Aims and objectives of this chapter:

• Set the stage for the discussions in the book

• Address the concept of employee benefits

• Present various categories of employee benefits

• Discuss the employee benefit environment

• Discuss the strategic considerations in designing employee benefit programs

• Explain the integrated system approach to plan employee benefits

• Discuss the cost dimension of employee benefits

Employee benefits began as "fringe benefits," an afterthought to cash earnings. "Fringes" were given by
concerned employers. These perks comprise approximately 35% or more of a worker's compensation
package.

Compensation and employee perks include "all forms of financial returns and tangible services and
benefits employees receive as part of an employment relationship" (Milkovich, Newman, and Gerhart
2011, p.10).

Others have defined employee benefits as employer-funded programs for mortality, accidents, sickness,
retirement, or employment. Employee benefits include all non-cash services an employer provides
directly or through third parties. Thus, the broadest benefits classification is as follows (Beam, Burton T.,
2012): 1. Legally required governmental programs( Social Security, Medicare, Unemployment
compensation, Workers’ compensation, Temporary disability insurance) 2. ( Company-sponsored loss-
exposure insurance and retirement benefits, Death, Disability, Long-term care protection, Medical care,
Dental benefits, Group Legal benefits, Property and liability insurance), 3. (Payment for time not worked,
Vacation, Holidays, Jury duty, Maternity/paternity leave, Reserve/National Guard duty, Military leave),
4. Additional cash payments( Educational assistance, Moving expenses, Suggestion awards, Christmas
bonuses) 5. Additional services( Subsidized cafeterias, Employee discounts, Wellness programs,
Employee assistance programs, Daycare services, Adoption assistance, Financial planning assistance,
Retirement counseling, Free parking).

Functional Categories of Employee Benefits

The above list categorizes too many objects and services not covered in this book. As seen, employee
benefits encompass several plans.

These proposals' broad categories are:

1. Government-mandated programs like Social Security

2. Employer-sponsored private plans, completely or partially financed by employees.

3. Employee services include cafeterias, discounts, daycare, education aid, and more.

4. Paid rest, sick leave, parental leave, and vacation time.

Employee perks have changed dramatically during the previous century. Changes in society, technology,
politics, economy, business, and management have caused them.

Changes in Society

With the industrial revolution, small, rural, agricultural businesses became craft-based. This environment
rarely hires non-owner relatives. Manufacturing brought more changes. Rural-to-urban workers
relocated. Rural families lost protection. Most employees and their families bought their living essentials.

Workers needed a voice, better working conditions, and job security because this environment lacked
rural safety nets. These workers—many of whom were accomplished craftsmen—were suddenly crucial
to owners' success. Skills and knowledge improved employee voice in working conditions. Thus, demand
increased because employers needed skilled workers.

New employers were compelled to give benefits to better their workers' living standards; therefore,
employee benefits became an official and equitable part of employee remuneration systems instead of a
fringe based on company generosity. The industrial revolution improved living circumstances, life
expectancies, and worker quality of life.

Religious and philanthropic groups urged employers to ameliorate working-class conditions alongside
these workplace improvements. Healthcare and social insurance demands followed. In addition,
legislators representing older or unemployed populations pressured companies for similar protections.
Employers introduced these protective benefits to respond to these pressures and avoid government
intervention.

Changes in Management

Management was affected by these social developments. Management as a science/art changed from
process efficiency to worker effectiveness. Employers became more generous to their employees,
whether altruistic or to avoid government involvement. Employee welfare became workforce
expectations. Unions shaped this change. Some employers offered pensions to streamline or reduce
their workforces. Mechanical improvements and worker specialization caused this.

In this atmosphere, firms hired welfare workers to assess and enhance work life. These welfare
professionals addressed worker health and disease issues, among others. Some welfare activities were
intrusive and inappropriate.

Welfare workers became personnel officials, testing, employing, training, and paying employees. The
social movement wasn't satisfied with this renewed workplace concern for human beings. Employee
benefits weren't widespread yet.

The government intervened, introducing primary social legislation. These regulations and union
demands for medical coverage and pensions transformed employer-employee relations forever. These
changes spawned organized employee benefits.
Human resources management flourished in the human relations period, changing management
philosophy. HR specialists represented employer and employee interests. Success depended on the
"human side of the enterprise" (McGregor, Douglas, 2006). Advocates suggested better worker
benefit schemes. They believed such programs would boost job happiness and productivity.

Changes in the Legal Environment

Legal changes have made employee perks a big part of the salary; landmark laws that regulated
mandated benefits and political, social, and economic pressures were legalized. Business, labor, and
technology drove job security and protection.

Between 1900 and 1950, most of the key workplace employee perks were enacted. The Social Security
Act of 1935 was the result of these legislative efforts. The Walsh-Healy Act of 1936 and the Fair Labor
Standards Act of 1938 established wage and hour laws. Most states' minimum wage, unemployment,
and workers' compensation laws were in place by 1950. In union negotiations, private pension schemes,
insurance coverage, and Social Security benefits were required.

Religious and humanitarian organizations tried to convince employers to improve workers' living
conditions. Disability, old age, and universal healthcare were discussed. However, who should provide
this protection—state or federal governments or employers? This dispute persists. Consider the
argument over "Obamacare" and its aftermath.

These conversations and demands introduced employer social responsibility. Businesses rejected these
mandates due to growing expenses and falling earnings. However, politicians—encouraged by their
constituents' elderly, disabled, and unemployed—kept pressuring legislators. Thus, fearing intervention
and mandates, employers had to provide good employee benefits.

These efforts created a legal framework for employee benefits, including Workers’ compensation, Social
Security, and Unemployment insurance.

These laws are still controversial. These statutes are still hotly debated in public policy. This legislation
directly impacts rising costs. The three-legged stool approach—state and federal governments, private
employers, and employees—financed workers' benefits due to the forces previously mentioned and the
fact that the U.S. political consensus differed from Europe. The U.S. provides Social Security, Medicare,
Medicaid, and unemployment benefits. Private employers provide healthcare, disability, and retirement
benefits, while both parties fund the first two programs.

Employers or employees co-finance these programs. Certain benefits earn employers tax breaks.
Employees pay for their loss insurance.

Tax Legislation

tax legislation has also played an important role in the increase of employee benefit plans in
organizations.

Recent Changes and Trends

Milkovich, George T., Jerry M. Newman, and Barry A. Gerhart. Compensation, 10th
Edition. New York, NY: McGraw-Hill Irwin, 2011, p. 10.

Beam, Burton T., Jr., and John J. McFadden. Employee Benefits, 9th Edition, Ed. Karen
Stefano. Dearborn, A Kaplan Real Estate Education Company, 2012.

McGregor, Douglass. The Human Side of the Enterprise. 25th Anniversary Edition. New
York: McGraw-Hill, 2006,.