Shawn has a masters of public administration, JD, and a BA in political science.
Employee Benefits Defined
Michael works for a large bank as a loan officer. His employer provides him a compensation package to induce him to stay at the bank and be a productive employee. He receives direct financial compensation including a base salary and commissions off of loans he originates.
His compensation package also include noncash benefits, often referred to as indirect financial compensation. These are benefits provided to employees, like Michael, that have financial value to the employee, but do not constitute a direct cash outlay to an employee. Let's look at some examples.
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Employees like Michael are entitled to certain benefits. Mandatory benefits are benefits that the government mandates, or requires, that employees receive from employers as a matter of law. Let's look at the primary mandatory benefits provided to employees:
- Social Security is a system of retirement and disability benefits of which employers are required to bear half of the cost through payroll taxes. You should note that Medicare, which is health care for the elderly, falls under the Social Security system and is included as a mandatory benefit funded through payroll taxes.
- Workers compensation provides financial benefits to workers injured on the job. Employers pay the entire cost of the insurance.
- Unemployment insurance provides payments to unemployed employees to help make ends meet until new employment is found. The insurance is funded completely by employers through a payroll tax.
- Family and medical leave under the Family and Medical Leave Act is a mandatory benefit for employers employing at least 50 employees.
- COBRA is a law that requires employers to make health coverage available to employees upon termination of their employment. The cost must be at the same cost that the employer would pay and the benefit may last between 18 and 36 months.
- Some employers are required to provide employer-sponsored health care plans under the Patient Protection and Affordable Care Act (ACA) commencing in 2015, or face a penalty.
Employers often provide benefits that are not required by law, which are referred to as voluntary benefits. Let's look at some voluntary benefits that Michael is provided:
- Michael gets paid time off, sick leave, and vacation time. In other words, he gets paid even if he's not working.
- Michael gets medical insurance even though his employer is not subject to the ACA mandate. His employer-sponsored health care is cheaper and covers more than he could get on his own.
- Michael also gets dental insurance.
- Michael's loved ones are protected by life insurance should Michael die.
- He also can participate in the company's retirement plans, such as 401(k) plans and pension plans.
- Michael has also been given stock options, which means he has the right to purchase company stock at a predetermined price at a later date. If the market price is higher than the option price, Michael gets the stock at a discount.
- The company also provides him long-term and short-term disability insurance in case he is injured and cannot work.
- Michael also is eligible for different employee services, such as fitness club memberships, and employee assistant programs, like counseling, or referral services for counsel and legal services
Let's review what we've learned. Employee benefits are noncash compensation paid to employees as part of an overall compensation package. Benefits are either mandatory or voluntary. Mandatory benefits are benefits employers are required to provide by law. Voluntary benefits are not required by law, but are provided as an inducement to work for the employer.
After you have reviewed this lesson you should be able to list and discuss various voluntary and mandatory noncash benefits that can be provided to employees.
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Mandatory vs. Voluntary Benefits: Definition & Examples
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