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In order to remain competitive, as well as attract and retain top employees, employers are faced with the task of creating a winning compensation strategy that will not only accomplish these objectives, but will also stay in line with corporate budgeting constraints. It's a fact that employee compensation is much more than just a salary. It includes all the "perks," such as vacation and sick time, company vehicles, corporate memberships, and a variety of benefit options designed to provide employees and their families with, at a minimum, health insurance and retirement income. While employers are legally obligated to provide certain state and federally sponsored benefits, the majority of employers also offer, and often contribute to, additional employee benefits for their employees.
Employee benefit plans fall into a number of categories, including:
State and Federally Mandated Benefits. Employers are required, by law, to participate in certain programs, either through paying taxes or making contributions. These benefits include: workers compensation coverage; unemployment insurance taxes; Social Security taxes; Medicare contributions; and state disability laws, where applicable.
Group Benefits. The majority of employers voluntarily offer health-related benefits to employees. In most instances, the cost for employee healthrelated insurance is shared by the employer and the employees. There are a wide range of group benefits available to employers, including:
There are a number of different types of health insurance plans, including Fee-for-Service Plans, Preferred Provider Organizations (PPOs), Point of Service (POS) Plans, and Health Maintenance Organizations (HMOs). One main difference in each of these plans is the number of participating doctors. In a Fee-for-Service plan, an employee may go to any doctor for treatment, and pay a deductible and coinsurance. In a PPO plan, employees may either go to any doctor of their choosing and pay a deductible and coinsurance, or visit one of the participating doctors in the plan and pay a lower co payment. POS plans offer some of the flexibility of a PPO plan, but the employee must choose a primary care physician within the plan. HMOs allow the employee to see doctors only within their plan, sometimes at an HMO facility.
Whichever plan you choose to offer your employees, you should know that there will be those who insist on seeing their own doctors, and are willing to pay extra premiums and deductibles and coinsurance for them, a Fee-for-Service or PPO plan may be a good fit. Other employees may not have that need, and will appreciate a less expensive, more restrictive plan, such as a POS or HMO. In order to satisfy the majority of their employees, many employers offer their employees a choice of a Fee-for-Service or PPO plan, as well as a POS or HMO plan.
Retirement Benefits. Like health insurance, retirement benefits are an integral part of an employee's overall compensation. There are a number of different retirement options available, such as:
In deciding which type of retirement plan to offer, an employer should consider: ages and compensation histories of employees; level of employer contributions anticipated; the company's profit history; plan administration costs; and the expected length of time the plan will exist. There are a wide variety of plans available to employers, and it makes sense to consult with professionals who specialize in retirement plans for businesses.
Other Benefits. This is a "catch-all" category that includes programs and benefits offered by the employer on either an employer-pay-all or contributory basis. These additional benefits serve to improve the employee's quality of life by offering services and programs that may make the employee's life easier, and hopefully, more pleasant-translating to improved satisfaction levels and employee productivity.
Other benefits are quite extensive and can include, but are not limited to: group automobile insurance plans; flexible spending accounts; dependent care accounts; medical expense reimbursement accounts; paid leave; employee assistance programs; health club memberships; credit unions; company vehicles; and certain non-qualified plans, such as deferred compensation plans which are usually discriminatory in nature, and thus are not tax-favored instruments of employee compensation.
Designing a Plan
When you begin to put together an employee benefit plan, you will likely want to start with a few "core" benefits, such as disability insurance, health insurance, and a retirement plan. These benefits form a base from which your company's benefit plan can grow and evolve in the future. Every year or two, it may be wise to consider the addition of a new benefit plan, for example dental insurance or disability income insurance. Instead of bearing the burden of cost entirely, the employer can contribute a portion of the cost, with the employee paying the balance.
Before you add a new benefit to your existing employee benefit plan, it is always wise to survey the current employee population, to see what benefits they would like added. For example, if your employee population is made up of younger, single employees without dependents, a dependent life insurance plan - one which would provide a benefit in the event of the death of an employee's spouse or child-would be underutilized and, most likely, unappreciated. But, if your employee population is largely made up of "30-somethings," married, and with children, the same dependent life insurance plan might be an excellent addition to your existing benefit plan. Your employee benefit plan is not static. It must change and evolve with your company's growth, profitability, and employee demographics, in order to be effective as a retention/recruitment tool.
The majority of employee benefit plans are federally regulated and have strict guidelines to follow regarding nondiscrimination, rights and privileges for terminated employees, continuation of coverage rules for medical insurance, and rollover and distribution requirements for defined benefit and defined contribution plans.
In order to avoid discrimination (and the potential for legal action), a benefit offered to one employee should be offered to all employees, regardless of race, age, gender, disability, and whether they are hourly or salaried individuals. Employers must design employee benefit plans to comply with a number of legislative acts, including: Employee Retirement Income Security Act of 1974 (ERISA); the Age Discrimination and Employment Act; Older Workers Benefit Protection Act; Civil Rights Act; Consolidated Omnibus Budget Reconciliation Act; and Equal Pay Act. While employers may offer discriminatory benefits to, for example, their key employees, these benefits will be classified as "non qualified" benefits and the cost of providing them will not be deductible to the employer, as other "qualified" benefits might be under the Internal Revenue Code.
Create a Win-Win Relationship
As an employer, you have the opportunity to create an employee benefit plan that will improve the satisfaction of current employees and enhance recruitment efforts, as well as provide tax incentives for your company. A professional experienced in designing health, welfare, and pension plans can assist you in creating a plan that's right for you and your employees, and that fits in with your overall budgetary requirements.