Components of Employee Benefits

Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt)

Professor

Employee Compensation

Employee Employee CompensationCompensationEmployee Employee

CompensationCompensation

SalarySalarySalarySalary Allowances,Allowances,& Bonus& Bonus

Allowances,Allowances,& Bonus& Bonus

Employee Employee BenefitsBenefits

Employee Employee BenefitsBenefits

Elements of Core Compensation

Base Pay (recurring)Hourly pay/wageAnnual salary

Base Pay Adjusted Over Time as Follows:Cost-of-living adjustments (COLAs)Seniority payMerit payIncentive pay or variable payPay-for-knowledge and skill-based pay

Elements of Legally Required BenefitsSocial Security Act of 1935

Unemployment insuranceRetirement insuranceBenefits for dependentsDisability benefitsMedicare

State compulsory disability laws Workers’ Compensation

Family and Medical Leave Act of 1993 (12 weeks of annual unpaid leave)

Elements of Discretionary Benefits

Protection Programs Income protection programs Health protection programs

Pay for time-not-worked Holidays Vacation Sick leave Personal leave Jury duty Funeral leave Military leave Cleanup, preparation, travel time

Elements of Discretionary Benefits

ServicesEmployee assistance programs (EAPs)Family assistance programsTuition reimbursementTransportation servicesOutplacement assistanceWellness programs

Employee Benefits in India

Employee BenefitsEmployee BenefitsEmployee BenefitsEmployee Benefits

Legally Legally RequiredRequiredLegally Legally

RequiredRequired DiscretionaDiscretionaryry

DiscretionaDiscretionaryry

Provident Provident FundFund

Provident Provident FundFund GratuityGratuityGratuityGratuity

Personal Personal AccidentAccident

Personal Personal AccidentAccident

MediclaiMediclaimm

MediclaiMediclaimm

Leave Leave EncashmEncashm

entent

Leave Leave EncashmEncashm

entent

Life Life InsurancInsuranc

ee

Life Life InsurancInsuranc

ee

Super-Super-annuatioannuatio

nn

Super-Super-annuatioannuatio

nn

Employee Benefits –Insurance/Retirement

Employee Employee BenefitsBenefits

Employee Employee BenefitsBenefits

InsuranInsurancece

InsuranInsurancece

RetiremRetirementent

RetiremRetirementent

Defined Defined ContributiContributi

onon

Defined Defined ContributiContributi

onon

DefinDefined ed

BenefiBenefitt

DefinDefined ed

BenefiBenefitt

LifeLifeLifeLifeAccideAccidentnt

AccideAccidentnt

MediclaiMediclaimm

MediclaiMediclaimm

Leave Leave EncashmeEncashme

ntnt

Leave Leave EncashmeEncashme

ntnt

GratuityGratuityGratuityGratuity

SuperannuaSuperannuationtion

SuperannuaSuperannuationtion

Defined Contribution vs Defined Benefit Plans

Post-employment benefit plans (such as pensions and health care) are categorized as either defined contribution plans or defined benefit plans.Under defined contribution plans, expenses are

recognized in the period the contribution is payable

Defined benefit plans are post-employment benefit plans other than defined contribution plans.

Analysed items 2004House Rent Allowance 97Gratuity 95Housing Loan 91Medical reimbursement/ allowance 90Insurance 89Leave Travel allowance 87Hospitalisation 86Variable Bonus 85Conveyance allowance 84Superannuation 61Car Loan 54Social/ Sports club membership 51Incentive/ Sales Commission 44Hard Furnishing 39Medical check-up 39Fixed Bonus 33Other allowances 26Flexible benefit plan 16

Companies providing benefit (%)

Mediclaim InsuranceMediclaim Insurance•Reimbursement of medical expenses following hospitalization

•Cash less hospitalization facility available under certain plans

•Tax deduction available

Accident InsuranceAccident Insurance•Can offer compensation for any/all of the following:

•Accidental death/disability

•Medical expenses for treatment - post accident

BOTH BENEFITS ARE OFFERED BY NON-LIFE INSURANCE

COMPANIES

Life Insurance• Benefit payable on accidental/natural death

• Convenient eligibility conditions

• Additional Optional riders

PROVIDED BY LIFE INSURANCE COMPANIES

Life Insurance – TrendsLife Insurance – Trends• LIC of India providing Life Insurance for many years

• Increased popularity amongst employers/employees

• General cover is about 3 to 5 times the gross annual salary

Leave Encashment – Defined benefit

For whom?If company offers encashment of leave, all employees

What benefit?Will be based on the company policyNormally x days salary for each accumulated day of

leaveHow Funded?

Institute of Chartered Accountants of India require that a provision be made for the liability

No special tax benefits for self-funding through a trustInsurance plans available to manage the funds

Gratuity – Defined BenefitFor whom?

Engaged in Government, Factories, Mines, Plantations, Railways, Shops and establishments notified by Government

In service for 5 successive yearsWhat benefit?

15 days wages for each year of serviceMaximum limit Rs 10,00,000.007 days wages per season for seasonal occupation

How Funded?Can be funded or unfunded.Special tax concessions if funded through a trust or insurance

company

Superannuation – Defined Contribution/ benefit

For whom?Non-mandatory, defined by company policy

What benefit?Can be defined benefit (certain formula of last drawn salary)

/defined contribution (certain %age of salary every month contributed to a fund)

Can be different for different grades

How Funded?Can be funded or unfundedSpecial tax concessions if funded through a trust or insurance

company

Retirement Benefits - Trends

• Provided by life insurance company

• Offered a cash-accumulation conventional

scheme

• More and more companies now funding through

Insurance

• Unit-linked – a preferred platform

• Pension benefits - from Defined Benefit to

defined contribution