Module PowerPoint 4 Updated Spring 14

Report
Module 4: Compensation
and Benefits
19% PHR
13% SPHR
Any student use of these slides is subject to the same License Agreement
that governs the student’s use of the SHRM Learning System materials.
© SHRM
4-1
Compensation Legislation
Davis-Bacon
Act
• Requires prevailing wages/benefits
on federal construction projects
Copeland “AntiKickback” Act
• Precludes federal contractors from
inducing employees to give up any
part of compensation
Walsh-Healey
Act
Service
Contract Act
© SHRM
• Extends prevailing wages to
federal suppliers
• Stipulates overtime pay
• Requires prevailing wages/benefits
on all federal contracts
4-2
Fair Labor Standards Act
(Wage and Hour Law)
• Applies to organizations with employees who
engage in interstate commerce, produce goods
for interstate commerce, or handle, sell, or work
on goods/materials that have been moved
in/produced for interstate commerce.
• Applies to employers with at least $500,000 in
annual dollar volume of business.
• Under FLSA, an employer has no ongoing
obligations to independent contractors.
© SHRM
4-3
Which of the following factors would
indicate independent contractor status?
A. Opportunity for profit and loss
B. Regular oral and written reports presented to a
manager
C. Right to end the relationship with the
organization at any time without incurring
liability
D. Services provided to a single organization
© SHRM
4-4
IRS Independent Contractor Test
Behavioral
control
Financial
control
Type of
relationship
© SHRM
4-5
Exempt and Nonexempt Employees
Type of
Employee
Exempt
Importance:
Excluded from minimum wage and
overtime pay requirements of the law.
Nonexempt Are not excluded from minimum wage
requirements and are entitled to
overtime.
Overtime is guaranteed to employees
who are paid less than $23,660 per
year or $455 per week.
© SHRM
4-6
FLSA Exemptions
Minimum salary
An exempt
employee must
meet three
requirements.
Paid on a salary basis
without improper
deductions
Exempt duties
© SHRM
4-7
Primary Duty Issue
A primary duty is the main or most important
duty and is an important part of exemption.
No particular percentage of exempt duties is
required under the FLSA.
The lower the total percentage, the greater
the legal risk if challenged.
© SHRM
4-8
Executive Exemption
An employee must:
© SHRM
Have a primary duty
of managing an
organization,
department, or
subdivision.
Direct the work of at
least two full-time
employees or their
equivalent.
Have the authority of
the employer to hire
and fire.
Affect promotion
decisions.
4-9
Administrative Exemption
 Requires performance of office or
nonmanual work directly related to the
management or general business
operations of the employer or the
employer’s customers.
 Includes the exercise of discretion and
independent judgment related to “matters
of significance.”
© SHRM
4-10
Professional Exemptions
Learned
professionals
• Requires advanced knowledge in a field of science or learning
that is acquired by prolonged instruction.
• Work is intellectual in nature and requires exercise of
discretion and judgment.
• Must meet minimum salary requirements.
• Perform work that requires invention, imagination, originality,
or talent.
Creative
professionals • Perform in a recognized field of creative or artistic endeavor.
© SHRM
4-11
Highly Compensated Exemption
A highly compensated employee must:
 Be paid total annual compensation of
$100,000 or more that includes at least
$455 per week paid on a salary or fee
basis.
 Perform one of the duties of an exempt
executive, administrative, or professional
employee.
© SHRM
4-12
Computer Employees
 Must meet the salary minimum with a
salary of $455 per week or $27.63 per
hour.
 Employee’s pay cannot be subject to
deductions inconsistent with the salary
basis requirement.
 Primary duties must fall into one of four
categories.
© SHRM
4-13
Outside Sales
An employee must:
 Have a primary duty involving making sales
or obtaining orders and contracts.
 Be customarily and regularly engaged away
from the employer’s place of business.
Outside sales employees are not subject
to the minimum salary requirements of
other exemptions.
