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Costing of employee benefit
1. Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt)
Professor
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2. They are non-wage/non-salary facilities and services
provided to employees
Benefits are getting more expensive year after year
◦ 24.7% of pay-bill costs in 1959 were made up of benefits
◦ Today 41.3% of pay-bill costs are made up of benefits
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3. Data required for costing health insurance benefits:
Premium rates for each type of enrollment
- Single
- Husband/wife
- Parent/child
- Family
Number of members enrolled in each category
Premium rates for each category
Total cost of health insurance =
(Number of employees in each category of enrollment) X
(Annual cost per category)
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4. Assume 52 employees in organisation
48 full-time and 4 part-time
Organisation to identify whether part-time
employees eligible for benefits
Assume organisation pay full cost of
insurance benefits for all 52 employees
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5. Type of Number of Annual Cost/ Total
Enrollment Employees Employee ($) Cost ($)
Single 12 4,200 50,400
Parent/Child 6 6,144 36,864
Husband/ Wife 10 9,180 91,800
Family 24 10,728 257,472
Total 52 436,536
Total cost of medical insurance for
organisation is $436,536
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6. If employee requires to contribute 10% of
premiums for dependent coverage
Employee contribution can be calculated using
information in previous slide
Organisation’s cost for medical insurance =
Total Cost – Total Employee Contribution
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7. Type of Annual Minus Cost of 10% Number Total
Enrollment Cost/ Single Dep. Contribu of employee
Employ Portion of Covera tion ($) Employe Contribu
ee ($) Prem. ($) ge ($) es tion($)
Parent/Child 6,144 4,200 1,944 194 6 1,164
Husband/ 9,180 4,200 4,980 498 10 4,980
Wife
Family 10,728 4,200 6,528 653 24 15,672
Total 21,816
employee
contribution
Organisation’s cost for medical insurance
= $436,536 - $21,816 = $414,720
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8. Cost of dental insurance can be
calculated based on:
Number of employees in each category of
enrollment
Premium rate for each category
Assume dental insurance is provided for
all 52 employees and their families
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9. Type of Number of Annual Cost/ Total
Enrollment Employees Employee ($) Cost ($)
One person 12 463 5,556
Two persons 16 921 14,736
Three persons 24 1,314 31,536
Total 52 51,828
Organisation’s cost for 52 employees are $51,828
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10. Dollar cap limits organisation’s expenditures
Actual cost will be based on dollar cap
If cap applies for each employee individually,
cap would not affect costs for 12 employees as
cost of coverage less than $700 cap
Cap would affect costs for 40 employees who
have two or three persons’ coverage
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11. Type of Number of Annual Cost/ Total
Enrollment Employees Employee ($) Cost ($)
One person 12 463 5,556
Two persons 16 700 (921) 11,200
Three 24 700 (1,314) 16,800
persons
Total 52 33,556
Organisation’s cost is $33,556
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On average, out of every dollar spent on compensation, 30 cents or more go to benefits. As shown above, this share has grown over the decades. These numbers indicate that an organization managing its labor costs must pay careful attention to the cost of its employee benefits.
Figure 13.2 shows the percentage of full-time workers receiving the most common employee benefits. Part-time workers often receive fewer benefits. The most widely offered benefits are paid leave for vacations and holidays, life and medical insurance, and retirement plans.
Figure 13.3 shows that the United States spends more of its total wealth on health care than other countries do. Most Western European countries have nationalized health systems, but the majority of Americans with coverage for health care expenses get it through their own or a family members’ employer. As a result, a growing number of employees whose employers cannot afford this benefit are left without insurance to cover health care expenses.