sourcing specialist for their R&D department. Gr searches by building a job description from the data on O*NET. As she searches for the proper job duties she finds one that that sets the title as "procurement clerk" they can now use this classification code to conduct benchmarks on pay scales in her area so that job is competitively priced.
Two type of benefit programs
1) Legally Mandated 2) Voluntary
Compensation can be categorized in two categories
1) Performance Based Compensation - includes merits and promotions and is based on how the employee performs against the company' process for measuring performance. Using this method means that you will have some disparities between employees in the same role. Proper records should be kept in case there is a claim for unfair pay practices. 2) Seniority Based Compensation - systems make pay decision based on the length of time employees have been in a position and on year of related experience. Good example is a union representing its workers. In a union environment annual increases are typically determined by seniority.
Steps in Salary Administration
1. Analyze Jobs 2. Evaluate Jobs 3. Price Jobs 4. Create Salary Structure 5. Place Jobs in Grades 6. Communicate Plan to Organization 7. Administer Plan 8. Evaluate Results
Pay differentials can be in the form of :
1. Base pay 2. Overtime 3. Shift pay 4. On call pay 5. Call back pay 6. Reporting pay 7. Hazard pay 8. Geographic pay
Ways to measure and assess internal equity
1. Broadbanding 2. Point factor method- provides organizations with s system of points assigned to the position being evaluated. Based on total number of points a position receives, a pay grade/range is assigned to the position. Company may have abstract or specific factors such as education, skill, effort, responsibility and working conditions. 3. HAY system - Uses a complex four-point system. Jobs are evaluated using three factors: Knowledge problem-solving and accountability
Three commonly recognized shifts
1. Day Shift- from 8 am to 4 pm 2. Swing Shift- from 4 pm to 12 am 3. Graveyard Shift from 12 am to 8 am
Voluntary benefits fall in Four Main Categories
1. Deferred Compensation Benefits 2. Health and Welfare Benefits 3. Work-life balance 4. Other benefits
Two components of Total Rewards package
1. Monetary Compensation- any cost the organization incurs for the benefit of employees such as: a. Cash compensation b. 401 (k) c. Matching d. Medical care premiums e. Pension plans f. Paid time off g. Benefits that support company culture i. Stock options ii. Employee stock ownership programs (ESOPs) and incentive plans 2. Non-monetary Compensation- a. Intrinsic award- an award that encourages individual employee self-esteem such as satisfaction from challenging and exciting assignments b. Extrinsic award- where esteem is achieve from others. Examples are i. such as fulfilment from working with a talented team of peers ii. relationship employees have with their supervisors iii. recognition of accomplishments. iv. Development and career opportunities v. Team work
Other Health Benefits
1. Dental Insurance- employers may choose dental insurance plans to provide varying levels of coverage from preventative to restoration work like filling, bridges and orthodontia 2. Vision Insurance- one of the lowest-cost benefits provides employees with reduced costs for eye exams and contact lenses or glasses 3. Prescription Coverage- An additional coverage for prescriptions aside from medical plan. The cost of plan is managed by controlling about of the required copayment and requiring use of generic drugs instead of name brands. 4. Life Insurance- many insurance companies bundle life and medical and dental for a low rate and offer supplemental insurance for employees who want premium coverage. 5. Accidental Death Insurance- insurance for employees or dependents in event of an accident 6. Short and Long term disability insurance- protects employees from income loss due to a disability caused by and illness or disability. When employees exhaust sick leave they may become eligible for short term which can be in effect for 3-6 months. Employees still disabled then become eligible for long term disability coverage up to 65 years.