© SHRM
4-14
Improper Deductions
Employers that make improper
deductions will lose the exemption if
they did not intend to pay on a salary
basis.
Example:
An exempt employee is normally not subject to
deductions for illness in less than full-day
increments. (An FMLA exception may occur.)
© SHRM
4-15
Safe Harbor
A “safe harbor” exists if:
 The employer has a clearly
communicated policy prohibiting improper
pay deductions.
 Employees are reimbursed for any
improper deductions.
 The organization makes a good-faith
effort to comply in the future.
© SHRM
4-16
FLSA Basic Overtime Provisions
Sets rate of overtime pay (1.5 times regular
pay after 40 hours worked).
Requires overtime on time worked, not time
compensated.
Sets workweek as any fixed, recurring period
of 168 consecutive hours (7 days 24 hours).
© SHRM
4-17
Discussion question
If a nonexempt employee works
unauthorized overtime, does the employee
have to be paid for that time?
Can an employee who is not paid for his
lunch break be expected to sit at his desk
and answer emails?
© SHRM
4-18
An employer pays an employee a $40 attendance bonus for working a
full 40-hour workweek. If the worker works 45 hours during that week,
what will the employee’s gross paycheck be if her hourly rate is $10?
A.
B.
C.
D.
$495.00
$509.50
$515.00
$517.25
© SHRM
4-19
To calculate the total pay for the week, you must add the bonus to the hours
worked at base pay (45 $10/hour = 450 + $40 bonus = $490). To get the
average straight time hourly earnings (ASTHE), the $490 is divided by the
total hours worked, 45, to yield $10.89.
Pay calculation:
45 hours base pay ($450) + bonus ($40) = $490.00
ASTHE = $490/45 hours = $10.89
Overtime premium = $10.89 0.5 = $5.45 5 = $27.25
Total gross pay = $517.25
© SHRM
4-20
Compensatory Time
• Overtime usually must be paid in cash.
• Public-sector employers may grant
compensatory time off.
• Public employees can accumulate
“comp” time. Must be earned at a rate
of not less than 1 ½ hours for each
hour for which OT is required.
Presently, compensatory time is not allowed for
private-sector nonexempt employees.
© SHRM
4-21
FLSA Child Labor Provisions
Restrict hours and conditions of employment for minors.
Age
FLSA Regulations
Under
age 14
 Prohibited from most nonfarm work
 May be employed by parents
 Certain jobs permitted (e.g., actors, newspaper
carriers)
Ages
14-15
 During school hours: 3 hours/day, 18
hours/week
 During school vacations: 8 hours/day, 40
hours/week
 Work hours restricted
Ages
16-17
 Prohibited from hazardous jobs
 No other restrictions
© SHRM
4-22
Minimum Wage Provisions
Fair Minimum Wage Act of 2007
Raised minimum
wage to $7.25 per
hour in three
phases
© SHRM
Provides $2.13 per
hour cash wage if
claiming a tip credit
4-23
Minimum Wage Exceptions
• Employees younger than 20 years old during first 90
days of employment
• Tipped employees ($2.13/hour plus tips must equal
minimum wage)
• Full time students employed in retail, service, agriculture
or institutions of higher education (ER must obtain a
DOL certificate under the Full-time student program)
• Student learners at least 16 years old and employed on
a part-time basis pursuant to a bona fide vocational
training program (ER must obtain student learner DOL
certificate)
• Workers impaired by physical or mental disability (DOL
certificate required)
© SHRM
4-24
Penalties
• An employer who violated the FLSA’s overtime
requirements is liable to an employee in the amount of
the unpaid overtime compensation as well as an
additional equal amount
• Statute of limitation is two years
• Employee entitled to recover reasonable attorney fees
• Criminal penalties of not more than $10,000 and 6
months imprisonment may be imposed for willful
violations
© SHRM
4-25
Discussion question
• When state and federal laws differ, which law takes
precedence?
