26 Meaning, definition, types, significance, administration & future of employee benefits & services

Rajeev Jain

Learning Outcomes:

An organisation designs & establishes a benefit and service programme to achieve the following:

(a)   To keep in line with the prevailling practices of offering benefits & services which are given by similar concerns.

(b)  To recruits & retain the best personnel

(c)   To provide for the needs of the employees & protect them against certain hazards of life, particular those which an individual cannot himself provide for;

(d)  To increase & improve employee morale & create a helpful & positive attitude on the part of workers towards their employers,

(e)   To make the organisation a dominant influence in the lives of its employees with a view to gaining their loyalty & co-operation, encouraging them to greater productive efforts.

(f)  To improve & furnish the organisational image in the eyes of the public with a view to improving its market position & bringing about product acceptance by it.

(g)  To recognise the official trade unions bargaining strength, for a strong trade union generally constrains an employer to adopt a sound benefits and services programmes for his employees.

26.1. Introduction:

Management is concerned with attracting & keeping employees, whose performance meets atleast minimum levels of acceptability; & at keeping ‘absenteeism’ & ‘turnover’ to tolerable levels. The provision of ‘benefits’ & ‘services’ can be & are important in maintaining the employees & reducing or keeping turnover & absenteeism low.

‘Financial’ incentives are paid to specific employees whose work is above standard. ‘Employee benefits & services’ on the other hand, are available to all employees based on their membership in the organisation. The purpose of such benefits & services is to retain people in the organisation & not to stimulate them to greater effort &   higher performance. They faster loyalty & act as a security base for the worker.

http://www.ecohome.net/guide/green-building-financial-incentives

26.2. Meaning & Definition:

Employee benefits & services include any benefits that the employee receives in addition to direct remuneration. A formal definition is:

“Fringes embraces a broad range of benefits & services that employees receives as part of their total compensation package, pay or direct compensation, is based on critical job factors & performance. Benefits & services, however are indirect compensation because they are usually extended as a condition of employment & are not directly related to performance.”

Employee benefits & services are alternatively known as fringes, service programmes, employee benefits & hidden payroll.

Similarly, the term benefits & services are often used interchangeably by some writers. But some maintain distinction between the two. For these people, the term benefit applies to those items for which a direct monetary value to the individual employee can be ascertained, as in the case of pension, medical insurance or holiday pay. The word service applies to such items as a company newspaper, company or purchasing services, for which a direct money value for the individual employee cannot be readily established. However, the two terms used interchangeably.

http://ffs.nm.com/Employee-Benefits.3.htm

On the contrary; different terms have been used for these benefits such as “Fringe benefits”, “Welfare Expenses”, “Wage Supplements”, “Subwages”, or “social charges”, “Perquisites other than wages” or “Transpecunary Incentives”. The other terms used are: “Extra Wages”, “Hidden payroll”, “Non-Wage Labour Costs” or “Selected supplementary Compensation Practices”.

The Glossary of current Industrial Relations & Wage Terms has defined fringe benefits as “supplements to wages received by workers at a cost to employers. The term encompasses a number of benefits –paid vacation, pension, health insurance plans etc which usually add up to something more than a “fringe”, and is sometimes applied to a practice that may constitute a dubious benefit for workers”.

The International Labour Organisation has defined “fringe benefits” as under:

“Wages are often augmented by special cash benefits, by the provision of medical & other services, or by payments in kind that form part of the wages for expenditure on the goods & services. In addition, workers commonly receives such benefits as holiday with pay, low cost meals, low rent housing etc. such addition to the wage proper are sometimes referred to as ‘fringe benefits’. Benefits that have no relation to employment or wage should not be regarded as fringe benefits even though they may constitute a significant part of the worker’s total income. This is fairly obvious in the case of public parks, sanitation services, public & fire protection”.

