Designing and Administering

Benefits
Lecturer
Ms. Afshan Ghulam Hussain
Program: BS-CS
Semester: 7, Section: C
December 21, 2023
An Overview of Benefits

Employee benefits are group membership rewards that provide security

for employees and their family members. They are sometimes called
indirect compensation because they are given to employees in the form of
a plan (such as health insurance) rather than cash.
 Types of Benefits

Legally required Voluntary

benefits benefits

Social workers’ Unemployment Family & Health Retirement Insurance Paid Employee
Security compensation insurance medical leave insurance time off Services
Types of Benefits

 Legally required benefits U.S. law requires employers to give four

benefits to all employees, with only a few exceptions:

 Social Security: A government program that provides income for:

• retirement income
• disability income
• medicare
• survivor benefits
Types of Benefits

 Workers’ Compensation: A legally required benefit that provides:

• medical care
• income continuation
• rehabilitation expenses for people who sustain job-related injuries or
sickness.
• provides income to the survivors of an employee whose death is job
related.
Types of Benefits

 Unemployment Insurance: A program established by the Social Security Act of

1935 to provide temporary income for people during periods of involuntary
unemployment.
Types of Benefits

 Family and Medical Leave: A federal law that requires employers to provide
up to 12 weeks’ unpaid leave to eligible employees for:

• the birth of a child

• adoption of a child
• to care for a sick parent, child, or spouse
• to take care of health problems that interfere with job performance.
Types of Benefits

 Voluntary benefits Future legislation may move some of these benefits

from the voluntary category to the legally required category.

 Health insurance provides health care coverage for both employees and their
dependents, protecting them from financial disaster in the wake of a serious
illness. Is usually considered separately from other types of insurance.

• covers hospital costs

• physician charges
• the costs of other medical services
Types of Benefits

 Retirement benefits provide income to employees after they retire.

• defined benefit plan or pension

• defined contribution plan
Types of Benefits

 Insurance plans A wide variety of insurance plans can provide financial

security for employees and their families. Two of the most valued company-
provided insurance benefits are:

• life insurance
• long-term disability insurance
Types of Benefits

 Paid time off plans provides breaks from regularly scheduled work hours so
that employees can pursue leisure activities or take care of personal or civic
duties. Paid time off includes:

• sick leave
• vacations
• severance pay
• holidays
Types of Benefits

 Employee services are tax-free or tax-preferred services that enhance the

quality of employees’ work or personal life. These include:

• child care
• health club memberships
• subsidized company cafeterias
• parking privileges
• discounts on company products
Designing The Benefits / Benefits Strategy
To design an effective benefits package, a company needs to align its benefits
strategy with its overall compensation strategy. The benefits strategy requires
making choices in three areas:

Benefits Mix Benefits Amount Flexibility of Benefits

Designing The Benefits / Benefits Strategy
1. The Benefits Mix: The complete package of benefits that a company offers
its employees. At least three issues should be considered when making
decisions about the benefits mix:
 the total compensation strategy: The total compensation strategy issue corresponds to
the “below-market versus above market compensation” decision

 organizational objectives: also influence the benefits mix. For instance, if the company
philosophy is to minimize differences between low-level employees and top
management, the benefits mix should be the same for all employees.

 the characteristics of the workforce: If the firm’s workforce consists largely of parents
with young children, it is likely that child-care and other family-friendly benefits will be
important.
Designing The Benefits / Benefits Strategy

2. Benefits Amount: Once management determines the amount of money

available for all benefits, it can establish a benefits budget and decide on the
level of funding for each part of the benefits program.
Designing The Benefits / Benefits Strategy

3. The Flexibility of Benefits: choice concerns the degree of freedom

employees have to tailor the benefits package to their personal needs. Some
organizations have a relatively standardized benefits package that gives
employees few options. In these firms, a standardized benefits package can
be designed for a “typical” employee.
Administering Benefits
Although the benefits administration is likely to be performed by an HR benefits
specialist, managers need to understand their companies’ benefits package well
enough to help communicate benefits to their employees and keep records.

Two important issues involving benefits administration are the use of:

1. Flexible Benefits
2. Benefits Communication
Administering Benefits

1. Flexible Benefits Flexible benefits offer employees the opportunity to tailor a

benefits package that is meaningful to them at a reasonable cost to the
company. However, they do pose some challenges to benefits administrators.
These are:

 Adverse selection
 Employees who make poor choices
 Administrative complexity
Administering Benefits

2. Benefits Communication is a critical part of administering an employee

benefits program. Many employees in companies with excellent benefits
packages have never been informed of the value of these benefits and are
therefore likely to underestimate their worth. The two major obstacles to
effective benefits communication are:

 the increasing complexity of benefits packages

 employers’ reluctance to devote enough resources to explain these complex
packages to employees.