© SHRM
4-26
Portal-to-Portal Act
• Amends FLSA and defines general rules for
hours worked.
• Provides guidelines on:
–
–
–
–
–
–
© SHRM
On-call/standby time.
Preparatory/concluding activities.
Waiting time.
Meals and breaks.
Training time (4 conditions).
Travel time
4-27
Travel Pay
Total Paid
Hours
Day
Activity
Friday
Travels to conference and
works en route
5
Saturday
Works at conference
12
Sunday
Travels from conference
and does not work en route
4
Paid time
7
8
AM
9
10
11
12
1
2
3
4
5
6
7
PM
Normal Work Hours
Unpaid time
© SHRM
Time
4-28
Equal Pay Act (EPA)
Mandates equal pay for equal work.
© SHRM
Skills
Effort
Responsibility
Working
Conditions
4-29
Comparable worth
• Law does not address
• Deals with pay differentials between men and
women who perform comparable –but not
equal- work.
• Looks at different jobs that men and women
hold that require comparable skills, effort,
responsibility and working conditions.
© SHRM
4-30
Exceptions to Equal Pay Act
•
•
•
•
•
Seniority
Merit System
Difference in quality or quantity of work
Geographic work differential
Any factor other than gender
© SHRM
4-31
Module 4 Reinforcement Activity
Case 1: A tenured female associate professor
in the industrial technology department is
employed at a salary lower than male
colleagues who are the same rank and teach
similar courses at the same location. She is
the second-lowest-paid professor in a
department of close to 20, despite the fact that
she has a higher rank and more seniority than
four male colleagues. Does the scenario
violate the Equal Pay Act?
© SHRM
Module 4, Activity 1, Slide 32
Module 4 Reinforcement Activity
Case 1: Tenured female associate professor
She will have a strong case if she alleges
discrimination because of the substantial
equality of work she is performing.
© SHRM
Module 4, Activity 1, Slide 33
Module 4 Reinforcement Activity
Case 2: A female part-time employee is doing
work equal to that of a male full-time
employee. In exchange for the flexibility of a
part-time position, she is paid a lower hourly
rate. Does the scenario violate the Equal Pay
Act?
© SHRM
Module 4, Activity 1, Slide 34
Module 4 Reinforcement Activity
Case 2: Part-time female employee
Unless the wage rate differs because of
seniority or performance levels, the female
employee will have a strong case if she
alleges discrimination.
© SHRM
Module 4, Activity 1, Slide 35
Module 4 Reinforcement Activity
Case 3: A male bartender in a restaurant is
paid more than a female bartender for the
same job. Under what circumstances would
this be legal?
© SHRM
Module 4, Activity 1, Slide 36
Module 4 Reinforcement Activity
Case 3: Male bartender
This would be legal if:
• The male bartender has more seniority.
• The male bartender works a different shift.
• The male bartender has more work experience.
• A bona fide merit system is in place.
• There is a system in place that measures earnings
by production.
• There is a legitimate nondiscriminatory reason.
© SHRM
Module 4, Activity 1, Slide 37
Which of the following is true under the
Equal Pay Act?
A. Seniority systems cannot result in pay disparity.
B. Companies should provide all employees with
the same working conditions.
C. Employees doing equal work should receive
the same pay.
D. Jobs filled primarily by women should have the
same salary as similar jobs filled by men.
© SHRM
4-38
Work Opportunity Tax Credit (WOTC)
Federal tax credit to encourage employers to
hire targeted groups of job seekers.
Administered by the DOL’s Employment and
Training Administration (ETA) and the IRS.
Includes individuals from 9 categories.
