Direct benefits are optional, non-wage compensation provided to employees in addition to their normal wages or salaries. These types of benefits may include group insurance (health, dental, vision, life etc.), disability income protection, retirement benefits, daycare, tuition reimbursement, sick leave, vacation (paid and non-paid), and funding of education.
The benefits of benefits plans
Although expensive, there are many intrinsic benefits to providing your employees with a comprehensive benefit plan. For most, it is the ability to find and keep highly qualified staff that is the key driver. With the sector being highly competitive and the number of new employees entering the workforce dwindling, employers are challenged to become even more creative and responsive in the design, timing and generosity of their benefit plans. The more progressive the organization, the more flexible the structure is in response to today’s challenges: i.e. like having four different generations of employees working side by side. Employers who continue to provide the more traditional and limited program, may find it more difficult to find and keep different types of employees.
Here are just a few of the advantages of offering benefits to your employees:
For employers:
By providing increased access and flexibility in employee benefits, employers can not only recruit but retain qualified employees
Providing benefits to employees is seen as managing high-risk coverage at low costs and easing the company’s financial burden
Employee benefits have been proven to improve productivity because employees are more effective with they are assured of security for themselves and their families
Premiums are tax deductible as corporation expense, which means savings for the organization
For employees:
==> Employees can experience a peace of mind which leads to increased productivity and satisfaction by being assured that they andre their families are protected in any mishap
==> Employees with personal life and disability insurance can enjoy additional protection including income replacement in the event of serious illness or disability
==> Employees can feel a sense of pride in their employer if they are satisfied with the coverage they receive
From a benefit perspective, being creative and considering ways to improve the access or quality of your benefits, could look like:
==> Allowing employees to access their benefit as of their hire date
==> Being able to accumulate sick days to bridge to disability coverage
==> Being able to use some sick days as “personal health days” to allow employees to have a break without using all their holidays or pretending to be sick
==> Receiving your birthday off with pay
==> Seeking insurance providers with vision care benefits at reasonable costs, allowing for some increased flexibility in personalizing benefit options; i.e. health spending accounts, vision care versus dental, and more paramedical coverage
Although these options have a cost associated with them, the cost is significantly less than the benefit an organization can reap in return. If your insurance provider does not allow you the freedom to make some adjustments in your plan, then it might be time to research what else is available
The basics: health & dental
Health and dental benefits are considered the foundation of any benefit program design. When considering the root issues of all absenteeism from the workplace, most employers agree that health or dental related illness is cited most as the cause. While many have not thought of dental coverage as being a key attraction point, a number of medical reports have been published recently, that indicate that many of our common virus and illnesses are actually related to poor dental health. An organization’s ability to be creative, flexible and generous in providing health and dental coverage can be a key to attracting and retaining top performers as part of the total compensation package.
Health
Even in Canada, where Government plans provide approximately 70% of all healthcare expenses, the remaining gap is still perceived as a major concern for employees and employers. Private healthcare plans are restricted by legislation to expenses not fully covered by government programs.
Organizational health expense plans are generally permitted in the following areas across Canada:
==> Hospital room charges in excess of the standard rate to cover semi-private or private accommodation.
==> Hospital charges for emergency treatment outside Canada.
==> Drugs, medication and vaccines and other supplies available only by prescription.
==> Professional services of a physician for out-of-country medical expenses.
==> Professional services for private duty nursing.
==> Charges for special medical appliances such as crutches, artificial limbs or wheelchairs.
==> Non-emergency ambulance services.
==> Dental treatments not requiring hospitalization.
==> Professional services provided by licensed paramedicals, such as psychologists, massage therapists, speech therapists, podiatrists, physiotherapists, chiropractors, osteopaths, or naturopaths.
==> Vision care expenses including frames and lenses, contact lenses, fitting and remedial treatment, laser eye correction surgery.
==> This option is one that many employers struggle to provide their employees with as the number requiring vision care is so great, the cost of including this option could raise the employer’s costs by anywhere from 20 to 40%
It is common practice to include many of the above items under a single extended healthcare plan. Most benefit carriers will tailor a plan to include only those features and coverage’s desired. Certain items, however, are often restricted or sold in combination with other coverage’s to contain overall plan costs or to subsidize heavily utilized services.
Extended healthcare plan options should be selected based on the organization’s overall compensation objectives and employee needs. For small organizations, the range of coverage options may be limited if the plans are financed on a fully insured basis. These plans offer restricted flexibility to limit the occurrence of high-risk claims. These pre-packaged plans are available to small organizations through affiliation with umbrella organizations such as chambers of commerce, boards of trade, trade associations and professional organizations. For larger organizations, the range of options is mostly limited by cost considerations.