The United States Chamber of Commerce includes five categories of services & benefits under the term fringe benefits. These are:

(i)  Legally required payments, i.e. old age pension, survivor benefits, disability pension, health insurance, unemployment insurance, separation pay & payments made under Workmen’s Compensation Act:

(ii)  Pension & group insurance & welfare payments

(iii)  Paid rest periods, waste up time, lunch periods;

(iv)  Payments for time not worked i.e. vacation & holidays.

(v)  Christmas bonus.

Belcher defines these benefits as “any wage cost not directly connected with the employees, productive effort, performance, services & sacrifice.”

According to the Employer’s Federation of India, “fringe benefits include payments for non-working time, profits & bonus, legally sanctioned payments on social security schemes, workmen’s compensation, welfare cess & the contributions made by employers under such voluntary schemes as cater for the post-retirement, medical, educational, cultural & recreational needs of workmen. The term also include the monetary equivalent for workers & subsidized housing & related services.”

Cockman views employee benefits as “those benefits which are supplied by an employer to or for the benefits of an employee, & which are not in the form of wages, salaries & time-rated payments.”

Thus, we can define fringe benefits as it is a benefit which supplements the employee’s ordinary wages & which is of value to them & their families in so far as it materially increases their retirement benefits.

Fringe benefits help build up a good corporate image. Schemes like housing, educational institutional & recreational activities bring benefits to the society at large. An organisation with the introduction of fringes seeks to enhance employee morale, remain cost effective & introduce changes without much resistance.

26.3. Difference between ‘wages’ & ‘Fringe Benefits’

www.alamy.com/stock-photo-male-union-workers-on-strike-on-construction-project-for-better-wages-1893199.html

26.4.1. Social Goals:-

Fringe benefits satisfy 3 goals i.e;

Human resource is the most precious of all resources. In the words of Philadelphia Charter 1944; “Labour is not a commodity. It is entitled to a fair deal as an active participant in any programme of economic development & social reconstruction.”

Article 43 of the Constitution of India provides:

“All workers should be given a living wage, conditions of work ensuring decent standard of life & fuller enjoyment to ensure social & cultural opportunities.”

The  fringe  benefits act  as  a  social  lever  in   helping conservation of this precious resource, by guarding against its unnatural erosion & providing the climate for its development in a working environment.

26.4.2. Human Relations Goal:

The management, through motivation tries to develop & maintain “human relations” i.e; mutual interest, individual differences, motivation & human dignity. The management provides with an environment which will reasonably meet the economic, social & psychological needs of the employees so that their co-operation could be obtained & productivity of the organisation enhanced.

26.4.3. Macro Economic Goal:

For maintaining the growth & stability in the economy of a country, ideal utilization of the non-human & human resources is imperative. Fringe benefits do provide protection during periods of contingencies of life, for training & development of the employees, & for good working conditions & assistance to supplement their main income, opportunities for social interaction through cultural recreational facilities etc.

26.5. Types of Employee Benefits & Services:

Employee benefits & services include a motley crowd of fringes starting from accident compensation plans to paid holidays. To hold that a benefit is a fringe, 3 criteria need to be fulfilled:

(i)  It should be computable in terms of money

(ii)  The amount of benefit is not generally predetermined

(iii)  No contract, indicating when the sum is payable, should exist

Going by the three criteria, many items are included in the category of fringes.

26.5.1. Legally required payments:

(i) Old age, survivors, disability, and health insurance (commonly known as social security)

(ii) Worker’s Compensation

(iii) Unemployment Compensation

26.5.2. Contingent & deferred benefits:

(i) Pension plans

(ii) Group life insurance

(iii) Group health insurance

(a) Medial expenses(hospitalisation & surgical)

(b) Disability income(short term & long term)

