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Flexible Benefits (Types of flexible benefits and their Advantages and…
Flexible Benefits
Types of flexible benefits and their
Advantages and disadvantages
Cafeteria Plan:
This is the option with the greatest choice given to employees and potentially the greatest cost to the employer. Employees are each assigned a number of “Flex Credits” that can be used to purchase coverage. The employee designs their own plan based on their needs and the number of credits available. Often a minimum option is assigned for each benefit.
Advantages:
Address employees need
Cost control
Competitive Benefit Program
Improve employment relations
Response to work-force diversity
Better understanding of benefits
Disadvantages:
Loss risk
Initial High output
Extra paperwork
Core Plus Plan:
This approach provides a compulsory level of coverage for key benefits; usually Life, Disability and Catastrophic Health coverage. In addition, there will be additional levels of coverage that the employee can purchase and pay a percentage of the cost. This approach provides choice and allows employees to purchase additional coverage at a subsidized cost.
Advantages:
-tailor their benefits to fulfill their personal needs
satisfying employees expectations in terms of rewards.
Motivates the employee to stay loyal to the organization.
In the organization’s perspective a core-plus plan is cost effective to implement.
Disadvantages:
Account empty: can't choose other benefit plan
Difficult to administer (separate record for each employee)
Employee must be informed about any changes, the coverage or the balance of their plans on an individual basis hence complicating the administration.
Modular Plan:
Modular plans are the simplest kind of flex plan. In this type of plan, flex dollars are assigned by the employer and the employee would choose from normally three modules with different plan designs and different price tags.
Advantages:
Win-win situation for employers and employees.
Employees can pay their healthcare expenses in a tax-efficient manner through the convenience of payroll deduction.
Employees can opt out or go with basic coverage if they are covered under their spouse’s benefits plan.
Employees can allocate flex credits to their HSA and pay for benefits not covered under basic coverage (i.e. orthodontic coverage beyond lifetime limit or health expenses not covered by provincial health care).
Perks like additional vacation days can sometimes be purchased with flex credits.
Enrollment is conducted conveniently online.
Disadvantages:
Enrollment period
Cost increased pass on to employees
Deductible may be higher
Flex credit vary from employers to employers
Flex credit based on salary
Health Care Spending Account:
Health Care Spending Accounts are similar to chequing accounts. Amounts are allocated to each employee's account each year and the employee uses the account to pay for health and dental expenses that are not covered under his/her benefit plan, or for deductibles and co-insurance
Advantages:
Others can contribute to HSA
Pre-tax contribution
Tax-deductibles contribution
Tax-free withdrawals
Earning are tax-free
Portable
Convenient
Funds roll over
Disadvantages:
High deductible requirement
Unexpected Heathcare cost
Pressure to save
Tax and penalities
Record Keeping
Challenges when implementing the Flexible Benefit Plan
Communication
Communication between employer and employees is very important
Time to implement
The more complex the Flexible Benefit Plan is, the more time taken for it to be executed
Administration
Complexity of administration of Flexible Benefit Plan
Employees satisfaction
Employees satisfaction must match with the expected results
Different types of benefits for different types of groups
Married vs Singles
Married: More focused on family- Benefits more focus on family (work-life balance)
Single: focus more on themselves- Benefits like scholarship to further improve themselves
Age groups: Young Graduates vs Elder workers
Young Graduates:Looking for more chances to improve their skills/ in career - Benefits like tuition assistance, car loan assistance etc
Elder worker: focus more on health- Benefits on healthcare might be more appealing to them
Male vs Female
Maternity vs Paternity Leave
First Day Of School Leave
ChildCare Leave
Factors affecting choice of Flexible Benefit
Employees' POV:
Equity:- Fairness historically and in relationship to what others receive
-Compared to colleagues, industry.
Personal needs as linked to: Age, Sex, Marital Status, Number of dependents
-Which type of benefits will be more suitable for oneself?
-Which benefit do they need currently?
Employer's POV:
Relationship to compensation cost
Cost relative to benefits
Competitor offering
Role of benefit in: Attraction, Retention, Motivation
Legal requirement
Advantages and disadvantages of implementing Flexible Benefit Plan
Advantages:
Employees choose packages that best satisfy their unique needs.
Flexible benefits help firms meet the changing needs of a changing workforce.
Increased involvement of employees and families improves understanding of benefits.
Flexible plans make introduction of new benefits less costly. Any new option is added merely as one among a wide variety of elements from which to choose.
Cost containment. Organization sets dollar maximum; employees chooses within that constraint.
Disadvantages:
Employees make bad choices and find themselves not covered for predictable emergencies.
Administrative burdens and expenses increases.
Adverse selection. Employees pick only benefits they will us, the subsequent high- benefit utilization increases its cost.
Definition of Flexible Benefit Plan
Flexible Benefit Plan, also known as cafeteria benefits, allows your staff to choose their own benefits from a set range of benefits offered. With a flexible benefits budget they can “buy” the benefits they want.
Why is Flexible Benefit Plan Important
1.Meet diverse needs of employee
2.Enable employers to get better value for money from their benefits expenditure because it meets the needs and wants of employees
3.Control cost
4.Aid recruitment and retentiom
5.Help to harmonize terms and conditions in a merger.
Stages in implementing Flexible Benefit Plan
Define business need
Seek views
Decide objectives and essential elements
Set up project team
Decide who is going to carry out the development work:
Design scheme
Communicate details of the scheme:
Pilot test
Introduce scheme
Evaluate scheme