Question

In: Operations Management

Why do employers provide employee benefits, rather thanproviding all compensation in the form of pay...

Why do employers provide employee benefits, rather than providing all compensation in the form of pay and letting employees buy the services they want?

What are some advantages of offering a generous package of insurance benefits? What are some drawbacks of generous insurance benefits?

 

Solutions

Expert Solution

1 In general, employee benefits are the compensation which an individual receives in forms other than cash. Employers are expected to pay the monetary compensation, but also focus on other benefits that are optional in order to benefit both employees and organization.

The reasons why employers provide employee benefits, rather than providing all compensation in the form of pay are as follows: • The foremost reason is, providing benefits to employee increases an organizations appeal, and differentiates their business from the masses. This also helps minimize the turnover rate, boosts employee morale, and motivate employees to give their best shot with performance. • The other reason is to bind with the federal and state laws providing social security and unemployment insurance benefits. • Proving benefits favors employees not to pay income taxes on most benefits that are received through employers. • Helping employees to get better deal on insurance and other benefits, which might not be the same if an employee opts themselves.

2 One of the main advantages of offering a generous package of insurance benefits is attracting and retaining valuable employees. Especially with the health care costs going sky high, it's a bonus to have a fully covered health insurance plan. Companies use generous package of insurance benefits to attract talented and skilled workers to work for the organization. Businesses rely on the skills of professionals to ensure the company runs smoothly and remains competitive in the industry. Employee turnover has a significant cost to businesses, which motivation can help reduce. While salary is not the only motivating factor for employees, insurance benefits can help workers feel valued by the employer.

Some of the drawbacks of generous insurance benefits would be the cost of the insurance benefits and the appreciation from the employees. Since over 30% of compensations go to benefits, it's very costly for the employers. Therefore, the employers must pay close attention to the cost of its employee benefits. Since the insurance benefits is not a form of payout to the employees, it's hard for employees to review the benefits is being offered.


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