Types of salary surveys
1. Employee Surveys- internal polling is a way companies gauge employee satisfaction with: a. their pay structures b. measures perceptions of pay equity c. identify needs of the current workforce as it relates to compensation and benefits offerings. 2. Government Survey- Bureau of Labour Statistics (BLS) an independent national statistical agency - collects analyzes and distributes statistical data and is a source for salary data. 3. Industry surveys- Some jobs like hospitality or 4. high-tech industries may require an industrial survey for greater validity. 5. Commissioned Surveys- used when companies a. With specific skill requirements may find it difficult to match in readily available surveys b. Want to find out how their compensation practices stack up to competitors. c. Can be done by a third party but are very costly and time- consuming d. Can also be done between various HR Professionals where they share pay practices with counterparts
Three things to consider before giving a merit-based salary increase:
1. Employers Position in the salary range- p194 2. Tenure in position (Hire Date/Date of last promotion) - how long an employee has had a job (newly hired person may still have a lot to learn so the amount of the reward would be reduced in consideration of that.) 3. Skill Set and Performance Compared to Peer Group- employees know their worth in the marketplace so companies should pay employees in consideration of this
Other Voluntary Benefits Most common benefits are:
1. Flexible Spending Accounts- authorized by Revenue Act of 1978- allow employees to set aside pretax funds for medical expenses they plan to incur during the calendar year. Employees may be reimbursed before funds are taken from their account and if they leave don't have to pay the company for expenses. Expenses for reimbursement include copays for vision dental medical plans, and other medical expenses covered by IRS. Acupuncture, orthodontic care, psychiatric care, wheelchairs, physical therapy braille books and magazines and other medical expenses. Receipts to be provided. Dependent care account can also be created with a max of 5000 to cover children or elders. 2. Cafeteria Plans- employees select from a variety of benefit options at the beginning of the year. If they don't need the plan they can switch for another. 3. Employee Assistance Programs- sponsored by the employer as a benefit. Advantageous for employers as they are a low cost benefit that provides resources for their employees with problems that are not work related and cant be solved in work. They are usually outplaced. They are sometimes elected after something tragic or greatly impacting happens at an organization. This includes: a. Counselling services b. Financial counselling c. Legal assistance d. Drug abuse
Type of Group Incentives
1. Gainsharing 2. Improshare 3. Scanlon Plan 4.. Profit Sharing 5. Employee Stock Ownership Plans (ESOPSs) 6. Employee Stock Purchase Plans (ESPPs)
Debt garnishment calculations Two methods
1. Garnishment up to 25% of disposable earnings 2. Calculating by multiplying the federal minimum wage by 30. The total us subtracted from the disposable earnings. Any earnings that exceed that amount should be sent directly to the recipient designated in the order and not the employee. The maximum amount of garnishment is the lesser of these two calculations
Medical Insurance- plans to consider
1. Health Maintenance Organization (HMOs) -a managed care plan that focuses on preventative care and controlling health costs. They use a gatekeeper which is normally the primary care doctor to determine whether the patient needs to eb seen by a specialist. 2. Preferred Provider Organization (PPOs)- PPOs use a network of healthcare providers for patient services and don't require patients to be referred by a primary care physician. Employees make copayments for healthcare and use those in the network primarily. Out of network can be used but employee pays difference. 3. Point of Service Plans (POS)- a hybrid between an HMO and a PPO- employees get to choose which service to use each time they see a provider. POS plans include a network of physicians but allow for referrals outside the network. A PCP is required and they refer employees to specialist in network when needed and employees can see those outside as well. They just have to request reimbursements to the insurance company directly. Higher percentage in cost is charged to employee. 4. Exclusive Provider Organizations (EPOs)-consists of a network and includes a hospital. EPO physicians can only see patients who are a part of the EPO. They can only see those in the network and no reimbursement for going outside. 5. Fee-for-service plan (FFS)- most expensive to employees because it places no restrictions on the doctors or hospitals available to the patient. They require patients to pay for services out-of-pocket and submit claims for reimbursements.
Successful incentive plan program have 3 critical phases
1. Plan Design- should be simple, convenient as possible for employees to understand and recall performance goals. 2. Review Process- typically bonus review, and payment correspond to the end of the organizations fiscal year. The company affordability factor to is critical to any incentive program process 3. Communication and Implementation- Usually communicated before at the beginning of the review period. Annual calendar based programs are communicated in January and Targets for incentive plans are commonly part of an offer package and can be modified as needed. HR and Legal need to be involved in any changes to be made in compliance with state and local laws.
