Employee Benefits: How To Handle Them

An employee benefit plan protects employees and their families from economic hardship brought about by sickness, disability, death or unemployment. It also provides retirement income to employees and their families, and establishes a system under which leave or time off from work can occur should the employee need it.

Funding for the Social Security program comes from payments by employers, employees, and self-employed persons that are deposited into an insurance fund that provides income during retirement years. Full retirement benefits normally become available at age 65. For younger individuals, the date for maximum benefits is being adjusted to age 67.

Unemployment insurance benefits are payable under the laws of individual states from the Federal-State Unemployment Compensation Program. Employers contribute to the program based on total payroll.

Workers' compensation provides benefits to workers disabled by occupational illness or injury. Each state mandates coverage and provides benefits. In most states, private insurance or an employer self-insurance arrangement provides the coverage. Some states mandate short-term disability benefits as well.

Here are some of the reasons employers offer benefits:

• To attract and hold capable people
• To keep up with competition
• To foster good morale
• To keep employment channels open by providing opportunities for advancement and promotion as older workers retire

A combination of benefits programs are the most effective and efficient means of meeting economic security needs. For many employers, a benefit plan is an integral part of total compensation, because employers either pay the entire cost of a benefit plan or have employees contribute a small portion of premium costs for their coverage.

Employers might offer medical and dental plans, disability benefits, and life insurance.

Medical and Dental Plans

A serious illness or injury can be devastating to an employee and his or her family. It can threaten their emotional and economic well-being. Thus, adequate health insurance is important to employees and is part of a solid group plan.

Group health plans help attract and keep employees who can make your business a success. They relieve your employees of the anxiety of health care costs by providing the care they need before an illness becomes disabling, thus helping you avoid costly employee sick days.

Group health plans usually cost less than purchasing several individual policies with comparable coverage. Moreover, there are tax advantages to offering health care benefits: your contribution as an employer may be deductible and the insurance is not taxable income to your employees.

Disability Benefits

Life Insurance

Traditionally, life insurance pays death benefits to beneficiaries of employees who die during their working years. There are two main types of life insurance:

• Survivor income plans, which make regular payments to survivors
• Group life insurance plans, which normally make lump-sum payments to specified beneficiaries

The Patient Protection and Affordable Care Act of 2010, in concert with the enactment of the Health Care and Education Tax Credits Reconciliation Act of 2010, resulted in a number of changes that affect smaller business owners.

In summary, when deciding on a health, disability, or life insurance plan, consider what you and your workers want in a plan. Determine all costs associated with the plan and investigate the quality of potential insurance carriers, and examine the quality of each plan, including the benefits and restrictions.

A financially secure retirement is a goal of all Americans. Since many of us will spend one-fourth to one-fifth of our lives in retirement, it is more essential than ever to begin preparations at an early age. Many financial planners report that an individual requires about 75 percent of his or her preretirement income to maintain the same standard of living enjoyed during one's working years.

Social Security, employer-sponsored retirement programs, and personal savings are the three sources of post-retirement income.

Social Security Benefits

Social Security provides retirement benefits for most persons employed or self-employed for a set period of time (currently 40 quarters; about 10 years). Benefits paid at retirement, traditionally at age 65, are based on a person's earnings history. The age at which you can retire at full benefits increases depending upon your current age. For younger individuals, full benefits begin at about age 67.

Employer-Sponsored Retirement Plans

A retirement plan makes good sense and can attract and reward employees. The benefits and tax advantages of supplementing Social Security with a qualified retirement plan are significant.

Types of Retirement Plans Available

The old concept of "two weeks with pay" has given way to a wide variety of paid and unpaid leave plans for all businesses. Typically, these include:

In a strict sense, paying people for not working is a costly, unprofitable concept. However, time off from the grind is a tradition of the American workplace, and rightly so. Benefits can far outweigh costs. Among the many benefits for the employee are rest, relaxation, a new perspective, travel, pursuit of hobbies and release from daily tensions.

While all employees are usually eligible for benefits such as health and other insurance, retirement plans and leave, key employees have come to expect certain additional benefits related to their increased levels of responsibility.

To accommodate today's many variations in family relationships, lifestyles, and values, flexible compensation or "cafeteria" benefit plans have emerged. In addition to helping meet employee needs, cafeteria plans also help employers control overall benefit costs.

The idea behind cafeteria plans is that amounts which would otherwise be taken as taxable salary are applied, usually tax-free, for needed services like health or childcare.

Besides saving employee income and social security taxes, salary diverted to cafeteria plan benefits isn't subject to social security tax on the employer. With a cafeteria plan, employees can choose from several levels of supplemental coverage or different benefits packages. These can be selected to help employees achieve personal goals or meet differing needs, such as health coverage (family, dental, vision), retirement income (401(k) plans) or specialized services (dependent care, adoption assistance, legal services).

Careful planning and communication are the keys to the success of flexible compensation. Employees must fully understand their options to make the choices of greatest benefit to them and their families. Both employers and employees must fully understand the tax consequences of the various options.

Before you implement any benefit plan, you should ask yourself some questions:

You now have some basic benefits information as well as the basic questions that need answers before you go benefit shopping for your employees.

If you are serious about offering your employees a satisfactory benefit plan, the next step may be to contact an insurance broker or carrier, the local chamber of commerce or trade associations. There may be off the shelf products that will suit your needs. A benefit consultant or actuary can help you design a specialized benefit program.

An adequate benefit program has become essential to today's successful business, large or small. With careful planning, you and your employees can enjoy good health and retirement protection at a cost your business can afford.