(iv) Guaranteed annual wage

(v) Prepaid legal plans

(vi) Military leave and pay

(vii)  Jury duty & bereavement paid leave

(viii)  Maternity leave

(ix)  Child care leave

(x)  Sick leave

(xi)  Dental benefits

(xii)  Suggestion awards

(xiii)  Tution aid benefits

(xiv)  Service awards

(xv)  Severance pay

26.5.3. Payments for time not worked:

(i)  Vaccination

(ii)  Holidays

(iii)  Voting pay allowances

26.5.4. Other Benefits:

(i)  Travel allowances

(ii)  Company car & subsidies

(iii)  Moving expenses

(iv)  Uniform & tool expenses

(v)  Employee meal allowances

(vi)  Discounts on employer’s goods & services

(vii)  Child care facilities

26.6. Significance of Benefit & Service Programme:

26.6.1. Payment for Time not worked:

Companies provide payment for time not worked, both on-the-job & off-the-job. On the job free time includes lunch periods, rest periods, coffee breaks, wash-up times & get-ready times. Off the job time includes vacations, sick leaves, public holidays & personal or casual leaves.

26.6.2. Insurance benefits:

Organisation offer life & health insurance programme to their employees. Most organisation offer insurance at a cost for below what individuals would have to pay to buy insurance by themselves

26.6.3. Compensation Benefits:

Disability & worker’s compensation benefits are also offered to employees. Employees contribute funds to assist workers who are ill or injured & cannot work owing to occupational injury or ailment. These benefits are regulated by the Workmen’s Compensation Act.

26.6.4. Pension Plans:

Most organisation offer plans to provide supplementary income to employees after they retire. These are either company-paid or joint employee-and- company-paid programme meant to supplement social security.

Along with pensions, organisations pay gratuity to employees attaining super amuation. There is however, a ceiling on gratuity which may not be justified. If an employee has served an organisation for a long time, there is no reason why he or she should be denied the benefit of higher gratuity. A company’s social security & worker’s compensation contributions are set by the law. But how much to contribute for other kinds of benefits is upto each company to decide.

Some organisations contribute more to the cost of these benefits than others do. Some others pay the entire cost, others pay a percentage of the cost of certain benefits, such as health & insurance & bear the entire cost of others.

26.7. Administration of Employee Benefit & Services:

Organisations fumble while administering employee benefits & services. Organisations have seldom established objectives, systematic plans & standards to determine the viability of the programmes. The main problem is the lack of employee participation. Managers, too, take little interest in the benefits programmes and trade unions are almost hostile to the schemes. Managers are not even aware of the organisation’s policy towards benefits & their contribution to the quality of corporate life. Trade unions entertain a feeling of alleviation as the benefits are likely to erode their base. These problems can be avoided if steps are taken:

(i)  To establish benefit objectives;

(ii)  To assess environmental factors;

(iii)  To assess competitiveness

(iv)  To communicate benefit information

(v)  To control benefit costs & evaluation

Fig. 26.1. Administration of Fringe Benefits

26.7.1 Establishing Benefit objectives:

It is essential for the management to establish objectives for its benefit programme. In establishing objectives, the management may consider several factors. One such consideration is employee preference for benefits. Personnel/ HR outcomes-attendance, length of service, & performance-should also receive due attention in the objective –setting process.

Typically, benefits accomplish four objectives: (i) fostering external competitiveness (ii) increasing cost effectiveness, (iii) meeting individual employee’s needs & preferences, and (iv) complying with legal compulsions.

26.7.2. Assessing Environment:

External as well as internal factor influence a company’s indirect remuneration programmes. Among the external factors are included such aspects as government policies & regulation, unions & economic factors. The major government policies which influence employee benefits & services are wage regulation, tax policies & specific benefit laws. In addition to government policies, unions are a dominant force to improve benefits & services. when labour union & management sit for negotiation it figure prominently in their discussion & the settlement reached invariably covers indirect remuneration to the advantage of the employees. Economic factors influence benefit decisions in conflicting ways. Struggling to achieve competitive price for their product & services, managers look to reduce, or at least curtail increase in labour costs. A indirect remuneration constitutes a major chunk of labour costs, benefits & services receive top priority in the cost- reduction drive. On the other hand, competition in the labour market to attract & retain production employees, creates pressure to match the benefits offered by others.