Types of defined contribution plans
1. Profit Sharing Plans 2. Money Purchase Plans 3. Target Benefit Plans 4. 401 (k) plans
Four step process for determining the appropriate pay level for a position
1. Review the job description and understand the level and scope of the job and it's required responsibilities and skills 2. Select a salary survey - consider type and number of survey participants. 3. Review compensation components- such as base pay, equity pay, variable pay. Also review the number matches for a position. The more matches the better as data will be more reliable and less likely to be skewed by outliers (jobs paid significantly above or below averages) 4. Recommend a salary range- should align with copany policies on leading, matching or lagging the market. It is also appropriate to recommend incentive pay or special pay programs.
Types of Work- Life Benefits
1. Time-off programs a. Vacation Pay- b. Sick Pay- covers when an employee is ill or needs to take care of a sick child or family member c. Holiday Pay d. Paid Time Off- employers have combined all forms of time into this to cover anything from illness to taking care of personal needs to vacation to sick etc. This can be more cost to employer as sick leave unused is typically not paid out but may have to under this plan. e. Unlimited Time Off- Netflix and Virgin- combine vacation and sick times and leave it unlimited. Expectation is that trusted employees will manage time effectively to not impact business negatively f. Sabbaticals and Leaves of Absence- typically given to educators who after working for a specified period of time would be allowed to pursue further education, conduct research or write books in their field of study. Some companies have this as an added benefit to encourage professional development g. Jury Duty Pay- Employers are required to give employees time off but most states don't require them to be paid. Many employers pay the difference between regular earnings and the amount the employee is paid for doing jury duty. h. Bereavement Leave- time off with pay given to attend funeral services for close relatives i. Parental Leave- paid leave given to parents of newborns or newly adopted children. j. Volunteer Time Off- allowing employees to take time off from work to volunteer. These polices attract socially conscious and committed employees as well as increases loyalty over the long term and can be easily absorbed into the admin practices of existing time off systems.
401(k) Plans
A common type of deferred compensation which was established by the Revenue Act of 1978. It allows for contributions from both employers and employers. Employees may defer a par of their [ay before taxes up to predetermined limits. Employees may make contributions as well. Limits are same as profit sharing. These plans are also available in other form for non profit workers (403(b) plans and 457 plans for public employees). One requirement of the 401 k plan is that they may not provide greater benefits to highly compensated employees than other employees (HCE)- is defined as a participant who during the current or prior year earned 115,000 or more, owns 5 percent or more of the company and at the company's discretion is one of the top paid 20 percent of employees. Each year a ADP - actual deferral percentage test must be done to ensure in line with IRS regulations. If they don't maintain it they could lose the tax benefits. To correct they can return the excess contributions to the HCE participants or aggregate with other plans,
Using Metrics to Measure Compensation reward programs
Business Impact Measures- increased turnover and exit interviews that indicate employees are easily able to find higher compensation and or richer more appropriate benefits package with other employers Tactical Accountability Measures- two metrics that may provide useful information about compensation and benefit programs are as follows: 1. Compensation as a percentage of operating expenses- provides information about the human cost capital relative to other operating expenses for an organization. The higher the compensation costs are, the more impact HR programs can have on the bottom line. To calculate metric.. a. Divide total compensation costs (base salary variable pay and deferred compensation) by total operating expenses) 2. Benefits as a percentage of operating expenses- helps view increased benefit costs in the context of other expenses. Tracking the cost of benefits relative to operating expenses can help organizations make decisions about the appropriate mix of benefits to offer as costs rise and to view increasing benefits cost in the context of other expense increases. a. Divide the cost of benefits )health and welfare paid time off and so on) by the total operating expenses)
Broadbanding splits
Organizations that splits positions in the company into just a few specific p[ay ranges. Each range includes a variety of jobs. For example classification may have 4 levels (contributor, manager, director, Vp) . this can lead to better collaboration
Overtime
FLSA Fair Labour Standards ACT- requires payment for overtime exceeding 40 hours a week. Some states have overtime laws that exceed federal requirements. You are allowed to pay overtime to exempt employees but it is not common practice. Employees must keep track of hours and ensure It doesn't result I reduction of their pay based on quality or quantity of work produced.