© SHRM
4-39
Additional Compensation Legislation
Lilly Ledbetter
Fair Pay Act
• States that the statute of
limitations on pay discrimination
lawsuits resets as each allegedly
discriminatory paycheck is issued
Dodd-Frank Wall
Street Reform
and Consumer
Protection Act
• States required communications
related to executive compensation
at publicly traded companies
IRS Intermediate
Sanctions
• Provides guidelines regarding the
determination of reasonable
compensation for executives of
nonprofit organizations
© SHRM
4-40
Job Evaluation
• Determines the relative worth of each job by
establishing a hierarchy.
• Follows job analysis, which focuses on job
descriptions and specifications.
© SHRM
4-41
Job Evaluation Methods
Job-to-job
comparison
Job-topredeterminedstandard
comparison
© SHRM
Nonquantitative
Methods
Quantitative
Methods
Job
ranking
Factor
comparison
method
Job
classification
Point-factor
method
4-42
Nonquantitative (Whole-Job)
Evaluation
• Establishes a relative order of jobs.
• Does not assign numeric values.
Job
ranking
Paired
comparison
Job-to-job
comparison
© SHRM
Job
classification
Job-to-predeterminedstandard comparison
4-43
Quantitative Evaluation
• Uses a scaling system to evaluate the value of
one job is as compared to another.
• Provides a score.
Point-factor
method
Less complex,
commonly used
© SHRM
Factor comparison
method
Most complex, used
infrequently
4-44
Point-Factor Method
• Each job receives a total point value, and relative worth
can be compared.
• Examples: Guide Chart-Profile (Hay Plan) and the U.S.
government Factor Evaluation System (FES).
• Points often determine pay grade assignment.
Job A
220
May 4, 2011
© SHRM
300
Job B
400
500
Job C
600
Points
Job D
700
800
Job E
900
1,100
Nov 2, 2011
4-45
Market-Based Evaluation
Not a true job evaluation system; can be used to
develop a job-worth hierarchy.
Prices jobs in the
labor market(s)
in which an
organization
competes.
© SHRM
Uses prevailing
rates as the relative
“worth” of the jobs.
4-46
Pay Surveys
Internal custom
survey outsourced
to a consulting firm
External survey
outsourced to a
consulting firm
External survey
conducted by a
consulting firm
Internal
External
Full control of the
survey (e.g.,
design,
administration)
Ability to:
 Participate in
survey
 Provide some input
to survey design
Example:
Local HR association
contracts with a
compensation firm
© SHRM
External
published
survey data
 Limited participation,
if any (e.g., may
submit salary data)
 No control/no input to
survey design
Examples:
 Mercer
 Towers Watson
 No participation
 No control/no input to
survey design
 Widely available
 May need to purchase
survey data
Examples:
 DOL surveys
 BLS surveys
 SHRM surveys
4-47
Data Analysis
• Salary data may need to be aged, leveled,
and/or factored for geography.
– Aging uses movement in market rates to
adjust outdated salary data.
– Leveling adjusts salaries when surveyed jobs
are similar but not identical to jobs in the
organization.
– Since wage rates will vary by location, the
organization should factor for geography any
national salary survey data.
© SHRM
4-48
Sorting Salary Data
Frequency distributions and tables sort salary
data.
• Frequency distribution
− Lists the grouped
data, from lowest to
highest.
• Frequency table
− Shows the number of
incumbents who
receive a particular
salary.
© SHRM
Mean
Salary
Number of
Incumbents
$55,000
$60,000
$65,000
$70,000
$75,000
2
1
2
5
1
4-49
Salary Data: Measures of Central
Tendency
Unweighted average gives
equal weight to every salary.
Weighted average considers
the number of people who
receive each salary.
Median is the middle
number in the range.
Mode is the most frequently
occurring wage.
Annual
Salary
# of
Incumbents
Total
Salary
$55,000
$60,000
$65,000
$70,000
$75,000
2
1
2
5
1
$110,000
60,000
130,000
350,000
75,000
Totals
11
$725,000
Unweighted Average = $65,000
Weighted Average = $65,909
© SHRM
4-50
Module
4
Reinforcement
Activity
$20,000
$30,000
$50,000
Compensation
$25,000
$35,000Computation
$55,000
$30,000
$40,000
$55,000
$30,000
$40,000
$60,000
What is the mode of
the salaries listed?
