As a small employer, what do I need to know about employee benefits?
The employer must pay in whole or in part for certain legally mandated benefits and insurance coverage, including Social Security, unemployment insurance, and workers' compensation. Funding for the Social Security program comes from payments by employers, employees and self-employed persons into an insurance fund that provides income during retirement years.
Full retirement benefits normally become available at age 65. Other aspects of Social Security deal with survivor, dependent and disability benefits, Medicare, Supplemental Security Income and Medicaid. Unemployment insurance benefits are payable under the laws of individual states from the Federal-State Unemployment Compensation Program.
Employer payments, based on total payroll, contribute to the program. Workers' compensation provides benefits to workers disabled by occupational illness or injury. Each state mandates coverage and provides benefits. In most states, private insurance or an employer self-insurance arrangement provides the coverage. Some states mandate short-term disability benefits as well.
Optional Benefits
A comprehensive benefit plan can include the following elements health insurance, disability insurance, life insurance, a retirement plan, flexible compensation, and leave. A benefit plan can also include bonuses, service awards, reimbursement of employee educational expenses and perquisites appropriate to employee responsibility.
Before you implement any benefit plan, you should decide what you're willing to pay for this coverage. You may also want to seek employee input on what benefits interest them. For instance, is a good medical plan more important than a retirement plan? Furthermore, you must decide whether it is more important to protect your employees from economic hardship now or in the future. Finally, you must decide if you want to administer the plan or have the insurance carrier do it.
What type of medical plans are available for employees?
As an employer, you can choose either an insured (also known as an indemnity or fee-for-service plan) or a pre-paid plan (also known as a health maintenance organization)
An indemnity plan allows the employee to choose his or her own physician. The employee typically pays for the medical care and then files a claim form with the insurance company for reimbursement. These plans use deductibles and coinsurance as well. The deductible can range from $100 to $1,000 a year.
Coinsurance is a percentage of medical expenses the employee pays, with the plan paying the remaining portion. A typical coinsurance amount is 20 percent, with the plan paying 80 percent of approved medical expenses.
The most common types of indemnity plans, provide health care to groups of employees, are a basic health insurance plan that covers hospitalization and surgery and physicians' care in the hospital, a major medical insurance plan that supplements a basic plan by reimbursing charges not paid by that plan, and a comprehensive plan that covers both hospital and medical care with one common deductible and coinsurance feature.
What is a preferred provider organization (PPO)?
A preferred provider organization (PPO) is a network of physicians and/or hospitals that contracts with a health insurer or employer to provide health care to employees at predetermined discounted rates. PPOs offer a broad choice of health care providers.
Because of the broader choice of providers, PPOs are more expensive than HMOs. Although there is no requirement for employees to use the PPO providers, there are strong financial reasons to do so. PPOs may have less comprehensive benefits than HMOs, but the benefits usually can meet almost any need. Furthermore, PPO providers usually collect payments directly from insurers.
What is a health maintenance organization (HMO)?
Health maintenance organizations (HMOs) provide health care for their members through a network of hospitals and physicians. Comprehensive benefits typically include preventive care, such as physical examinations, well baby care and immunizations, and stop-smoking and weight control programs. The main characteristics of HMOs are as follows. The choice of primary care providers is limited to one physician within a network; however, there is frequently a wide choice for the primary care physician.
There is no coverage outside the HMO network of hospitals and physicians. Costs are lower, due to limited choice. Physicians are encouraged to keep patients healthy; accordingly, they often are paid on a per capita basis, regardless of how much care the patient needs. The employer prepays HMO premiums on a fixed, per employee basis. Employees do not have to apply for reimbursement of charges, but they may have small co-payments for medical services.
What types of disability benefits do companies provide to employees?
A disability plan provides income replacement for the employee who cannot work due to illness or accident. These plans are either short term or long term and are distinct from workers' compensation because they pay benefits for non-work-related illness or injury.
Short-term disability (STD) is usually defined as an employee's inability to perform the duties of his or her normal occupation. Benefits may begin on the first or the eighth day of disability and are usually paid for a maximum of 26 weeks. The employee's salary determines the benefit level, ranging from 60 to 80 percent of pay.
Long-term disability (LTD) benefits usually begin after short-term benefits conclude. LTD benefits continue for the length of the disability or until normal retirement. Again, benefit levels are a percentage of the employee's pay, usually between 60 and 80 percent. Social Security disability frequently offsets employer-provided LTD benefits. Thus, if an employee qualifies for Social Security disability benefits, these are deducted from benefits paid by the employer.
What types of life insurance plans are available for employees?
Traditionally, life insurance pays death benefits to beneficiaries of employees who die during their working years. There are two main types of life insurance:
Survivor income plans, which make regular payments to survivors
Group life insurance plans, which normally make lump-sum payments to specified beneficiaries.
Protection provided by one-year, renewable, group term life insurance, with no cash surrender value or paid-up insurance benefit, is very popular. Frequently, health insurance programs offer this coverage.
What is self-insurance?
With self-insurance, the business predetermines and then pays a portion or all of the medical expenses of employees in a manner similar to that of traditional health care providers. Funding comes through establishment of a trust or a simple reserve account.
As with other health care plans, the employee may pay a portion of the cost in premiums. Catastrophic coverage is usually provided through a "stop loss" policy, a type of coinsurance purchased by the company. The plan may be administered directly by the company or through an administrative services contract.
What is a "cafeteria plan"?
The
idea behind cafeteria plans is that amounts which would otherwise be taken
as taxable salary are applied, usually tax-free, for needed services like
health or child care. Besides saving employee income and social security
taxes, salary diverted to cafeteria plan benefits isn't subject to social
security tax on the employer. With a cafeteria plan, employees can choose
from several levels of supplemental coverage or different benefit packages.
These can be selected to help employees achieve personal goals or meet
differing needs, such as health coverage (family, dental, vision),
retirement income (401(k) plans) or specialized services (dependent care,
adoption assistance, legal services (legal services amounts are taxable)).
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