Compensation Guide: A Manual on Compensation Practice and Theory
Designing Your Benefits Package
Benefits are likely the single most misunderstood aspect of compensation administration; this stems both from their complexity and from the difficulty of controlling their costs. Chapter 6 describes the different types of benefits including mandatory government plans, pensions, health care benefits, income security, pay for time not worked and employee services. It also outlines various options that managers might consider when evaluating and modifying benefit plans offered to employees; for instance, suggestions are offered to help control health care costs such as flexible benefit systems, cost sharing, and health care expense accounts.
Glossary
Benefit Ceiling
is the maximum amount paid for specific benefit claims.
Benefits
are any form of indirect payment due to an eligible employee or his/her beneficiary under an employee benefit plan. These payments can include pension, medical and/or dental coverage.
Benefits Deduction
is the deduction from an employee’s pay to cover all or a portion of the premium of his/her benefits package.
Cafeteria Plan
(Flexible Benefits Plan) is a customized benefits plan in which an employee may choose the benefits best suited to his/her needs. In most cases a common core package is mandatory, with elective programs available at the employee’s discretion. The employee may also choose to contribute for additional coverage.
Canada/Quebec Pension Plan
(C/QPP) is a government-sponsored pension plan, mandatory for all employed Canadians and funded equally by employers and employees.
Deductible
is a subtraction of a specified amount of money ($25 or $50) on a benefit claim that is taken off just the once at the beginning of an annual term.
Defined Contribution Plan
is a benefits package for which an employer’s gives an employee an established amount to an employee’s retirement fund and the maximum payout is based on the contributions by the employer and employee and the amount of money earned in the trust.
Defined Pension Plan
is a benefits package in which an employer agrees to provide a specified income from the time of retirement until death. The amount is based on the employee’s annual income and modified by how many years the employee has been covered by the plan.
Employee Assistance Programs
(EAPs) are employer-sponsored services to help employees with personal problems that affect job performance (stress, substance abuse, family problems, etc.).
Employee Benefits
are part of an employee’s total compensation package, other than pay for time worked, provided in whole or in part by employer payments (includes life insurance, vacation, worker’s compensation, pension, paid time off, etc.).
Fixed Benefit Plan
is an employee benefit plan that is provided to all eligible employees with the same array of benefits.
Flexible Benefit Plan
is an employer benefit’s package that allows employees to choose the benefits they prefer. Employees are allotted a fixed amount of money and permitted to spend that amount in the purchase of benefit options. Employees can also top up or buy benefits with their own salary.
Flexible Spending Account
(or health care expense account) is an employer deductible, tax-favoured employee benefit that allows employees to use employer-provided health care credits to purchase a wide array of health care services. Employees have separate spending accounts with an allotted maximum to fund allowable health care services.
Group Registered Retirement Savings Plan
(RRSP) is an employee pension plan where each employee has their own individual plan but it is set up and administered as a group plan by the employer or the union.. The contributions are made through payroll before income tax is deducted and the earnings of the plan accumulate on a tax deferred basis.
Hybrid Pension Plan
is a pension plan that combines elements of the defined benefit pension plans and the defined contribution pension plans.
Indirect Pay
is part of an employee’s total compensation package, non-cash items or services provided to employees in return for their contribution to the organization (i.e., health benefits, paid time off). Sometimes the costs for the items are shared by the employees.
Long-term Disability Plan
is an employer sponsored plan that provides income protection in the event of a long-term illness or disability that is not work-related.
Mandatory Benefits
are legally required government sponsored employee benefits, such as pensions and employment insurance, to which employers are obliged to contribute on behalf of their employees.
Pay for Time Not Worked
are employee benefits that cover a variety of circumstances in which employees receive pay even though they are absent from work.
Pension Plan
is a plan that provides income to employees upon retirement as compensation for work performed now. Pension plans are provided by the employer and/or union, and employer contributions are usually matched by the employee.
Premium
is the periodic amount under a contract of insurance in respect to benefits paid by the employer and/or employee to keep a policy in force.
Registered Retirement Savings Plan
(RRSP) is a tax deductible voluntary individual retirement plan funded by the employee’s own earnings. Some organizations dedicate part of their employee’s salary for an RRSP. The responsibility for making the RRSP contribution lies with the employee.
Short-term Disability Plan
is an employer-sponsored plan that provides income protection for the employee due to non work-related illness or disability. It takes effect after sick days have been spent and earnings have ceased and continues until the employee returns to work or when the employee qualifies for long-term disability.
Workers’ Compensation
is a legally required government-sponsored plan, employer-paid no fault insurance plan that provides income and benefits to victims and their dependents of work-related accidents or illnesses.