© SHRM
What is the median
salary?
Module 4, Activity 2, Slide 51
Module 4 Reinforcement Activity
What is the mode of
Compensation Computation $20,000
the salaries listed?
$25,000
What is the
median
salary?
$30,000
$30,000
$30,000
$30,000
$20,000
$30,000
$50,000
$35,000
$25,000
$35,000
$55,000
$40,000
$30,000
$40,000
$55,000
$40,000
$30,000
$40,000
$60,000
$50,000
$55,000
$60,000
$60,000
© SHRM
Module 4, Activity 2, Slide 52
Module
4
Reinforcement
Activity
Position
Salary
Staff
Compensation
Computation
Grade 5
$26,000
5
Grade 6
$30,000
2
Grade 7
$40,000
3
What is the
unweighted average
of the salaries?
© SHRM
What is the
weighted average?
Module 4, Activity 2, Slide 53
Module
4
Reinforcement
Activity
Position
Salary
Staff
Compensation
Computation
Grade 5
$26,000
5
Grade 6
$30,000
2
Grade 7
$40,000
3
What is the unweighted
average of the salaries?
What is the weighted
average?
$26,000
$30,000
$40,000
$96,000/3 =
$32,000
$26,000 * 5 = $130,000
$30,000 * 2 =
$60,000
$40,000 * 3 = $120,000
$310,000/10
$31,000
© SHRM
Module 4, Activity 2, Slide 54
Quartiles and Percentiles
• Show how groups relate to each other.
• Show if an organization leads, lags, or
matches the job market.
0%
1st quartile
$55,000
Entry wage
© SHRM
2nd quartile
$60,000
50%
3rd quartile
$65,000
Midpoint
4th quartile
$70,000
100%
$75,000
Maximum wage
4-55
Creating a Pay Structure
Establish pay grades.
• Group jobs that have the same relative internal or
external worth.
• Pay the same rate or within the same pay range.
Set pay ranges.
• Set upper/lower bounds of possible compensation for
individuals whose jobs fall in a pay grade.
• Market data from surveys used to determine a midpoint.
© SHRM
4-56
Range Spreads
• Subtract the range minimum from range
maximum and then divide by the range
minimum
• Typical range spread:
Nonexempt positions 40%
Exempt positions
50%
Executive positions 60%
© SHRM
4-57
Compa-ratios
• When pay ranges are based on the target
market rate, compa-ratios are an indicator as to
how actual wages match, lead or lag behind the
target markets
© SHRM
4-58
Compa-Ratios
• Divide the pay rate of an employee by the
midpoint of the range.
• Given a range of $16 to $20 an hour, a
midpoint of $18, and a salary of $16 an hour,
the compa-ratio is:
$16 ÷ $18 = .89 or 89%.
• Compa-ratios below 1.00 mean wages are
below the midpoint; compa-ratios greater than
1.00 mean wages exceed the midpoint.
© SHRM
4-59
Discussion question
• What are the reasons that might cause
the compa-ratio to be below 100%
© SHRM
4-60
An employee earns $9 an hour, and the
pay range is $8 to $12. What is the
compa-ratio?
A. 66%
B. 80%
C. 90%
D. 111%
© SHRM
4-61
Broadbanding
• Combines several salary grades or job
classifications.
Management
$50,000
$105,000
110%
Technical
$22,000
Supervisory
209%
$68,000
Service Experts
$17,000
© SHRM
124%
$38,000
4-62
Broadbanding Advantages and
Disadvantages
Advantages
• Provides wider ranges.
• Reduces the number of
job grades.
• Supports de-layering.
• Provides more autonomy
to line managers.
• Enhances employee
mobility.
© SHRM
Disadvantages
• Reduces the value of
ranges.
• Affords less control.
