Benefits Required by Law

Several forces have made benefits a signficant part of employee compensation packages. For example, both federal and state laws require employers to pay certain benefits to employees, such as contributions to Social Security and unemployment insurance. change Concept Review paragraph to read as follows: State and federal laws require that employers offer specific benefits to their employees, and the costs of these benefits are high. Out of every dollar spent on compensation by U.S. companies, more than 30 cents go to benefits, and this share has grown over the past few decades. Employers who want to contain their labor costs must look closely at the cost of their employee benefits. The following case is about one such employer, who worries about the high cost of benefits and tries to analyze ways he might be able to lower these costs.

State and federal laws require that employers offer specific benefits to their employees, and the costs of these benefits are high. Out of every dollar spent on compensation by U.S. companies, more than 30 cents go to benefits, and this share has grown over the past few decades. Employers who want to contain their labor costs must look closely at the cost of their employee benefits. The following case is about one such employer, who worries about the high cost of benefits and tries to analyze ways he might be able to lower these costs.

Read the case below and answer the questions that follow.

Hospital CEO Richard Weber was facing a difficult decision regarding employee benefits for the 1,200 doctors, nurses, and administrative staff working in his large healthcare center. The costs of employee benefits had continued to grow and now accounted for a large percentage of the total compensation package at the hospital. Weber tried to review his options.

Benefits were often used to attract potential employees to the hospital. In addition, Weber believed that the tax treatment of benefits was more valuable to employees than if he were to offer higher salaries, and he knew the hospital insurance rates were much lower than those the employees would be able to find on their own. Finally, state and federal laws required many of the benefits.

He worried that if he changed the benefits package, he would have dissatisfied workers and increase the risk of losing talented employees. Weber knew that he could potentially reduce specialized programs such as the 16 paid hours per month he provided employees to do volunteer work, but he felt that those programs were valuable and enriched outreach to the surrounding community. The cost of benefits just kept growing, and Weber was stymied as to how to keep employee benefit costs at a manageable level.

1. Which of the following is NOT a legally required benefit that Weber would have to continue to fund?

Unemployment insurance

Worker's compensation

Domestic partner benefits

Social Security

Benefits under the Family and Medical Leave Act (FMLA)

2. By offering 16 paid hours per month for volunteer work, Weber is providing a way for his hospital to:

reduce taxes for employees.

reach out to the community.

offset increasing healthcare benefit provisions.

meet FMLA requirements.

extend unemployment privileges.

3. Because the hospital employs primarily a younger, female workforce, offers a safe work environment, and has a very low turnover, the largest financial challenge for Weber among the legally required benefits is most likely:

Social Security costs.

domestic partner benefits.

family and medical leave costs.

unemployment insurance benefits.

worker's compensation expenses.

4. Weber could alter, modify, or reduce all of the following optional benefits except:

child care.

benefits for part-time staff.

retirement plans.

holiday pay.

health insurance coverage for dependent children through age 26.

5. Looking beyond 2015, when he expected to have even greater employee benefit expenses, Weber could take steps to get the full value of the cost of benefits and motivate employees by:

imposing lifetime limits on coverage when people get sick.

effectively communicating the value of employee benefits to all hospital staff.

ending coverage for older employees with greater healthcare expenses.

ceasing automatic enrollment and let employees decide whether they want health coverage.

limiting coverage of children with preexisting health conditions.