Chapter 11 | Employee Benefits

Introduction

• Introduction to Employee Benefits

  • Benefits are a key component of total employee rewards.

  • Unlike salaries and wages, benefits are provided based on organizational membership, not time worked.

• Government-Mandated Benefits

  • Certain benefits are required by law, including:

    • SSS (Social Security System)

    • Pag-IBIG Fund

    • PhilHealth (Philippine Health Insurance Corp.)

    • EC (Employees' Compensation) Program

  • Employers collect employee contributions and remit them, along with employer contributions, to the respective government agencies.

  • The government then provides the benefits to employees.

• Discretionary Benefits

  • Organizations may offer additional benefits beyond legal requirements.

  • Common discretionary benefits include:

    • Life insurance

    • Medical insurance

    • Vacation and sick leaves

    • Emergency loans

  • The availability of these benefits depends on the organization’s philosophy, financial capacity, and other factors.

Why Provide Benefits?

• Reasons for Providing Employee Benefits

  • Beyond legal requirements, benefits offer key advantages to both employees and organizations.

• Employee Well-being and Productivity

  • Health and medical insurance ensure employees stay healthy and productive.

  • Housing and transportation assistance help employees meet basic needs, making them more prepared for work.

  • Tuition fee loans support employees and their families’ education, reducing financial stress.

  • Paid time-off allows employees to recharge, maintain well-being, and handle personal matters.

  • Retirement and financial planning help employees transition into life after employment.

• Enhancing Employee Commitment and Retention

  • Employees perceive benefits as a sign of genuine organizational support (Eisenberger et al., 1986).

  • Genuine support fosters positive employee behaviors, such as loyalty and higher engagement.

  • Social Exchange Theory (Gouldner, 1960; Blau, 1964) suggests that when organizations treat employees well, employees reciprocate through:

    • Lower turnover intention (Rhoades & Eisenberger, 2002; Harris et al., 2007).

    • Increased organizational citizenship behavior (Liu, 2009; Paille et al., 2010).

  • Perceived organizational support can directly influence positive behaviors or mediate justice perceptions in the workplace (Moorman et al., 1998; Cheung, 2013).

Components of Benefits

• As aforementioned, benefits are a very important component of an employee's total reward.

• Thus, the government mandates that certain benefits are given to employees. These are called mandated or statutory benefits.

• On the other hand, an organization may provide benefits to employees beyond those that are ordered by law. These are called discretionary benefits.

1. Statutory Benefits

• The government mandates social security benefits to protect employees from income loss due to sickness or injury.

• Key Government-Mandated Benefits

  • Social Security System (SSS) & Employees' Compensation (EC): Covers private sector employees.

  • Government Service Insurance System (GSIS): Covers government employees.

  • PhilHealth: Provides accessible and affordable healthcare services for all employees.

  • Pag-IBIG (Home Development Mutual Fund): Offers affordable housing loans and a mutual provident savings system.

• Statutory Benefits Under the Labor Code

  • Monetary benefits include:

    • Minimum wage

    • Holiday pay

    • Premium pay

    • Overtime pay

    • Night shift differential

    • Service incentive leave

    • Maternity leave

    • Paternity leave

    • Parental leave for solo parents

    • Leave for victims of violence against women

    • Special leave for women

    • Thirteenth-month pay

    • Separation pay

    • Benefits from Employees' Compensation Program

    • PhilHealth, SSS, and Pag-IBIG contributions

2. Discretionary Benefits

• Benefits beyond those required by law.

• Developed as an alternative to salary increases.

• Often non-monetary, reducing taxable income for employees and tax liabilities for employers.

• Influenced by unions and competitive industry practices.

• Used to attract and retain employees.

• Reflect an organization’s philosophy and values.

• Categories of Discretionary Benefits (Martocchio, 2011)

  1. Protection Benefits

     • Provide financial security and peace of mind.

     • Help employees manage catastrophic events (e.g., unemployment, serious illness, disability).

     • Examples:

       • Health plans

       • Health insurance

       • Life insurance

       • Retirement plans

  2. Paid Time-Off Benefits

     • Allow employees to take time off for various reasons.

     • Examples:

       • Vacation leave

       • Sick leave

       • Maternity leave

       • Paternity leave

       • Funeral leave

  3. Service Benefits

     • Help employees manage personal and financial challenges.

     • Examples:

       • Tuition fee loans or reimbursements

       • Housing loans

       • Car plans or loans

       • Flexible work arrangements (e.g., work-from-home, flexible hours)

       • Employee assistance programs (e.g., counseling, career guidance, wellness programs)

3. Benefits Administration

• Determining the type of benefits to offer employees.

• Identifying who are covered under the benefits program.

• Communicating benefits effectively to employees.

• Monitoring the use and effectiveness of benefits programs.

What Benefits to Offer?

• Deciding on Benefits to Offer:

  • Employers can offer benefits beyond government-mandated ones.

  • Benefits should align with the organization's strategic objectives.

• Using Benefits to Achieve Organizational Goals:

  • Retention: Study what benefits make employees stay.

    • Middle-aged employees value retirement plans.

    • Younger employees may prioritize learning opportunities.

    • Vacation leave credits and benefits can increase with tenure.

  • Employee Development:

    • Tuition loans or reimbursements encourage skill growth.

  • Health & Wellness:

    • Health promotion programs and medical insurance support employee well-being.

  • Tax Management:

    • Benefits structure can help manage employee tax liabilities.

• Considering Employee Needs & Values:

  • Job satisfaction increases when benefits align with employee needs.

  • Demographics (age, sex, civil status, dependents) influence benefit preferences.

  • Conduct surveys to understand employee needs.

    • Example: Parents with school-age children may prefer flexible work schedules.

Who are Covered?

• Eligibility for Benefits:

  • Determine when employees become eligible for benefits.

    • Do they receive benefits only after regularization?

• Types of Employees Covered:

  • Are contingent employees entitled to the same benefits as regular employees?

  • Are benefits available to both part-time and full-time employees?

• Coverage for Dependents:

  • Should the organization extend benefits to employee dependents?

  • How to address employees without dependents?

• Ensuring Equity:

  • How does the organization maintain fairness in benefit distribution?

How Much Benefits to Offer?

• Balancing Objectives:

  • Organizations must balance their own objectives with employee needs when determining benefit levels.

• Ratio of Benefits to Compensation:

  • The proportion of benefits to total compensation depends on the organization's strategic goals.

• Factors Affecting Benefit Costs:

  • Total cost depends on:

    • Types of benefits offered.

    • Employee coverage (who is included).

    • Administrative and maintenance costs.

• Employee Cost-Sharing:

  • Some organizations determine how much employees contribute to benefit costs.

• Cost as a Limiting Factor:

  • The cost of benefits influences decisions on what to offer and who is eligible.

Communicating Benefits to Employees

• Importance of Communication:

  • Helps employees understand the purpose, scope, and value of their benefits.

  • Increases appreciation for employer-provided benefits.

• Genuine Employer Concern:

  • Employees recognize employer's genuine concern when they see benefits beyond statutory requirements.

• Clear Benefit Descriptions:

  • Should include:

    • What the benefit is.

    • Who is covered.

    • When it can be availed.

    • Limits and conditions.

    • How to avail of it.

• Communication Methods:

  • Orientation programs for new employees.

  • Regular updates on new benefits or policy changes.

  • Company intranet for easy access to information.

  • Q&A sections to help employees maximize benefits.

  • Multiple communication channels to ensure awareness.