Dental
Dental plan design is the art of finding a delicate balance between understanding what the foundational priorities are, and allocating sufficient funds, to ensure that the coverage is perceived as being sufficient and appropriate.
Although the type of dental work can differ from person to person, some common elements have been found:
==> Most employees, their spouses and children, require basic preventative dental care and repair. Therefore, most employers elect to design the plan in such a way as to minimize the cost to employees of basic coverage.
==> Since major restorative care and orthodontics tend to be more elective in nature and less common in need across the employee group than basic services, most plans do not provide equal coverage in all areas. For example, the plan might pay 100% of basic and 50% of the other two categories. It is also common to find deductibles, co-insurance and benefit maximums for the non-basic services to free up more funds for the necessary preventive ones.
==> High employee deductibles and co-insurance percentages can help to limit plan disbursements because employees will be paying more of the total costs. The potential problem is that these high employee costs may, in effect, force postponement of needed dental work until the repair bill is even higher. Paying 100% of basic preventative care from day one is the overwhelming choice of employers.
==> Having the dental plan require a “pre-treatment” evaluation for certain expenses helps control cost levels by ensuring that the plan only pays for reasonable treatments. It also avoids any misunderstanding by the employee as to what services are covered and how much he or she is required to pay. It is always preferable to ensure the employee knows what the plan will pay for and what exact dollar amount is their responsibility.
==> A commonly asked question of benefit administrators is why the dental plan is not optional but compulsory? If the plan is optional, only those employees who are likely to need dental care will sign up. They will almost always use services that exceed their contributions, deductibles and co-insurance. Those who feel that the benefits will not cover their costs will decline. Because of this “adverse selection”, cost per employee will be so high that employers would not be perceived as competitive.
Life and AD&D
Most employers design their plans with a provision to protect the employee and/or their family in the event of Accidental Death or Dismemberment (AD&D). Employers often provide basic coverage as a factor of the employee’s salary, (example: 2x the employee’s salary in the event of death or total paralysis) with additional coverage available should the employee chose to purchase it. Each employee benefit plan should include a chart that identifies what coverage is available and the associated cost.
Long-term disability
Long-term disability is an income-replacement provision. This is one provision that cannot be purchased through a spousal plan. Employees are asked to pay the total cost of the premiums in order to receive a tax-free payment should they be unable to work. Long-term disability coverage is applied for when an employee is unable to complete a certain percentage of the essential duties of their role due to illness on an ongoing basis. The structure of each plan can differ slightly, so understanding what you are trying to achieve with this program including elimination periods and termination options, is critical at the outset.
Employee Assistance Plans (EAPs)
An EAP, or employee assistance program, is a confidential, short term, counseling service for employees with personal problems that affect their work performance. Studies have shown that providing confidential qualified counseling and support can reduce the stress and conflict felt by the employee, which in-turn can reduce absenteeism and ultimately turnover.
One-on-one sessions are offered and online information, coaching and support services are also available. Employees turn to the EAP for help with a variety of issues, including the following:
==> Dependent care issues, such as searching for child care information, identifying services for special needs children, obtaining advice on the college application process, or arranging for residential care for an elder.
==> Dealing with the stress of a major life change (even a positive one), such as having or adopting a child, getting married, moving or buying a home, or getting a promotion.
==> Serious personal or professional concerns, such as general anxiety, depression, substance abuse, burnout, coping with illness, the loss of a loved one, relationship challenges, or resolving interpersonal conflicts.
Different types of programs are available to employers to provide employee assistance. Employers can establish their own in-house programs, join a consortium of organizations to provide external services or refer employees to public and private providers of this service. The range of costs across these options can vary widely. Organizations must then decide the most advantageous approach to achieve the level of improved wellness among their employees.
In selecting the best EAP provider, several factors need to be considered:
==> How accessible and convenient are the services to be provided? Location of offices and confidentially concerns are important here.
==> How is the quality of services to be measured?
==> How is client satisfaction to be assessed?
==> How are service costs to be determined and will there be limits placed on the frequency and extent of services provided? What will the charges be per hour of service per individual?
Before choosing an EAP provider, these questions need to be answered and the answers reflected in any service proposal or contract.
