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:
Health and welfare plans are perhaps the most visible of all the benefit program components. These benefits include:
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:
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:
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.
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