The Basics of Employee Benefits

In general, Employee Benefits are the indirect and non-cash compensation paid to an employee. To further explain, an employee benefit plan is an arrangement under which an employer remits contributions to another person. This individual is referred to as the "custodian" of the plan who manages the plan in order to make sure the monies contributed to the fund is properly assigned. Some benefits are mandated by law (such as social security, unemployment compensation, and workers compensation), others vary from company to company and are decided by the company manages as far as what they want to offer the employees.

Employee benefits are compensations given to employees in addition to regular salaries or wages. These compensations are given at the entire or partial expense of the employer. Benefit packages usually make up between 30% and 40% of an employee's total compensation for employment, which makes them an important aspect of the terms of employment. While some employee benefits are required by law, many employers offer additional benefits in order to attract and retain quality workers and maintain morale. Some types of benefits are also used as incentives to encourage increased worker productivity.

Obligations of The Employee Benefit Plan
If the employee benefit plan is a trust, then it is the responsibility of the trustee to file a trust return in accordance with the usual rules. The filings include a statement of receipts and disbursements for the year which can be enclosed with the return. The receipts and disbursements must be broken down by type.

If, in the taxation year, a portion of the investment income is retained by the trust instead of being allocated to the employees, the income remaining in the trust must also be identified by type such as dividends, taxable capital gains, etc. Plan sponsors do have an obligation to make timely deposits of employee contributions. The employers have an obligation to provide promised benefits and satisfy ERISA's requirements for managing and administering private pension and welfare plans. The Department of Labor's Employee Benefits Security Administration (EBSA), together with the Internal Revenue Service (IRS), has the statutory and regulatory authority to ensure that workers receive the promised benefits.

Defining The Employee
In order to determine whether an individual is an employee on an independent contractor under the common law, the relationship between the worker and the agency must be examined. All the evidence of control and independence must be considered including the following differences. The employee or independent contractor determination has to use all the information that provides insight to the degree of control and to the degree of independence that exists.

The courts have considered three facts in deciding whether a worker is an independent contractor or an employee: 1) Behavioral Control; 2) Financial Control; and 3) Relationship of the Parties.

Courts often look at the intent of the parties which is embodied in a contract. A written agreement describing the worker as an independent contractor is viewed as evidence of the parties’ intent that a worker is an independent contractor. But that has to be listed in the contract when the work is begun.

Defining The Employer
An employer defines a person who is having in his, her or its service under a contract of service or apprenticeship another person engaged in work in or about an industry. An employer is also one who uses or engages the services of other persons for pay.

Defining Compensation
Employee compensation is often a sensitive subject, and people get very passionate when trying to determine the most appropriate compensation plan for their work in the company. Compensation is usually money given or received as payment or reparation for a service. Compensation includes wage and/or salary programs and structures, salary ranges for job descriptions, merit-based programs, bonus-based programs, or commission-based programs.

Compensation is payment to an employee in return for their contribution to the organization or in other words, doing their job. The most common forms of compensation are wages, salaries and tips. Compensation is usually provided as base pay or variable pay.

Minimum compensation which is the statutory minimum wage, is determined by the Fair Labor Standards Act of 1938. The federal minimum wage was $6.55 an hour as of February 2007, or time-and-a-half for hours worked in excess of 40 in any one week. Employee compensation is much more than just the direct amount that you pay an employee. There are other costs that need to be incorporated in the overall payroll budget. The five areas where the employers need to consider when figuring compensation employees:

1. Incentives and bonus plans with clear guidelines minimizing confusion;
2. Understanding the costs of a benefit plan before offering it;
3. Calculating employer payroll taxes into an overall payroll budget;
4. Determining the type of position the individual hold;
5. The necessity of doing payroll budgeting.

Employee compensation and benefits package can be the deciding factor for many potential employees. Globalization, outsourcing, movement from manufacturing to a service economy, and sluggish economic growth have all affected employee compensation over the past five years. So that has been the cause of employees having limited expectations as far as pay increases are concerned and besides that unions have been less effective in influencing the workplace.

However, at the same time, growth in the use of a contingent workforce made up of outsourcing providers, independent contractors, part timers, home workers, temporary staff, and retired employees has been outpacing real workforce growth but cutting cost for employers. Compensation is also significant at the high end, too. In order to be deductible for purposes of computing the federal corporate income tax employer-paid compensation must be "reasonable." The IRS deliberately does not define this amount, although Congress no longer allows deductions for executive cash compensation in excess of $1 million.

"The Basics of Employee Benefits"
115 pages -- Available for Purchase
2009 Copyrighted and Authored by Sharon Finch O'Maley