Mandatory vs. Voluntary Benefits: Definition & Examples

Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

A key component of any organization's compensation system is the benefits provided to employees. In this lesson, you'll learn about the difference between mandatory benefits and voluntary benefits. A short quiz follows the lesson.

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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  • 0:02 Employee Benefits Defined
  • 0:39 Mandatory Benefits
  • 2:14 Voluntary Benefits
  • 3:31 Lesson Summary
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Mandatory Benefits

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.

Voluntary Benefits

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:

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