• Creates overly broad
ranges.
• Difficult to maintain
perception of equity.
• Reduces the opportunity
for promotion.
• Can lead to divergence
from the market.
4-63
Payroll Functions and Systems
Completing paychecks
Record keeping and retention
Payroll systems
© SHRM
4-64
Base-Pay Systems
Develop a pay
determination
system that helps
attract, motivate,
and retain
employees.
© SHRM
Most employees
receive base pay
in the form of an
hourly wage or
salary.
4-65
Single- or Flat-Rate System
• Employees receive the same rate of pay,
regardless of performance or seniority.
• Typically used for elected jobs in the
public sector or union hourly positions.
• Generally corresponds to target market
survey data for the job.
• There may be a training wage in a flatrate job.
© SHRM
4-66
Time-Based Step-Rate System
• Rate is based on
longevity.
• Pay increases occur on a
predetermined schedule.
– Automatic step-rate
– Step-rate with variabilitybased performance
– Combination step-rate
and performance
5
4
3
2
1
© SHRM
4-67
Performance-Based/Merit Pay
System
• Individual performance is the basis for
pay.
• Increases are tied to performance and job
mastery.
• Employers must be able to defend
performance appraisal methods and
differences in salary increases.
© SHRM
4-68
Productivity-Based System
Pay is determined by employee’s output.
• Straight piece-rate
− Base wage rate plus additional compensation for
output
• Differential piece-rate
− One piece rate up to the standard and a higher rate
after the standard is exceeded
• Works best in assembly and manufacturing
situations.
© SHRM
4-69
Person-Based System
• Employee’s characteristics determine pay.
• Superior knowledge or skill mastery is
rewarded.
– Knowledge-based (scientists whose pay is based on
knowledge in a field or domain)
– Skill-based (machine operators cross-trained on a
variety of production equipment)
– Competency-based (professionals who excel at
defined competencies)
© SHRM
4-70
A window manufacturer guarantees its
installers a base wage plus an extra $25
for each job completed to specifications.
The employer is using a
A. merit pay system.
B. productivity-based system.
C. competency-based system.
D. flat-rate system.
© SHRM
4-71
Pay Variations
Red-circle rates
• Rates above the range
maximum
Green-circle
rates
• Rates below the range
maximum
Pay
compression
• Small differences in pay
regardless of experience,
skills, level, or seniority
© SHRM
4-72
Discussion question
• When can red circle rates happen?
• What can cause green circled rates?
• When does a pay compression occur?
© SHRM
4-73
Pay Adjustments
© SHRM
Pay
adjustment
matrix
COLAs
General
pay
increase
Seniority
Lump-sum
increases
Marketbased
increases
4-74
Time-Based Differential Pay
Based on when an employee works.
Except for overtime, FLSA does not require
differential pay.
Examples:
• Shift pay
• Emergency-shift pay
• Premium pay
• Hazard pay
© SHRM
• On-call or call-back pay
• Reporting pay
• Travel pay
4-75
Geographic Differential Pay
Geographic Differential Pay
• Differentials for labor
costs
• Differentials to attract
workers to certain
locations
• Differentials for foreign
pay
© SHRM
4-76
Incentive Pay
• Paying for performance beyond
expectations.
• Motivates employees to perform at higher
levels.
• May be a factor when determining overtime
pay.
Research tax ramifications before
implementing any incentive pay plan.
© SHRM
4-77
Plan criteria
• Must be in concert with other organizational
programs
• Must be in employee’s line of sight
• Must have a sunset clause
• Must incorporate short and long term
perspectives
© SHRM
4-78
Individual Incentive Plans
• Improve individual performance.
• Kept separate from base pay.
Cash
awards
Provide extra
cash
compensation
based on
performance
Examples: lump
sum awards,
piece rates,
commissions
© SHRM
Noncash
award
programs
Merit awards
used to
recognize
performance,
special
contributions,
length of service
Examples: gifts,
awards, trips,
prizes
4-79
Group Incentive Plans
• Gainsharing
– Organization shares a portion of the gains
realized from group effort.