Organization or Group Incentives
Group incentive plans- plan objectives must align with the organizations compensation philosophy. Group incentive plans are used to increase productivity foster teamwork, and share financial rewards with employees. Benefits of group incentives · Increased awareness of and commitment to company goals · Rewarding individual performance
Health Benefit Cost Management
HR is responsible for managing costs of benefits and selecting mor cost effective method for funding these benefits For smaller organizations its common to purchase insurance coverage for the plan. Organization pays the premiums for all participants in the plan and the insurance company manages payment to the service provider and manages claims issues. The insurer assumes the risk for any unusual claims that may result in claim cost exceeding premiums. For larger organizations, it may make sense to self-fund the insurance plan. A self-funded or captive plan- the employer creates a claim fund and pays all claims through it. Annual discrimination tests to ensure that HCEs aren't using the plan disproportionately to non-HCEs. The employer assumes the risk of costs over premiums. A partially self-funded plan- these plans use Stop loss insurance to prevent a single catastrophic claim from devastating the claim fund. The employer agrees on pre-set maximum coverage amount that will be paid from the claim fund for each participant before the insurance begins to pay the claim. A self-funded plan- may contract with an insurance company to manage and pay claims which is known as ASO Plans (administrative services only). They may also use a TPA (Third party administrator for claim management services. Health Purchasing Alliances (HPAs) are when smaller companies form alliances with other employers in the geographic area and plans are negotiated for all in that group. Work-Life Benefits- help employees manage the conflict between work demands and family responsibilities and develop a healthful balance for the many areas of their lives.
2. Wellness Benefits
HR is responsible to show the employer by proposal how the company will benefit from the program, how much it will cost and what return the company can expect on its investment. Size of budget determines what is offered.
experience rating
In managed care setting providers determine premiums based on costs incurred by the group during coverage period. This is also known as the experience rating. Some organizations have added wellness programs to improve the experience rating and lower premiums.
Placing Jobs in Grades
Jobs placed in grades based on data collected for benchmark positions, rest of jobs determined by internal equity and then all placements are put on a chart for exec to review and finalize.
COB- coordination of benefits
Most carriers use a COB- coordination of benefits to process when an employee is covered as a dependent on another plan. Primary coverage pays according to plan benefits. Secondary will pay up to 100 percent of allowable expenses including deductibles and copayments for the claim. The secondary plan will pay only up to the amount it would have paid as the primary carrier.
Direct Compensation
Payments made to employees that are associated with wages and salaries. · Base pay · Variable compensation · {Pay for performance.
Profit Sharing
Similar to scanlon. Is an incentive based program that shares company profits. Usually available at all levels. They distribute pre-tax dollars to eligible employees, typically based on a percentage of an employees salary. Distribution normally takes place annually after the close of the fiscal year. usually has a vestibule schedule which outlines how distributions occur and what happens at milestone events (termination, leave, death retirement), because it is a defined- contribution plan it is covered under the ERISA (Employee Retirement Income Security Act)
Involuntary Benefits
Social Security Medicare Unemployment Insurance Family and Medical Leave Workers Compensation COBRA (See Appendix C) Many states arenow considering paid sick leave requirements (NY passed Earned time sick act
Voluntary Benefits
TYPE OF BENEFIT BENEFIT DETAILS Deferred compensation Qualified pension plans Nonqualified pension plans Health and Welfare benefits Dental Insurance Vision Insurance Life Insurance AD&D insurance Short-/long- term disability insurance Long-term care insurance Work -life balance Vacation leave Sick Leave Paid Time Off Paid holidays Childcare Fitness Elder care Other voluntary benefits Employee assistance programs Relocation assistance Tuition reimbursement On-site schooling Student loan help Flexible spending accounts Cafeteria Plan Adoption assistance Section 529 plans Commute assistance
Involuntary Deductions
deductions required by court order or tax levy to withhold additional funds from an employees paycheck. Also known as wage garnishments and are issued to satisfy a debt.
Reporting Pay
When an employee is called into work and there is no work available, the employer may be required by state law or employment agreements to pay a minimum number of hours. This is called the reporting premium and ensures all employees receive compensation for showing up for their regular shift or when called to the worksite.