26.7.3. Assessing Competitiveness:

More often than not, organisation offer benefits to match or outstrip those offered by competitors. How to ascertain the competitor’s benefit package? These are assessed through market surveys conducted by professional associations & consultants. These surveys provide data on the various benefits offered, their coverage, eligibility & costs. The data allow employers to assess the competitiveness of their benefits & costs, with those offered by others.

26.7.4. Communicating the Benefits:

Benefit programmes must be communicated to employees through booklets, brochures, slide presentation &   regular employee meetings. An effective technique is to use employee calendars which communicate the total remuneration components. Each month of the calendar shows a company employee receiving a benefit.

Communication helps remove ignorance of employees (and of employers too) about indirect remuneration. Further, employers might be able to increase the productivity & the advantages of good employee benefits by making employees aware of what the company does for them, that does not appear on their payslips.

26.7.5. Evaluation & Control:

One way of assessing the usefulness of fringes is to ascertain how far the advantages claimed in favour of indirect monetary schemes have really benefited the employees. The questions relevant in this context are: (i) Have the earnings of employees improved? (ii) Have the benefits been able to attract & retain competent people? (iii) Has the morale of employees gone up? (iv) Have industrial relations improved?

Cost of fringe benefits is a reliable test of their effectiveness. Employee benefit costs can be computed on the following lines:

(i)  Total Cost of benefits annually for all employees

(ii)  Cost per employee per year

(iii)  Percentage to annual payroll.

(iv)  Cost per employee per hour.

26.8. Problems raised by Benefit Programmes:

Many problems arise when these programmes are adopted & administered. These are:

26.8.1. Charge of Paternalism:

When too many benefits & services are offered to employees, a feeling develops that employers are playing the role of parents & the workers are looked upon as their children. Moreover, the latter sometimes develop the feeling that these benefits & services are their “right”- which is not really so.

26.8.2. Excessive Expenditure:

The administration of these benefits & services is a fairly costly affair, involving large outlays of direct & indirect financial expenditure & often involves a great deal of paper work.

26.8.3. Fads become Fashionable:

With the introduction of these benefits & services in one company, other concerns vie with one another to introduce them as well. Credit unions & severance pay are example of benefits which were once considered to be novel but are now common place in industry.

26.8.4. Maintenance of the Least Productive Workers:

With an increase in benefits & services, employees, particularly when they are not very productive tend to slick to their jobs & are not interested in changing them.

26.8.5. Neglect of Other Personnel Functions:

When a management becomes more concerned about the provision & administration of benefits & services, it often pays very little attention to other aspects of personnel programmes. Over emphasis on these benefits & services may often develop a concern among the employees for their future security rather than for their present productivity.

26.9. Future of Employee Benefit:

Current benefit package have evolved over the years from plans that addressed the basic needs of the workers & provided minimum benefits to the individuals. Today, we see a much more complex pattern of plans with enhanced flexibility, tailored to meet the needs of individuals & costing public sector & private sector organisation dearly in terms of rupees.

Employees in general are more educated, more sophisticated & more demanding of remuneration including fringe benefit. Employers are, therefore required to devise newer benefit plans to attract & retain competent personnel, keeping a watch on the benefit costs.

Certain guidelines to make benefit programmes more effective are given here:

(i) Fringe benefit programmes should be looked at as a worthwhile corporate instrument in HRM.

(ii) Future policy planning in this area will have to keep in view some fresh reference points. Non-unionisation & skills shortage are no more relevant for policy consideration

(iii) Any meaningful package of benefits must reflect some perspective planning. Inflexibility brings stagnation.

(iv) Separate programmes directly beneficial to workers from those that are directed towards community welfare. Clubbing them together adds to their cost. This may not be liked by workers.

(v) It is advisable not to have a facility rather than neglecting it in its administration.

(vi) Poor internal communication hurts the programme in at least three ways: (1) more money is spent for officer’s welfare; (2) excess money spent on corporate image building at the cost of more bonus; (3) priority to officer’s children in admissions to schools. Therefore, make the internal communicated system effective.

(vii) Devise new ways to involve workers & their representatives at all levels of planning and implementation.