• Scanlon, Rucker, and Improshare
• Group performance
– Group is rewarded for meeting or exceeding
performance standards.
• Typically, each person receives the same amount
as a percentage of pay or flat dollar award.
© SHRM
4-80
Organization-Wide Incentive Pay
Plans
Profit-sharing
plans
• Allow employees to
share in profits.
• Include cash and
deferred profit
sharing.
© SHRM
Performancesharing plans
• Use predetermined
criteria and standards
to measure results.
• Create a fund for
incentive awards.
• Can be based on
factors such as
customer satisfaction
and quality.
4-81
Stock-Based Plans
• Encourage employees to share in the success
of the organization.
• Stock may be purchased or earned.
• Organization may facilitate stock purchase
through payroll contributions.
• Organization may structure stock purchase as a
form of ERISA-governed qualified retirement
plan (ESOP).
– Nonleveraged ESOPs
– Leveraged ESOPs
© SHRM
4-82
Long-Term Executive Incentives
SPHR only
Stock option plans (ISOs and NQSOs)
Stock purchase plans
Phantom stock
Restricted stock grants
Restricted stock units
Performance grants
© SHRM
4-83
Direct Sales Compensation
Straight
salary
Straight
commission
Salary plus
commission
Use when:
More time is
spent on
service than
sales.
There is a long
sales cycle.
© SHRM
Goal is to
increase
volume and
control costs.
Organization
needs to reward
behaviors that
support strategy.
Plan needs to be
adaptable.
4-84
Compensation for Professionals
Dual career ladder
Allows senior
technical
personnel to earn
as much as
management
personnel.
© SHRM
Maturity curves
Correlate pay with
time spent in the
field.
Used for teachers,
engineers, and
technical personnel.
4-85
Controlling Costs
Setting
ranges
• Setting upper
and lower
compensation
bounds.
• Using comparatios to
evaluate if
policies are
being
implemented
appropriately.
© SHRM
Budgeting
• Top-down
approach is
best at
controlling
costs.
Auditing
• Monitoring of
expenditures.
4-86
Benefits of Qualified Deferred
Compensation Plans
Allow organizations to recruit and retain
employees.
Allow people to retire, creating
opportunities for others.
Provide tax deferrals for plan participants
if plans comply with ERISA and IRS Code.
© SHRM
4-87
Characteristics of Qualified Plans
• Under ERISA, plans must:
– Be in writing and be communicated to
employees.
– Be established for exclusive benefit of
employees/beneficiaries.
– Satisfy rules concerning eligibility, vesting,
and funding.
– Not favor officers, shareholders, or HCEs.
© SHRM
4-88
Defined Benefit Plans
Flat-dollar
formula
Flat-dollar
formula
• Benefit amount is
• Benefit
basedamount
on a is
based
on a formula.
formula.
••Employer
the
Employerfunds
funds
plan
the
the and
planbears
and bears
risk.
the risk.
••Insured
byby
the
PBGC.
Insured
the
PBGC.
Career-average
Career-average
formula
formula
Final-pay
Cash balance plan
formula
Cash balance
Final-pay
formula plan
© SHRM
4-89
Defined Contribution Plans
Flat-dollar formula
Profit-sharing plans
•• Benefit
amount
is
Employees
and/or
employers
a
based
on a pay
formula.
specific amount per
• Employer
funds the
person into the fund.
plan
and
bears
the
• Benefits are
risk.
determined by
amountsby
contributed
• Insured
the PBGC.
Career-average
Money
purchase plans
formula
Cash balance plan
ESOPs
and fund performance.
