Ep 1.5- What Benefits are part of Total Compensation?

What "Benefits" are included in the Total Compensation?

Benefits are given by an employer to an employee during the period of his service as a surplus to the Compensation. Benefit aims at:

"the retention of the employees directly or indirectly as per the strategic framework of the company". Benefit plans are typically not provided in cash but form the basis of an employees' pay package along with base salary and bonus. Some benefits are mandatory which are regulated by the government while others are voluntarily offered to fulfill the need of a specific employee population. There are a wide variety of benefits offered to employees such as Paid Time-Off (PTO), various types of insurance like life, medical and disability etc., participation in a retirement plan like Pension or 401(k), or access to a company car, among others etc.

You can refer to this in more detail in this blog, where I have categorized the Benefits in 3 types under the Total Compensation. 

Please scroll below to find it 👇👀

Compensation is the monetary benefit received by an employee from an employer as salary OR wage broadly referring to how you are treated as an employee by your employer i.e. What Wages, Benefits, Training opportunities etc. are extended to you as an employee by your employer.

Total Compensation is  defined as the monetary return to an employee which includes (Base+ Merit/Cost of Living + Incentives) & all Benefits which includes (Income Protection + Work Life Balance + Allowances) for an employee's work based on his skills and education during the term of his employment

This diagrammatic presentation below 👇 is aimed at the understanding of the readers.

3 types of Benefits that are part of the Total Compensation include:

1.Income Protection

2. Work/life services

3. Allowances

Let us look at each one of them in more detail!

 Benefits 1: Income Protection

An income Protection Benefit has a feature that ensures that your income is protected so that an employee and his dependents are financially secure as these payouts act like a source of income for the employee and his nominees/beneficiary or whatever the case may be.

Medical Insurance, retirement programs, life insurance and savings plans are common examples of Income Protection benefits. They safeguard employees from the financial risks inherent in daily life.

Often companies can provide these protections to employees at nominal rates than employees can obtain for themselves.

Given the magnitude of such costs, employers try to reduce the benefits costs furthermore.

"As per the Survey conducted it was found that the employers in US spend roughly $611 billion per year on health care costs, OR 21 percent of all US Healthcare expenditures. Among employers that provide health insurance, the cost to provide family coverage is $16834 per year per employee that the average employer pays $12011 of that and the average employee pays the remaining $4283"

Therefore it was found that few Employers approach their employees to shift costs to the employees like employees are bound to pay a larger share of health insurance premiums etc..

Besides this it was noted that the companies like Chrysler, General Motors and American Airlines had gone through bankruptcy in the recent past.

For General Motors it was heard that the benefits costs had gotten so high that it was sometimes described as a pension and health care provider that also makes cars.

Some companies have allowed their benefits costs to get so far out of control that more drastic action had been taken.

Benefits 2: Work Life Balance/Services 

• Programs that help employees better integrate their work and life responsibilities include time away from work like vacations, jury duty etc.
• Programs that provide access to services to meet specific needs of the employees like medication, counseling, financial planning, referrals for child and elder care, and flexible work arrangements like telecommuting, non traditional schedules, non paid time off.
• Programs that help employees to respond to the changing demographics of the workforce like two income families OR single parents who need work schedule flexibility so that family obligations can be met
• Programs like Health and Wellness, financial rewards and security, individual and family well being with a fulfilling work environment are a part of this total well being .

Total Well Being Program has become prominent in the last few years as it seeks to provide “resources” for growth of mind, body, heart and spirit for each employee. Employers believe that it makes their employees to be “fully present” at work and less distracted by conflicts between their work and non-work responsibilities.

Benefits 3: Allowances

A benefit allowance is money that a company or government agency provides to an employee for a specific purpose such as transportation, healthcare costs, or a flexible spending account. Benefit allowances administered to employees can be distributed through regular payroll. Allowances often grow out of whatever is in short supply.

There are Companies that resist these kind of allowances, so they are motivated to follow other decent ways to attract and retain employees.

Conclusion:

Different countries have different lists of mandatory benefits under Total Compensation.

For example :

• Some Income protection programs required in the United States as reinforced by their laws, "Employers must pay into a fund that provides income replacement for workers who become disabled or unemployed".
• Besides this it is mandatory for the Employers in USA to make half the contributions to Social Security however Employees pay the other half.
• In Vietnam and China housing dormitories and apartments and transportation allowances are frequently part of the pay package.
• Almost all foreign companies in China discover that housing, transportations, and other allowances are expected.
• In many European countries, managers assume that a car will be provided- only the make and model are negotiable.
• In Japan even today after so many years of World War II still the "rice allowance" is given to the employees.
• In the United Kingdom, salary sacrifice arrangements are used to provide non-cash benefits. An agreement is put in place to reduce an employee's entitlement to cash pay in return for the non-cash benefit. The arrangement must not reduce the employee's cash earnings below the National Minimum Wage (NMW) threshold
• In the United States, "qualified” Employee Benefit plans must be offered to all employees, while "non-qualified" benefit plans may be offered to a select group such as executives or other highly-paid employees.

Thanks for reading, see you in my next blog!