Employee Benefits & Compensation
Retaining personnel is a major challenge for the most sophisticated human resources managers at large corporations with nearly unlimited resources. Its even more difficult for small businesses trying to attract and retain key people that are often lured away buy the enormous compensation and benefits packages of large companies. It does not have to be that way.
According the the Bureau of Labor Statistics' 2006 National Compensation Survey, seventy-one percent of workers in private industry had access to employer-sponsored medical care plans, and 52 percent participated in medical care plans. Sixty percent of workers had access to retirement benefits, with 51 percent participating in at least one type of retirement plan.
There are five basic tools to compensation (or reward) in U.S. business organizations. These are: base salary, short-term incentives, long-term incentives (LTIP), employee benefits and perquisites. In a typical modern US corporation, the CEO and other top executives are paid salary plus short-term incentives or bonuses. This combination is referred to as Total Cash Compensation (TCC). Short-term incentives usually are formula-driven and have some performance criteria attached depending on the role of the executive.
Employee benefits (also called fringe benefits, perquisites, or perks) are various non-wage compensations provided to employees in addition to their normal wages or salaries. Where an employee exchanges (cash) wages for some other form of benefit, this is generally referred to as a 'salary sacrifice' arrangement. In most countries, most kinds of employee benefits are taxable to at least some degree.
Employee benefits in the United States might include relocation assistance; medical, prescription, vision and dental plans; health and dependent care flexible spending accounts; retirement benefit plans (pension, 401(k), 403(b)); group-term life and long term care insurance plans; legal assistance plans; adoption assistance; child care benefits; and possibly other miscellaneous employee discounts (e.g., movies and theme park tickets, discounted shopping, hotels and resorts, and so on).
Some fringe benefits (for example, accident and health plans, and group-term life insurance coverage up to US$50,000) may be excluded from the employee's gross income and, therefore, are not subject to federal income tax in the United States. Some function as tax shelters (for example, flexible spending accounts, 401(k)'s, 403(b)'s). Fringe benefits are also thought of as the costs of keeping employees other than salary. These benefit rates are typically calculated using fixed percentages that vary depending on the employee’s classification and often change from year to year.
Normally, employer provided benefits are tax-deductible to the employer and non-taxable to the employee. The exception to the general rule would include executive benefits (e.g. golden handshake and golden parachute plans) which usually exceed the IRS maximum allowed and therefore, the executive would have to pay income tax for the excess amount.
American corporations may also offer cafeteria plans to their employees. These plans would offer a menu and level of benefits for employees to choose from. In most instances, these plans are funded by both the employees and by the employer(s). The portion paid by the employees are deducted from their gross pay before federal and state taxes are applied. Some benefits would still be subject to the Federal Insurance Contributions Act (FICA) tax, such as 401(k) and 403(b) contributions; however, health premiums, some life premiums, and contributions to flexible spending accounts are exempt from FICA.
How We Serve Our Clients
Our attorneys work with small companies to devise appropriate employee compensation and benefits plans to incentise employees, making them more productive and raising their level of job satisfaction. In addition to the more familiar plans such as health insurance and contributions to individual retirement account, employers can incentivize not only key executives and management, but all employees by enacting such plans as 401(k) retirement plans, stock option and stock purchase plans, restricted stock awards, deferred compensation, and incentive plans. Other fringe benefits we can also assist you in establishing are group health insurance, and flexible spending accounts set up with a cafeteria plan for daycare, and other dependant care expenses, as well as medical savings accounts. We will also advise you on policies regarding sick leave, personal days, and paid vacation.
These plans do not need to be costly to initiate and maintain, plus they provide incentives to the employee to continue employment, work for the financial success of the company, and instill pride of ownership. We will work with you and your human resources personnel for put in place the appropriate employee benefits plans. Don't let your employees retirement plans rest on winning the lottery.
