Page 660 - Business Principles and Management

Chapter 24 • Rewarding and Developing Employees

24.2 Employee Benefits

Goals Terms
• Recognize how employee benefits • employee benefits • job sharing
add to the total compensation • pension plan • profit-sharing plan
received. • tax deferred • cafeteria plan
• Describe several ways companies • flex-time
can improve HR services while
controlling costs.

Customary Employee Benefits

In addition to pay, employees often receive other valuable benefits from their
employer as part of their total compensation. When employees make decisions
about which employer to work for or whether to accept a promotion, the wage
or salary level is often considered the most important factor in the decision.
However, the total compensation package is probably more important. One job
may pay significantly more than another, but if the second job provides a num-
ber of benefits and the company pays most or all of the cost of those benefits,
the total compensation may be higher for the second job. Having insurance,
paid vacations, medical leave, and contributions to a retirement plan can make
an otherwise lower-paying job more attractive.
Employee benefits are all forms of compensation and services that a company
provides to employees in addition to salaries and wages. Employee benefits can
significantly increase the total compensation an employee receives. It can also
increase the costs to the employer. On average, companies spend an additional
20 to 40 percent of employee wages and salaries on benefits. Assume that a
company employs 300 people at an average salary of $30,000. In addition to the
$9,000,000 in salaries, the cost of benefits may be as much as $3,600,000. In the
same way, rather than earning $30,000, the average employee receives as much
as $42,000 in total compensation. If employees did not receive those benefits,
they would have to pay the total cost from their wages and salaries if they needed
to obtain insurance, establish a retirement fund, or take a day off for illness.

CUSTOMARY EMPLOYEE BENEFITS

INSURANCE Many businesses make it possible for their employees to obtain insur-
ance at lower costs through group insurance policies. Health, vision, dental, life,
and disability insurance are common types of coverage provided. In many cases,
the company pays part or all of the employee’s insurance costs. Most business
insurance plans offer coverage for the employee’s family members. Although
employees usually must pay the additional cost for family coverage, they pay
a much lower rate than if they purchased the same insurance privately.

RETIREMENT PLANS As employees get older and begin to consider retirement, they
become increasingly concerned about the income they will have once they stop

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