Employee Benefits

Employee benefits have been defined by the Bureau of Labor Statistics as any form of indirect or
non-cash compensation provided to employees by an organization in addition to their normal
salaries or wages (BLS, 2008). In the United States, they may be required by law or regulation,
as are employer contributions to Social Security or health care benefits, or they may be
discretionary, such as contributions to retirement savings or paid time off. Organizations offer
benefits to their employees because they promote job satisfaction and inspire worker loyalty,
which, in turn, can lead to better financial performance (Chan, Gee & Steiner, 2000; Rutigliano,
1986).

Types of Employee Benefits

Benefits are any perks offered to employees in addition to salaries or wages. The most common
benefits are medical, disability, and life insurance; retirement benefits; paid time off; and fringe
benefits.

Medical Insurance
Medical insurance covers the costs of physician and surgeon fees, hospital rooms, and
prescription drugs. Dental and optical care might be offered as part of an overall benefits
package. It may be offered as separate pieces or not covered at all. Coverage can sometimes
include the employee's family (dependents).

Employers usually pay all or part of the premium for employee medical insurance. Often
employees pay a percentage of the monthly cost. The cost of insurance through an employer. The
country has a mandatory community-based health insurance, which is called CBHI.

Disability Insurance
Disability insurance replaces all or part of the income that is lost when a worker is unable to
perform their job because of illness or injury. This benefit is not commonly offered. There are
two main types of disability insurance:

 Short-term disability insurance begins right away or within a few weeks of an accident,

illness, or some other disability. For example, someone hurt in a car accident would be
offered a few paid weeks to recover.
 Long-term disability insurance provides benefits to an employee when a long-term or
permanent illness, injury, or disability leaves the individual unable to perform his or her
job. For example, an employee with spinal injuries could be entitled to long-term
disability benefits until retirement age.
Life Insurance
Life insurance protects your family in case you die. Benefits are paid all at once to the
beneficiaries of the policy usually a spouse or children.

Company-sponsored life insurance plans are standard for almost all full-time workers in medium
and large firms across the country. You can also buy it privately, but this is usually more
expensive.

Retirement Benefits
Retirement benefits are funds set aside to provide people with an income or pension when they
end their careers. Retirement plans fit into two general categories:

 In defined benefit plans (sometimes called pension plans), the benefit amount is pre-
determined based on salary and the years of service. In these plans, the employer bears
the risk of the investment.
 In defined contribution plans, employer or employee contributions are specified, but the
benefit amount is usually tied to investment returns, which are not guaranteed.

Paid Time Off Benefits

Paid time off (also referred to as PTO) is earned by employees while they work. The three
common types of paid time off are holidays, sick leave, vacation leave, Maternity / Paternity
Leave and Other leave entitlements.

 Vacation Leave
Employees receive 16 days of paid annual leave after one year of service. Employees then
receive one additional day per year for every two years of service.
 Sick Leave
Employees receive six months of sick leave. Employees receive 100% of their pay for the first
month while on leave and 50% for the following two months. After that, any remaining sick
leave is unpaid.
 Maternity / Paternity Leave
There are provisions around the nature of work that a pregnant employee is not permitted to
perform where it could be hazardous to her or the child's health (Article 87 (2) to (6)). Night
work is generally prohibited, nor shall she be assigned to overtime-work. Moreover, she shall not
be given an assignment outside her permanent place of work and be granted time off for medical
examinations (Article 88 (1)).
Employees are entitled to maternity leave, which is to start from 30 days prior to due date of
birth, and end not less than 60 days after birth of the child. Maternity leave is classified as paid
leave (Article 88 (3) to (4). Male employees receive three days of paid paternity leave.
  Public Holidays
Ethiopia has more than eleven public holidays – historical memorial days and holidays of
Christian and Moslem origin - described by law. Eastern Orthodox, Timket, Adwa Victory Day,
Good Friday (Eastern), Orthodox Easter, Labor Day, Patriots’ Victory Day, Eid al-Fitr, Derg
Downfall Day, Eid al-Adha, Enkutatash, Meskel and Mawlid.

Under Articles 73 to 75, public holidays are paid. A worker who is paid on a monthly basis will
not be subjected to a reduction in wages for not working on a public holiday. An employee who
works on a public holiday is entitled to the double of his or her ordinary hourly wages.

 Other leave entitlements

Articles 85 to 86 provide for an entitlement to sick leave after the completion of the probation
period. An employee is entitled to a maximum of 6 months of sick leave within 1 year of service.
An employer will only be obligated to grant paid sick leave for the first months, whereas the
wage is reduced to 50 % for the second and third month, and reduced to zero for the third to the
sixth month of sick leave within a year. For any absence for longer than one day the employee
has the obligation to produce a valid medical certificate.

Moreover, Article 81 to 84 of the Proclamation provide for special leave for family events, union
activities and other special purposes, such as for hearings before bodies competent to hear labour
disputes, to exercise civil rights, and for training purposes according to collective agreements or
working rules
Fringe Benefits
Fringe benefits are a variety of non-cash payments are used to attract and retain talented
employees. They may include tuition assistance, flexible medical or child-care spending
accounts (pre-tax accounts to pay qualified expenses), other child-care benefits, and non-
production bonuses (bonuses not tied to performance).

Tuition reimbursement can be an especially important benefit if you plan to take classes in your
personal time. This can be a great way to advance in your career. Most firms offering tuition
assistance require that courses are related to job duties.

Employment Termination / Severance pay

Under Articles 36 to 41 any case of termination provokes payment obligations, such as wages,
severance pay and – in the case of Article 32 (1) (the employee's poor work performance and/or
incapacity) – an additional compensation which shall be thirty times his or her daily wages of the
last week of service, for the first year of work.
Employers can terminate an employment contract by providing advance notice to the employee.
The notice period depends on the employee’s length of service. The notice period is generally
one to two months depending on the employee’s length of service. No notice is required if the
employee is dismissed for misconduct. Severance pay is one month for the first year and then
increases by a third for each year of service but cannot exceed the total annual wage.