Supplemental Unemployment Benefit Plan
Supplemental Unemployment Benefit (SUB) plans supplement Employment Insurance (EI) benefits during a period of unemployment due to temporary stoppage of work, training, or illness, injury or quarantine. The employer’s periodic payments increase the employee’s weekly earnings during periods when they are laid-off. SUB plan benefits are not deducted from an employee’s benefits plan if they are approved by Service Canada.
Employers do not have to register their plans with the SUB Program for supplements to maternity, parental (including adoption) and compassionate care benefits. The supplement is not insurable and EI premiums are not deducted. However, two conditions of the plan must be met:
==> The employee’s normal weekly wage earnings are not more than the weekly payments added to the employee’s EI benefits; and
==> Other accumulated employment benefits are not reduced by the payment.
Retirement benefits
A retirement plan or a pension is an arrangement by an employer to provide their employees with an income when they are no longer earning a regular income from working. Retirement plans may be set up by in a variety of ways but typically will have a form of a guaranteed payment. Often retirement plans require both the employer and employee to contribute money into a fund while employed so that they will receive benefits upon retirement. Pension plans are considered a form of delayed income.
Pension Plans
Pension plans are usually classified as either defined benefit or defined contribution according to how the payments are determined.
==> A defined benefit plan guarantees a predictable monthly payment at retirement, calculated by using an established formula with some combination of the employee’s salary, years of service and/or age.
==> A defined contribution plan will provide a payment/payout at retirement that will be determined by the amount of money contributed during the life of the plan and the performance of the stock or investments used.
Registered Retirement Savings Plans
==> Contributions to RRSPs, up to established limits, may be deducted from income in pre-taxed dollars.
==> Income earned within the account is not taxed until money is withdrawn from the plan
RRSP accounts can be setup with as either:
Individual RRSP
An Individual RRSP is associated with only a single individual; only they contribute money to their RRSP.
Spousal RRSP
The spouse of the contributor is actually the account holder. A spousal RRSP is a means of splitting income in retirement.
==> Group RRSP
==> An employer can arrange for employees to make contributions through a schedule of regular payroll deductions. In many organizations RRSP contributions can be based on a “matching” program. This means that the employer will put in a certain percentage or dollar amount based on the contributions the employee makes
==> The employee gets to receive the tax savings immediately at the time of deduction instead of having to wait until the end of the tax year.
Phased Retirement
Today’s work place is challenged with having up to four different generations working side by side. For most employers, designing a compensation and benefit structure that address the unique needs of each demographic group, is a complex task. Added to that is the shift in pension structures over the past few years. Some non-profit organizations provide their employees with a pension fund; however most tend to offer only contributions to an RRSP. This leads to an increasing number of employees not feeling able to retire.
It is important that organizations understand the details of their pension plan, whether it is a defined benefit or contribution or simply an RRSP program before considering design changes. For those not hindered by a design change, one option that is gaining in popularity, especially in this sector, is providing a phased retirement program for older skilled employees.
For employees:
Components of the phased program are allowing employees who might be considering retiring to delay their departure date, continue to earn a partial income that reduces the burden on their pension income, they continue to receive benefit coverage and are able to acclimate gradually by continuing to reduce their hours until they are prepared to leave.
For employers:
Employers are able to develop a timely and effective succession plan without losing critical skills or intellectual capital. Organizations benefit by being able to tap into the most experienced staff at a reduced salary, while transitioning to a new team or organizational design.
Hurdles:
Employees need to understand the impact continuing to work may have on pension or benefit programs; also to be considered is the timing of starting your phased approach. If an employee starts too soon, they might not have accumulated enough to compensate for the reduced salary.
Employers need to be sure that the phased retirement program is structured in a way that will not diminish the work of the organization or the financial position of the employee.
Part Time Employees
Compensation for part-time employees should be consistent with your overall compensation philosophy. In a lot of cases, a regular part-time employee will participate in both salary and benefit programs on a pro-rated basis of that of a full-time employee. The most important consideration is that you provide fair and equitable compensation to a part-time person as you do to one working full-time.
If you have an employee who works .6 of a full-time role or three days a week (22.5 hours) they are usually eligible for the same benefits as a full-time employee; however it may look different and there are a few exceptions.
Vacation
If a fulltime person earns 15 vacation days a year; then the part-time person working, for example, 3 days per week should earn 15 days X .6 (the percentage of time they work part-time) or 9 full-time vacation days per year. Therefore, a full-time person who takes a “week” of holidays must take 5 days away as per their normally scheduled days. When a part-time person takes a “week” of holiday, they are in fact only taking 3 days, or their normally scheduled days per week.
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