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Source: Small Business
Management
Employee benefits play an important role in
the lives of employees and their families and have a significant financial impact on any
business, large or small. Most businesses operate in an environment where an educated work
force has come to expect a comprehensive benefit program. The absence of such a program or
the installation of an inadequate program can seriously hinder your ability to attract and
retain good personnel. Further, benefits can be costly as well as administratively
burdensome. It is important that you, as an employer, are aware of the relevant issues and
that you are prepared to make an informed decision on selecting a benefit program.
What Makes Up a Comprehensive Employee
Benefit Program?
While a complete explanation of the numerous employee benefit plans is beyond the scope
of this guide, it is important that you attain a basic understanding of the type of plans
available. For purposes of this guide, an employee benefit program can be broken down into
four components: legally required benefits, health and welfare benefits, retirement
benefits and prerequisites.
Legally required benefit plans are mandated by law and the systems necessary to
administer such plans are well established. These plans include social security, workers'
compensation and unemployment compensation.
Health and welfare benefits and retirement benefits can be viewed as benefits provided
to work in conjunction with statutory benefits to protect employees from financial hazards
such as:
- illness,
- disability,
- death, and
- retirement (cessation of employment)
Health and welfare plans are perhaps the most visible of all the benefit program
components. These benefits include:
- medical care,
- dental care,
- vision care,
- short-term disability,
- long-term disability,
- life insurance,
- accidental death and dismemberment insurance,
- dependent care, and legal assistance
Since health and welfare benefit plans provide the more visible and tangible benefits,
they play a key part in the reception of a benefit program.
Retirement plans are instituted to help ensure that employees are able to maintain
their accustomed standard of living upon retirement. Retirement benefit plans basically
fall into two categories: 1) defined contribution plans which provide employees with an
account balance at retirement, and 2) defined benefit plans which provide employees with a
predetermined amount of income at retirement. Each of these categories includes various
kinds of plans but only the most popular plans will be addressed.
Prerequisites encompass any additional benefits an employer promises, which may include
automobiles, country club memberships or out-of-town conventions.
Selecting An Employee Benefit Program
Designing and implementing an employee benefit program is a complicated process that
should be planned with the aid of a benefit professional. Employee benefit professionals
are generally available in consulting firms, insurance companies, law firms or accounting
firms. An employee benefit program should be designed to meet the individual needs of your
company. Therefore, before consulting a professional, you should consider the following:
- What should the program accomplish in the long run? In other words, what are the
objectives of the program?
- What is the maximum amount you can afford to spend on a program?
- What is your administrative capability?
- Understand your employee group today and what it may look like in the future - what kind
of program would fit your employee population?
- Do you want employee input? In which benefits are employees interested?
- When you have completed items 2 through 5, you may need to reevaluate item 1 to
determine the feasibility of your objectives.
It is important to consider each item listed above when selecting a benefit program.
You will be very well equipped to consult a professional if you have carefully examined
each item. You should choose your consultant carefully to ensure that you retain one who
will take the time to understand your business requirements and your short- and long-term
financial capability.
Which Plan Is Right For Your Company?
In general, it should be noted that certain plans will be more suitable than others
based on an employer's financial situation and the demographics of the employee group.
Employers who are not confident of their future income may not want to start a defined
benefit plan which will require a specific level of contributions. However, if the
employees are fairly young, a profit sharing plan can result in a more significant and
more appreciated benefit than a defined benefit plan. If your work force is composed
mainly of older employees, a defined benefit plan will be more beneficial to them but more
expensive to maintain.
Prerequisite Benefit Plans
Many key employees have come to expect certain additional benefits from their
employers. here is
a list of various types of prerequisite benefits. It is your option as an employer to
choose among this wide variety of benefits:
- Company automobile
- Extra vacation
- Special parking privileges
- Personal expense accounts
- Spouse traveling on company business
- Sabbaticals (with pay)
- Professional membership
- Loans/mortgages
- Club memberships
- Chauffeur
- Estate planning
- Financial counseling
- Medical expense
- reimbursement
- Travel clubs
- Credit cards
- Home entertainment
- allowance
- Physical examination
- Executive dining room
Communications
Effective employee communications are essential to successfully introduce or maintain
an employee benefit program. Too often employees do not understand or are not aware of the
various components of their benefit program. Your benefit program will not achieve its
long-term objectives if it is not effectively communicated. Good communications will
ensure that you gain the full benefit of your program. Further, there are legally required
communications which must be provided to employees in retirement plans and health and
welfare plans.
Conclusion
Hopefully, the information provided in this publication will be useful to you in
selecting, implementing and maintaining an effective employee benefit program. Benefits
play too significant a role in the success of a business to allow decisions to be made in
an uninformed manner. Generally, the point of an employee benefit program is to provide
employees with protection when they need it. An effective benefit program should shield
your employees from the financial burden of illness, disability, retirement or death.
Small business managers who demonstrate a sense of caring for their employees by providing
well-balanced benefit program will take a major step in developing a stable and productive
work force. |