Target Benefit Plans
a hybrid plan with similarities to a defined benefit plan and a money purchase plan. Instead of using fixed percentages of employee salaries to determine annual contribution amounts, actuarial formulas calculate the contribution amount needed to reach a predetermined benefit amount at retirement.
Defined- benefit plan
a retirement plan that tells participants exactly how much money they will receive on a specific later date. Formula looks at salary and length of service
Compar-ratios
a simple formla used to compare employee salaries. Calculated as a percentage by taking the employee's nase bay and comparing it to the midpoint pay range. This measure is commonly used for comparison against a group of employees and is useful when doing recommendations for increase by promotion or merit Base pay/ Midpoint Salary Range X 100 Example: 120,000 base salry / 100000 midpoint X100= 120.
Defined benefit
a traditional pension plan in which an employer provides a specific benefit upon retirement
Deferred compensation benefits
a type of employee pension that is tax deferred such as a Individual Retirement account (IRA), 401 (k) programs or traditional employer pension plans.
Tools used on a regular basis to calculate and manage compensation decisions.
a. Job evaluation- the process used to determine the value of jobs relative to each other and the organization. Usually done when jobs are being developed or have changed or during routine updates. They define compensable factors, which are characteristics that distinguish one job from another . There are two methods used in job evaluation i. Ranking Method- compares the value of jobs to another can be challenging with many positions to evaluate. Pros is that it is simple and cost effective to calculate. Classification Method- involves identifying key benchmark positions (jobs that are common to organizations regardless of size or industry Once a job is matched toa benchmark position, it may be classified according to the value on the vertical scale.The benchmarks are then associated with a grade or hierarchical salary structure. To use this method companies must determine internal equity or the value of jobs to each other relative to their value to the organization
Bonus
additional compensation for performance above and beyond expectations and is paid in addition to an employee's base salary or hourly rate. Unlike incentive plans, bonuses are discretionary. Examples. Holiday bonus, spot-bonus which gives immediate reward for performance and sales performance bonuses.
Shift premium
additional compensation provided for employees who work other than day shift. Can be paid as a percentage of base pay or may be factored into hourly rate. Most common for nonexempt employees but they are sometimes paid to exempt employees. (google how to calculate sick pay)
Hazard Pay
additional pay for dangerous and extremely uncomfortable working conditions. May be needed to attract candidates to jobs that require contact with hazardous elements like radiation, chemicals or extreme conditions.
Compensation programs-
allow an employee to contribute a portion of income over time to be paid as a lump sum retirement when the employee's income tax rate will be lower.
Salary Surveys
allow organizations to gather compensation and benefits data that reflect current trends in the labor market. Vendor provides a confidential data collection process by administering the survey and compiling data into usable, aggregated format. Survey identifies trends in labor costs and are integral in ensuring that compensation and benefit programs continue to attract retain and motivate employees. When conducting a survey the first decision made is which job will be priced in the survey. Most accurate would include all jobs but this isn't practical. General requirement says there should be at least 65-70 percent of the organizations jobs in survey to provide a good base for creating salary structure. Salary surveys must be kept confidential in keeping with legislative mandates.E.g. Silicon Valley where larger tech firms were accused of wage collusion when they secretly agreed not to poach talent from each other by offering higher wages
Employee Stock Ownership Plans (ESOPS
allows employees to use after-tax payroll deductions to purchase company stock at a discounted price. There is usually an offering persiod where deductions are accumulated until purchase date. Discount can be up to 15%. These type of plans help serve a culture of employee ownership, help employees demonstrate loyalty and can be direct line of sight from employee inputs to rewards.
Sales bonus plan
alternative to commission plan. A percentage of pay compensates the employee for sales targets achieved. The difference between commission and bonus is the method of calculation
Total rewards package
an exchange of payment from an employer for the services provided by its employees.
Defined contribution
an individual plan where the amount of contributed is known but the amount of the benefit is eventually paid out isn't known because it depends on the investment returns that are earned. The funds are accounted for in the individual accounts for each participant.
