PLEASE NUMBER WITH WEEK WHEN RESPONDING. INCLUDE CITATIONS.
Week 8 Discussion 1 articles are attached
Each answer should be 2 paragraphs long. PLEASE NUMBER RESPONSES.
Select one of the case studies listed below (located in your textbook.)
Then complete the following:
- Add your opinion about the choices and decisions being made—if this was your company would you make this choice?
- What would you do differently?
CASE 13-1 IT IS NOT JUST ABOUT THE BLING ANYMORE: BENEFITS AND PERKS—THE COMPETITIVE EDGE IN EMPLOYEE RECRUITMENT
LO 13-1
Discuss the strategic value of benefits programs, why these programs continue to grow, and considerations that need to be taken into account in providing benefits.
How much would you think that companies spend on benefits packages—5% of direct wages? 10%? more? Benefits are expensive.1 According to the US Bureau of Labor Statistics (BLS), benefits for all groups of workers average roughly 32% of total employee compensation cost.2 Looking at it another way, benefit costs equaled about a 46.4% premium on top of direct wage costs in March 2014. This means that for every $100 that goes into employee paychecks, another $46.40 is spent on benefits. So, if you get a full-time job with average benefits and your salary is $50,000, you would be getting around $23,200 in benefits, or have a total compensation cost (to the firm) of around $73,200.
If you became the HR manager for an organization and you were spending nearly one third of your total compensation dollars on employee benefits, would you want to manage those costs as closely as possible? It makes sense that you would. Luckily, we have some control over benefits costs, and as HR managers, we want to make sure that we get the best return possible—in loyalty, job satisfaction, and employee engagement—for our money.
SHRM
K:B1
Statutory vs. Voluntary Benefits
SHRM
K:B19
Managing Employee Benefits
SHRM
K:B10
Family-Oriented Benefits
The costs of benefits programs are staggering to most people. Of course, the BLS numbers are just an average cost to companies, but that means that for some employers, the costs are even higher than those noted already. Because benefits cost our companies so much, we need to plan our benefits programs to add value for our employees and their families as well as provide a strategic advantage to the company.3 How do benefits programs provide strategic value to the firm? As we noted in Chapter 1, our human resources are one of the few potential sources for competitive advantage in a modern organization. What keeps these employees happy and engaged and willing to create a competitive advantage for our firm? The totality of their compensation—including their benefits packages—is one major factor.4 While we are all aware that most employees take a job because of the advertised level of pay, many stay with a job because of the benefits package associated with it.5
Today, workers are demanding more benefits and an improved mix of choices and flexibility to better fit with their lifestyle and that of their family.6 This phenomenon has made it more difficult for the firm to keep track of and control benefits costs. Because people demand more and better benefits, companies add new benefits to what they have historically offered.7 This requires HR to spend more time monitoring the cost as well as the value provided by different types of benefits. But it also provides an incentive to our employees to continue working for us due to the fact that they feel as if they are being cared for by the company.8 We increase job satisfaction and engagement because when employees are taken care of, they work harder and take good care of our customers and the organization.9
Work Application 13-1
How important are benefits to you in selecting and staying on a job? How do benefits affect employment where you work or have worked?
Why Are Benefits Continuing to Grow as a Portion of Overall Compensation?
Growth in the cost of providing employee benefits has occurred for a number of reasons. Let’s take a quick look at some of the biggest reasons for growth in benefits programs in the United States and worldwide.
Tax Advantages
One reason benefits are growing is that there are federal and sometimes state tax advantages for companies that provide them. If the company provides its employees with a benefit, the firm can write off all or part of the cost of providing the benefit. Sometimes the company can get benefits pretax for employees as well. As an example, most health insurance premiums are tax deductible for employers and are not taxable as income (pretax) for employees. So providing some benefits can reduce the tax burden on both the company and the individual. Take a look at the table on benefits taxation that is reproduced from IRS Publication 15B10 in Exhibit 13-1.
Source: IRS Publication 15B (2017) Fully or Partially Tax Exempt Benefits.
a Exemption doesn’t apply to S corporation employees who are 2% shareholders.
b Exemption doesn’t apply to certain highly compensated employees under a self-insured plan that favors those employees.
c Exemption doesn’t apply to certain highly compensated employees under a program that favors those employees.
d Exemption doesn’t apply to certain key employees under a plan that favors those employees.
e Exemption doesn’t apply to services for tax preparation, accounting, legal, or brokerage services.
f If the employee receives a qualified bicycle commuting reimbursement in a qualified bicycle commuting month, the employee can’t receive commuter highway vehicle, transit pass, or qualified parking benefits in that same month.
g You must include in your employee’s wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Report it as wages in boxes 1, 3, and 5 of the employee’s Form W-2. Also, show it in box 12 with code “C.” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax.
