Employee Benefits 101

Did you know that a good benefits package can add as much as 30 percent to your overall compensation?

Employee benefits typically refers to retirement plans, health life insurance, life insurance, disability insurance, vacation, employee stock ownership plans, etc. Benefits are increasingly expensive for businesses to provide to employees, so the range and options of benefits are changing rapidly to include, for example, flexible benefit plans.

Benefits are forms of value, other than payment, that are provided to the employee in return for their contribution to the organization, that is, for doing their job. Some benefits, such as unemployment and worker’s compensation, are federally required. (Worker’s compensation is really a worker’s right, rather than a benefit.)

Companies provide benefits that improve employee morale, increase productivity and job satisfaction. They also have an utilitarian purpose by providing additional economic security to a companies employees.

There are a number of advantages to employee benefits for both employer and employee.

Employer advantages of providing employee benefits

* Helps attract and retain better qualified employees.
* Provides high risk coverage at low costs easing the company’s financial burden.
* Improves efficiency and productivity as employees are assured of security for themselves and their families.
* Premiums are tax deductible as corporation expense, which means savings with quality coverage.

Employee advantages of employee benefits

* Peace of mind leading to better productivity as employees are assured of provision for themselves and families in any mishap.
* Employees with personal life insurance enjoy additional protection
* Confidence in company’s EB schemes boost staff morale and pride in company

Prominent examples of benefits are insurance (medical, life, dental, disability, unemployment and worker’s compensation), vacation pay, holiday pay, and maternity leave, contribution to retirement (pension pay), profit sharing, stock options, and bonuses. (Some people would consider profit sharing, stock options and bonuses as forms of compensation.)

You might think of benefits as being tangible or intangible. The benefits listed previously are tangible benefits. Intangible benefits are less direct, for example, appreciation from a boss, likelihood for promotion, nice office, etc. People sometimes talk of fringe benefits, usually referring to tangible benefits, but sometimes meaning both kinds of benefits.

You might also think of benefits as company-paid and employee-paid. While the company usually pays for most types of benefits (holiday pay, vacation pay, etc.), some benefits, such as medical insurance, are often paid, at least in part, by employees because of the high costs of medical insurance.

Common elements of a benefits package include:

Health Insurance

When you’re young, it’s easy to think you’re invincible and practically immune to disease or injury. But a single trip to the emergency room or being diagnosed with a relatively common condition can quickly turn into an overwhelming bill.

Medical insurance helps cushion the blow. If you’re lucky, your employer will pay your entire insurance premium each month. It’s more likely you’ll pay a small percentage, and your employer will cover the rest. Whatever the arrangement, it’s almost certainly in your best interest to sign up.

Don’t forget to check into additional forms of health insurance as they apply to you:

• • Dental Insurance: This helps you keep your teeth healthy by covering preventive maintenance and repair.
  • Disability Insurance: This will help you pay the bills if you’re somehow temporarily or permanently disabled.
  • Life Insurance: This covers the cost of your funeral if you die and, more importantly, provides for key loved ones you leave behind.

• Health benefit packages can include all or a combination of medical, dental, vision and prescription coverage.

• Employers typically expect employees to pay a small percentage of the insurance premium for health insurance. Check with your human resources department for information about your percentage, or employee contribution.

Retirement Plan

• Many employers offer retirement plans, the most common begin 401k and 403b plans. You contribute to the plan on a pre-tax basis. You won’t pay tax until retirement, when your money is distributed back to you. Employers often “match” employee contributions – for each dollar contributed by the employee, the employer contributes a certain percentage, usually between 2-5%.
• Who wants to think about retirement when you’re just starting out? Whether it’s a 401k or a 403b or some other type of employee-sponsored retirement plan, you should strongly consider this option. You’ll be able to contribute to the plan without first paying the usual federal (and in many cases, state) income tax on your contributions. You won’t pay that tax until retirement, when your money is actually distributed back to you. Better yet, your employer may contribute to your account as well, usually matching a percentage of your contributions.

Vacation and Sick Time

• Paid time off is usually based on an “earned” basis. Each pay period, or each month, you may earn a certain number of vacation or sick hours.
• This benefit is exactly what its name implies: Paid time away from work for vacations, holidays or illness.
• Feeling so crummy you’ve just got to stay in bed today? Your pay won’t be docked as long as you still have allotted time left in your bank.

Flexible Spending Account

• Flexible benefits and Section 125 plans let you put pre-tax money aside (by a direct deduction from your pay) to cover health insurance premiums, child or dependent care, vision expenses or dental care.
• You may know this benefit as a Section 125 plan. Whatever the terminology, a flexible spending account allows you to set aside some pretax money to pay for things like health insurance premiums, child care or even that new pair of glasses you’ve been meaning to buy. This helps you reduce your income tax bill at the end of the year, thus saving you money you otherwise would have to give to the government.

Tuition Assistance/Reimbursement

• Perhaps you see a graduate degree, certification course or industry-specific training program in your future. Many organizations offer partial or even full tuition reimbursement for educational activities they see as benefiting not only you but also the organization as a whole. That’s the equivalent of being handed hundreds or even thousands of dollars.

• It’s impossible to describe every possible employee benefit here. Every company offers different benefits, and individual situations vary. So don’t be afraid to get some guidance from your organization’s HR department, a trusted campus advisor or your parents. After all, most schools don’t teach you this stuff.

Perks

• These are the benefits of a more discretionary nature. Often, perks are given to employees who are doing notably well and/or have seniority. Common perks are company cars, hotel stays, free refreshments, leisure activities on work time (golf, etc.), allowances for lunch, and—when multiple choices exist—first choice of such things as job assignments and vacation scheduling. They may also be given first chance at job promotions when vacancies exist.
• Depending on the employer, you may have access to other benefits such as tuition assistance/reimbursement, daycare facilities, fitness facilities or discounts and more. Check with your Human Resources representative.

More detail about benefits packages:

• Health Insurance
• 401(k) plans
• Tuition Reimbursements

Information Sources: