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Any Type of compensation other than “wages”What Is Included in “total” compensationWages (+)Value of BenefitsWhy are benefits so important?Benefits cost Employer  40% of payrollIncreased premiums employer ORSelf InsuringRate of premium for benefits is growing faster than cash wagesLabor issues ≠ Increased WagesSame benefitsCutting back = Employee + DependentsEmployee + Employee pays for dependentsEmployer pays partial for EmployeesEmployer wants employees to share more costWhy Do Employers offer benefits?Attract and Retain competent employeesTax Advantages/ cash incentivesMandatory – Workers CompensationIRS looks at benefit expenses the same as wagesIncreased Employee MoraleEmployee increase productivityHealthier WorkforceGroup InsuranceBasic Underwriting Principle of Group Insurance  **AKA  The method to control Adverse Selection**1. Insurance should be incidental to the group. The group should not be formed just for the purpose of Insurance.a. Group just for Insurance  Gather the high risk members  which leads to higher premium, higher rate of people dropping out, and no one will sell Insurance to the Employer.i. “Death Spiral”ii. Employer is a Group2. Flow People In & Out of The Groupa. It Needs younger people to flow in.b. It Needs older people to flow outi. Older people using up all of the resources  which makes premium go up.ii. Younger people drop out and seek coverage elsewhere1. “Adverse Selection Death Spiral”iii. Don’t want to much turnover  Increase in administrative costs.3. Automatic Determination of Benefitsa. You don’t want individuals to be able to select individual amounts of coverage.b. Unhealthy / High Risk  They are going to choose top of the line coverage.i. Employer will offer a basic benefit and let the employee enhance the benefit if they (employee) pays for it.1. Dependents / Extra Benefits  You pay for itii. Payroll Deduction1. Pre-taxed Tax benefit to employee as well as to the employer.4. Minimum Participationa. If the plan is Non-Contributory  Employer pays all  RAREi. 100% of Employees must be coveredb. If the plan is Contributory  Employee pays somethingi. Large # of employees must participate for the pool to be diverse.ii. “Hard Waiver” – Not joining Employer’s Health Insurance Plan but to prove that you have other coverage.5. 3rd Party Sharing of Costsa. Individual/Employee is not bearing whole cost employer pays part—i. Sharing avoids huge increase in premium- younger / healthier employees would realize they’re subsiding older workers.6. Simple Efficient Administrationa. Payroll deduction  keeps costs downb. “Cafeteria Benefits” – for employees (Difficult to Administer)i. Employees love itii. Employers Hate it  Because it is difficult to administer7. Eligibility Requirementsa. New Employees must meet the requirements before coverage begins – probation 3-6 months waiting period.i. Full Time Employees / Part Time employees partial benefitsMust be actively at work when insurance becomes available.NO workers compensation / NO FLMAApply for coverage during waiting periodOne pass probation and get benefits  2 circumstances per year you can change benefits“Life Event”Anniversary = Open Enrollment____________________________________________________________Benefit Financing1. Non-Contributory (RARE)a. Employer pays all costsb. Employees covered without financial contributionsc. All employees must be coveredd. Eligible  Participatei. {a-d} NO PHYSICAL Doc. Appointment required to become employee1. Whole Group Covered2. Contributorya. Employer & Employee share costsb. For employee to become participant they must make a financial contribution.c. Voluntarily Come in = Group Rate  No Physical­­_____________________________________________________________1. Income Taxa. Employer can deduct cost of employee benefits as ordinary business expense (same as wages)b. Sometimes employee is taxed on value of benefitsi. Mostly Employee not taxedii. Life Insurance  $50,000 taxediii. Tuitionc. Benefits are a way for employer to compensate employee’s tax freed. Life Insurance Employee pays tax on face value over $50,0002. Disability Insurancea. Many different plans, Employer chooses, only offer 1 plan at a timeb. Short term & Long Term disabilityc. Monthly benefit when you cant work  NOT Workers Compd. If Employer pays full cost, the premium is not taxable to employere. Employee pays any part  Monthly benefits is tax free_____________________________________________________________1. Disadvantages To Group Insurancea. Temporary  Leave the group or group disbands  you have no insurance and your dependents don’t have insurance.2. COBRAa. Gives employees and dependents to continue coverage for up to 18 months after “Quantifying Event”i. Terminated (NOT gross misconduct)ii. Divorce / Separationiii. Death to Employeeiv. Dependents hit age limit (26 years old)b. Employee pays 102% full premium and administrative costsi. Still cheaper than an alternativeii. Easy  No chargesiii. Chronic Condition or your dependent has oneiv. Cant get coverage anywhere else.c. No Application / No Physicald. No evidence of insurability is necessary_____________________________________________________________Perk Benefits  Life Style BenefitsVoluntary  Employee PaysPet InsuranceGym MembershipDiscount on Cell Phone Plans & Car InsuranceAttorney Consultations_____________________________________________________________Core Plus PlanEmployee has a basic “core” of benefitsMinimum  Single CoverageWant more  Buy more$1,000 AllowanceHealth, Vision, Dental, PrescriptionFor Extra $1,500  DependentsBuy coverage and keep what you don’t spend  Taxed as income.Employees will have $$ taken out every month on a pre-tax basis.Take Allowance, pay tax  show Employer proof or evidence that you have coverage.____________________________________________________________Flexible Spending Account3 Types:HealthcareDependent CareTransportationArrangement that permits employees to pay for certain un-reimbursable medical expenses with pre-tax dollars.Employer agrees to reduce salary and deposits $$ in to Flexible Spending Account.Items that aren’t covered by medical insurance  But still looks like a medical expense:Lasik Eye surgery / Hair TransplantsCosmetic SurgeryCo-PaysBracesGlassesHearing AidsOver the counter


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TEMPLE RMI 2101 - Chapter 12 Class Notes

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