Statutory Requirements
Federal—and, increasingly, state and local—laws require companies to provide certain benefits. A number of states have now made sick leave, other paid time off, retirement, health care, and other benefits mandatory for most or all private corporate employers in addition to the minimum wage increases we noted in Chapter 11. In 1935, Social Security laws were passed that required companies to provide employees with old-age, survivor, and disability benefits. Over the ensuing years, Congress has added other mandatory benefits such as unemployment, workers’ compensation, family and medical leave, and the Affordable Care Act or ACA (we will discuss each of these shortly). Each time Congress or the states require employers to provide a new benefit, the cost to employers for providing benefits goes up.
Influence of Organized Labor
We talked about the National Labor Relations Act in Chapter 9 and noted then that the act allows employees to “bargain collectively” with their employers. This is another reason that benefit costs have grown for companies over the years. A large part of collective bargaining is usually focused on employee benefits (for a variety of reasons), and once union members gain such benefits, employees in other competing companies use this as leverage to have the same benefits added to their workplace, even if the company is not unionized. Unions also use the tax-favored status of many benefits to make them more palatable to the company during negotiations, and organizations may prefer benefits concessions to wage concessions because of the tax advantages. So unions have had a significant effect on the cost and variety of benefits.
Buying in Bulk
Virtually everyone now knows that if you buy things in larger quantities, you get them cheaper (think Sam’s Club or Costco). Buying benefits in bulk works the same way. If companies buy benefits in bulk for employees, it is cheaper than if the employee buys the same benefits individually.
As you can see, there are a variety of reasons why the costs of benefits have grown in the last 80 years. And once a benefit becomes part of the employee’s compensation package, it is very hard to delete that benefit in the future. We consider them an entitlement (Chapter 12)—we feel that the company owes us this benefit.11 So the cost of providing benefits almost never goes down; it just keeps going up. However, some companies, especially companies with fewer than 50 employees, have decided to drop health care benefits for their employees as a result of the detailed requirements in the ACA. An EBRI study noted that “many small employers may have decided that the increasing costs and risks associated with offering health coverage were no longer justified.”12
Considerations in Providing Benefits Programs
How do we create and then administer a benefits program for our workforce? We need to understand several things before creating the program so that we create a system that is both valuable to the employees and affordable for the organization. Remember that our goal is to have a program that increases employee motivation and engagement and helps create a competitive advantage.
As part of strategic value, to help attract and retain the best workers, some companies offer generous voluntary benefits. Google is well known for its generous benefits, including free gourmet food all day long, free gyms and massages, and generous parental leave, and dogs are welcome at work.13 L.L. Bean gives employees discounts of 33% to 40% on company-made items, and it increased its tuition reimbursement from $2,750 to $5,250 per year.14 Starbucks will reimburse tuition cost for online degrees from Arizona State University.15 But of course, any firm that decides to provide these generous benefits must be able to afford the high cost.
Amounts
The first issue is how much money the company is willing to spend to provide an employee benefits program. Many companies will calculate this as a percentage of direct compensation. We may analyze the current situation and come to the conclusion that we are able to provide a 40% premium to direct compensation for the cost of benefits. We have to be very careful in our consideration of the amounts available for employee benefit programs. As with other types of compensation, if we tell our employees that we will provide a benefit that they value and then fail to follow through for any reason, it is just as damaging to motivation and engagement as any other type of management action that breaks the expectancy theory process discussed in Chapter 11. We need to make absolutely sure that we will have the funds available if we commit to providing the benefit.
Mix
Once we know how much money is available, we need to decide what types of benefits we will offer. Here again, the number of different types of benefits has exploded over the past 40 years. In the 1960s and 1970s, most companies had limited benefit programs. They might have offered their employees a retirement benefit, health insurance, life and disability insurance, and possibly dental care, but nobody ever thought about providing “$2,000 to travel” like Airbnb or “acupuncture or improv classes” like Twitter!16 Today, the number and type of benefits available in some company programs is limited only by the imagination of the employees of the firm.
Airbnb CEO Brian Chesky. Airbnb provides employees $2,000 to travel as part of its benefits program.
John van Hasselt/Corbis via Getty Images
As an example, companies today may provide a transportation subsidy such as a vehicle allowance, a public transportation voucher, free parking near the office or a parking voucher, alternative vehicle allowances (for buying “green” vehicles), allowances for bicycles and places for bike parking, a van or shuttle service to take employees to work and back home . . . and this is just benefits associated with transporting the worker to and from work. The company can provide on-site wellness centers and child care,17 child care vouchers, sick child care, paid child care leave, paid leave for pregnancy and childbirth, elder care, and/or pet care. So we can quickly see how large the pool of potential employee benefits can become. We have to decide which of the options is going to provide our workforce with the best benefits package for the money spent.
Please respond to classmates response below in 3-4 sentences.
CASE 13-1 IT IS NOT JUST ABOUT THE BLING ANYMORE: BENEFITS AND PERKS—THE COMPETITIVE EDGE IN EMPLOYEE RECRUITMENT
Add your opinion about the choices and decisions being made—if this was your company would you make this choice? What would you do differently?