Indirect Compensation
any employer payments that are NOT associated with wages and salaries. This includes · Fringe benefits such as vacation sick and holiday pay · Insurance premiums paid on behalf of employees · Leaves of absence · 401 (k) or other pension plans · Government mandated benefits such as Social Security or Family Medical Leave Act (FMLA)
Shift
any schedule block of time during the work week when employees perform their job-related duties. Shifts are necessary in 24-hour operations like hotels, airlines, law enforcement and manufacturing operation.
Statutory Deductions
before an employee receives his or her paycheck, the following deductions have to be made: o Social Security o Medicare o Federal Income Tax o State Income Tax o Unemployment Insurance o Disability insurance o Other state and local taxes
Special incentive plans
can also be in place as a part of executive bonus for establishing a financial goal like an incentive for increased sales, stock prince increase or other goals established by Board of Directors.
Voluntary Deductions
deductions employees volunteer to be deducted o Vision o Medical o Dental o 401 (k) o Charity contributions
Retention Bonus
designed to make sure specific executives and other key employees from the company being acquired stay with the new organization long enough to ensure a smooth transition. They are structures so that full bonus is paid if the employee remains with the company through a certain date, but the amount is forfeited if the employee leaves before. Also used in situations when an organization is closing its doors.
Job Pricing
done when a new job is created or an existing job has undergone changes and is a common practice when administering compensation. Companies' also going through growth also use job pricing to ensure pay is competitive.
Scanlon Plan
earliest pay for performance plans. Employees receive a portion of cost savings achieved through productivity gains and cost savings. This type of group incentive requires the disclosure of financial information and productivity metrics to employees. Administered by committees that represent the employee population
Gainsharing
employees and managers improve the organizations success and share the benefits of the success. Key components are: o Employees and management work together to review organizational performance o When measurable improvements are achieved, they both share success o The organization and employee share financial gains Benefits o Teamwork, knowledge sharing and cooperation o Increased motivation o Employee focus and commitment to goals o Greater employee acceptance of new methods, technology and market changes o Perceived fairness of pay which results in increased productivity at all levels.
Red circle pay
employees whose pay falls above the maximum pay range. This could be as a result of an employee being demoted without a decrease in pay or because of transfer or unusual circumstance.
Call- Back Pay
for employees who are called in to work before or after their scheduled shifts. Non exempts are paid their rate of play plus applicable premiums
Nonqualified Deferred Compensation
generally made available to a limited number of persons at the executive level. These are known as Top Hat plans and provide benefits that supplement qualified retirement and are not subjected to ERISA discrimination testing requirements these are not protected by the ERISA o Grantor or Rabbi Trust- established to provide retirement income for officers, directors and HCEs. Funds are unsecured and therefore are subject to claims made by the organization's creditors. Benefits are taxable as ordinary income at the time they're paid to beneficiaries. o Excess Deferral Plan- allows the organization to make contributions to a non-qualified plan in order to reduce the impact of discrimination testing on HCEs. This is done by making up the difference between what the exec could have contributed t the plan and what was actually allowed because of the limits required by the plan.
Improshare
has an established baseline for organization productivity and a baseline for productivity costs. The difference between the baseline productivity and the new output is used to calculate the groups or organizations performance.
Salary administration handbook
helps managers throughout the organization apply the system consistently. Handbook entails o The organizations compensation philosophy o The roles played by HR, line managers and executives in salary administration o Basic information about pay increases o A description of how salaries or wages for new hires are determined If variable compensation is a part of the compensation mix, info about other bonuses and incentives will be included.
Pay differentials
incentives offered to employees for doing a job that is uncomfortable, out of the ordinary, inconvenient or hazardous. It is a form of additional pay for the work that is considered beyond the minimum requirements of the job. Multinational companies who require employees to travel in dangerous parts of the world would receive differentials for example.
Narrowbanding
may have many levels and are organized nu hierarchical and vertical fashion . doesn't facilitate lateral career movement
Party in Interest
maybe fiduciary - a person or entity prohibiting services to the plan, an employer or employee organization a person who owns 50 percent or more of a business, relatives of any of the above or corporations that are involved with the plan and its functions
Qualified plan-
meets ERISA requirement and provides tax advantages for both employees and employer. In order to be classified as a qualified plan, a pension plan cant provide additional benefits for officers, shareholders, executives, supervisors or other highly compensated employees- all employees in the organization must be eligible for all plan benefits.
On - Call Pay
minimum requirements established by the FLSA however employers can provide pay that is more than this. Usually for professions that require short notice and emergency calls or those who must be near phones or email or telephone are usually a paid a daily premium.
Tax and Accounting
o Another external factor that affects compensation is state and federal regulations: They affect these through the enforcement of federal tax legislation such as Social Security and Medicare taxes, pension regulation, and enforcement of rules about some benefit programs 1. Securities and Exchange Committees (SEC) 2. Financial Accounting Standards Board (FASB) 3. Internal Revenue Service (IRS) o When an organization wants to change its compensation or benefit programs, it may want to find out how the IRS will view the changes for tax purposes before it makes them. o A private letter ruling from IRS maybe sought before changes are made. IRS then reviews and determines base don questions asked what are the tax implications of the expected changes.
Base pay can be increased for a variety of reasons
o Cost of Living Adjustments (COLAs)- used during period of high inflation to reduce the effects of wage compression. Usually tied to the Consumer price Index (CPI) o Annual Reviews- o Seniority based reviews are simple as it has a fixed dollar amount or percentage base pay o Merit programs are much more complex. Reviews are usually done on anniversary date or in a focal group. Merit matrix is usually prepared by HR and combines a performance rating with an employee's position in the salary range to recommend the amount of increase. This differentiates employees by [performance and to differentiate based on the positions in the salary range who are moving up the learning curve quickly ma warrant a higher merit than those at the midpoint or max of salary range. \
External factors to consider when developing programs and administering compensation
o Economics- cost of labour (local, national and global impacts including economic growth, inflation, interest rates, unemployment and comparative cost of living.) Increased demand and decreased availability leads to a rise in cost of labour. o Labour market-organizations have to adjust their compensation programs based on the demands of changing labor markets. For e.g. the demand for a specific skillset may cause company to revisit compensation and pay more. Labour markets vary by region and industry. Urban areas create a greater pool of candidates with a wider set of skills from which to select. Because there are more business in urban areas, urban areas are more competitive which results in an increase in cost of labor. Companies use regional pay structures to help organize this o Gig economy- where the traditional workforce is being replace with independent contractors and freelancers. This has changed the way jobs are priced. Jobs cannot be price in traditional way annually with benefits. They need to pieced as projects. o Other pressures like those related to tax and accounting requirements and governmental legislation and regulations o IRS continue to clarify who is legally an independent contractor and who must be classified as an employee. There are three factors that determine the degree of control and independence that should be made. o Behavioral- Does the company has the right to control what the worker does and how the worker does his job? o Financial - Are the business aspects of the workers job controlled by the payer? (how worker is paid, whether expenses are reimbursed, who provides tools/supplies etc.) o Type of Relationship - Are there written contracts or employee type benefits? (like pension plans, insurance, vacation pay etc.) Misclassifying workers is a costly mistake for employers so HR must be up=to-date in these definitions and apply the knowledge by auditing their workforce and then advising executive management on any changes
Steps to successfully outsourcing compensation
o Find the right provider o Define expectations and needs o Clarify the frequency of contact o Agree on set deliverables
Profit plans (discretionary contributions)- allows employees to contribute deferred compensation based on a percentage of company earnings each year
o Max contribution of 25 percent annually o Max tax deduction for contributions taken from employer is 25%
Basic requirements of payroll
o Must accurately calculate payments that are due to employees o Must accurately calculate statutory and voluntary deductions o Must track payroll tax payments owed to federal and state agencies o Must provide accurate reports of payroll costs to management o Must provide security for payroll information
A typical wellness program includes
o Nutritional counselling o Education programs for weight control o Smoking and stress reduction o Physical exercise
3. Childcare and Eldercare
o Smaller companies who cant afford refer employees to EAPs for resources o Larger companies provide childcare o Eldercare is provided through resources.