Final-pay
formula
401(k) plans;403(b)
plans;
Roth 401(k)/403(b) plans
© SHRM
4-90
Other Tax-Deferred Plans
Individual
retirement
accounts (IRAs)
Roth IRAs
Savings Incentive
Match Plan for
Employees
(SIMPLE)
© SHRM
Simplified
Employee
Pensions (SEPs)
457 plans
4-91
529 Plans
• Referred to as qualified tuition programs
(QTPs).
• Federal tax-free way to save money for
college.
– College savings plan
• Establishes an account for a future student.
• May be used at any college.
– Prepaid tuition plan
• Locks in future tuition at current price.
• Used at participating in-state public colleges and
universities.
© SHRM
4-92
Nonqualified Deferred Compensation
Plans
• Provide additional benefits to key executives.
• Do not qualify for favorable treatment under
ERISA.
• Employees defer reporting income; not subject
to the limits placed on qualified plans.
• Employer contributions are not deductible.
• Funds are not protected by ERISA or PBGC.
Examples:
Top hat plans, 457(f) plans, excess deferral plans,
rabbi trusts
© SHRM
4-93
Qualified Domestic Relations Orders
(QDROs)
• Create or recognize the right of an alternate
payee to receive all or a portion of pension
benefits.
• Orders must relate to child support, alimony,
or marital property rights and must be made
under state domestic relations law.
Related case: Kennedy v. Plan Administrators for
Dupont Savings
© SHRM
4-94
Global Compensation and Benefits
Considerations
SPHR only
• Standardization
versus localization
• Culture
• Competitive labor
market
© SHRM
• Collective bargaining,
employee
representation, and
government mandates
• Economic factors
• Taxation
• Laws and regulations
4-95
International Compensation
Approaches
SPHR only
Negotiation/ad hoc
Pure localization
Higher-of-home-or-host-country
Home-country-based balance sheet
Headquarters-based balance sheet
Lump-sum
Cafeteria
© SHRM
4-96
SPHR only
What is the advantage of paying an
international assignee a differential between
home-country costs and assignment costs?
A. It preserves purchasing power regardless of country
of origin.
B. It requires minimal planning and is easy to administer.
C. It is more tax-effective for the employee.
D. It gives the international assignee a choice.
© SHRM
4-97
International Benefit Variations
SPHR only
Benefits that are government-provided
Benefits that are government-mandated
Benefits that are voluntary (discretionary)
Benefits that are market practice
Tax treatment of benefits
© SHRM
4-98
Nonsalary International Benefits
SPHR only
Social security
Paid time off
Retirement
Severance
Health and welfare insurance (health care,
disability, and life insurance)
© SHRM
4-99
Totalization Agreements
SPHR only
International social
security
agreements.
Eliminate dual
social security
coverage and taxes
for employers and
workers.
Fill gaps in benefit
protection for
workers.
© SHRM
4-100
Evaluating the Compensation
and Benefits System
• Is it in compliance?
• Is it compatible with the organization’s
mission and strategy?
• Does it fit the culture? Is it appropriate for
the workforce?
• Is it internally equitable?
• Is it externally competitive?
© SHRM
4-101
Required Communication
• ERISA requires:
– Summary plan description, summary annual report, and
summary of material modifications.
– Filing Form 5500 with the DOL.
• Other required communications include:
–
–
–
–
–
FMLA policy.
COBRA continuation of benefits notice.
Special HIPAA enrollment rights and privacy rights.
Medicare Part D notification.
PPA notice and disclosure requirements for retirement
plans.
– Explanation of stock options (SEC regulations).
– Posting of all required federal, state, and local employment
laws.
© SHRM
4-102
Voluntary Communication
Communication
plans
© SHRM
Direct
communication
4-103
Self-Service Technology Benefits
• Reduced
administrative work
for HR.
• Increased accuracy
of employee data.
• Improved timeliness
in information and
employee
transactions.
© SHRM
• Reduced dollars
spent on other
traditional HR
delivery channels
(e.g., paper-based
transactions).
• Enhanced
reputation as a
“green,”
environmentally
conscious
employer.
4-104

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