Others wellness programs include
o Substance abuse o Prenatal care o Spinal care
Child Support Garnishment
o Up to 50% of an employees disposable earnings if the employee is currently supporting a spouse or child and up to 60% if they are not. o If payments are more than 12 months in arrears wages can be garnished an additional 5 percent. There are no restriction on child-support garnishments
Product Market Competition
o increased competition pressures organizations to do everything faster better and cheaper. These pressures create a strain on employee population. In a climate epitomized in competition between organizations accompanied with demand decreases can create issues related to the financial health of the organization. This includes wage freezers, which would result in skipping a merit review process, elimination of promotions or cutting of incentives. In a strong economy increased competition could mean increased growth increased financial awards. HE needs to be aware of the adjustments and ensure that programs a in line with these pressures.
Compensation is based on various factors including:
o internal value- the importance of jobs relative to each other o external value o economic factors such as supply and demand o KSAs (Knowledge skills and abilities)
CCPA (Consumer Credit Report Act)
o prohibits employers from terminating employees whose wages are garnished for any ONE debt even if the employer receives multiple garnishment orders for the same debt. o Sets limit on the amount that can be garnished in any single week o Defines how disposable earnings are to be calculated for garnishment withholdings
Nonforfeitable claim
one that exists because of a participants service. These types of claims are unconditional and legally enforceable.
Nonqualified plan
one which the benefits exceeds the limitations of qualified plans or don't meet other IRS requirements for favorable tax treatment.
Making decisions about voluntary benefits that are most appropriate for a organization requires consideration of:
organization requires consideration of: a. Demographics b. Industry standards c. Local area practices d. Financial situation of the company e. The organizational culture among them A needs assessment is a great start to getting insight into what benefits are most attractive to employees
Green circle pay
pay ranges that fall below the minimum of the salary range. This could be because the employee doesn't have the required qualification or knowledge and or skills to meet the requirements for the position.
Plan administrator
person designated by the plan sponsor to manage the plans
Variable compensation, also known as incentive pay or pay for performance -
programs include some sort of variable compensation in the pay packages offered.. · This helps to shape or change employee behaviour or organizational culture by rewarding behaviours that are valued. · It also motivates employees to achieve business objectives by providing a line of sight between desired performance and the rewards · Merit budgets are getting smaller than previously year. Incentive pay then allows the funding to go to the persons who are matching company culture and expectation.
Commissions
provides incentives to sales employees by paying them a percentage of the sale price for products and services sold to customers. They can compose of an entire compensation package or can be used as a portion of base salary. When sales employees receive a base pay its usually a portion of target cash compensation. Commission only payrolls must not be lower than minimum wage.
Defined- Contribution Plans
relies on contributions from employees to fund IRAs. In these plans the amount of contribution is fixed but the amount of the benefit available upon retirement
WPDA (Welfare Pension Plans Disclosure Act)
required administrators of health insurance, pension and supplemental unemployment insurance plans to
Individual incentives
reward employees who achieve set goals and objectives . Minimum bonus target of 10 percent
Competency based compensation
salaries basked on Knowledge skills and abilities. Employees move up by competency development Competency profiles include technical skills specific to individual jobs and softer skills identified as valuable to the organization such as communication skills, team work adaptability
Base Pay
the amount of compensation that the employer and the employee agree will be paid for the performance of particular job duties. Reflects internal value of jobs while striving to recognize the external market value/
Budgeting for Total Rewards
· HR Works with Line Managers to build total rewards budgets · Compensation and benefit budgets are projected during the annual budget process and just consider increases to base salaries as well as adjustments to the salary structure to keep salaries competitive. · Budgets are also projected for incentive pay programs and planned promotions. · Salary surveys can also forecast changes to base salaries and salary structure adjustments. In order to calculate salary surveys its necessary to conduct compensation benchmarking to identify job responsibilities and external market value.
Factors considered when making base pay
· KSAs · Previous Earnings · Internal equity
Changes in pay based on:
· Performance on the job · Seniority · Increased skills
When determining a new hires rate of pay you must look at:
· Years of experience in a certain profession, industry or total experience · Type of experience may be relative to position · How well the employee will perform is unknown and will be taken account when they start working.
