Legal Requirements for Employee Benefits
Legal requirements for employee benefits
As we discussed earlier in this chapter, some benefits are required by law. This requirement adds to the cost of compensating employees. Organizations looking for ways to control staffing costs may look for ways to structure the workforce so as to minimize the expense of benefits. They may require overtime rather than adding new employee, hire part-time rather than full-time workers(because part-time employees generally receive much smaller benefits packages),and use independent contractors rather than hire employees. Some of these choices are limited by legal
requirements, however. For example ,the Fair Labor Standards Act requires overtime pay for nonexempt workers, as discussed in chapter 11.Also,the Internal Revenue Service strictly limits the definition of "independent contractors,“
so that employees cannot avoid legal obligations by classifying workers as self-employed when the
organization receives the benefits of a permanent employee .Other legal requirements involve tax treatment of benefits ,antidiscrimination laws, and accounting for benefits.
Tax treatment of benefits
A modern, flexible benefit plan provides a number of potential tax advantages to employees and employers. Employees
A flexible benefit plan allows employees to choose to swap some of their existing benefits or purchase benefits from a menu of options. Payments in excess of the employees spending allowance are normally collected via a gross salary adjustment. If employees exchange salary for tax exempt benefits (pensions, life cover, childcare vouchers, mobile phones, etc.), they do not pay tax or National Insurance on the amount exchanged. This gives a basic rate tax payer earning less than the National Insurance (NI) Upper Earnings Limit (UEL) a saving of 33% compared to receiving the money as salary. For example, an employee that exchanges £200 per month of their salary for childcare vouchers and
As we discussed earlier in this chapter, some benefits are required by law. This requirement adds to the cost of compensating employees. Organizations looking for ways to control staffing costs may look for ways to structure the workforce so as to minimize the expense of benefits. They may require overtime rather than adding new employee, hire part-time rather than full-time workers(because part-time employees generally receive much smaller benefits packages),and use independent contractors rather than hire employees. Some of these choices are limited by legal
requirements, however. For example ,the Fair Labor Standards Act requires overtime pay for nonexempt workers, as discussed in chapter 11.Also,the Internal Revenue Service strictly limits the definition of "independent contractors,“
so that employees cannot avoid legal obligations by classifying workers as self-employed when the
organization receives the benefits of a permanent employee .Other legal requirements involve tax treatment of benefits ,antidiscrimination laws, and accounting for benefits.
Tax treatment of benefits
A modern, flexible benefit plan provides a number of potential tax advantages to employees and employers. Employees
A flexible benefit plan allows employees to choose to swap some of their existing benefits or purchase benefits from a menu of options. Payments in excess of the employees spending allowance are normally collected via a gross salary adjustment. If employees exchange salary for tax exempt benefits (pensions, life cover, childcare vouchers, mobile phones, etc.), they do not pay tax or National Insurance on the amount exchanged. This gives a basic rate tax payer earning less than the National Insurance (NI) Upper Earnings Limit (UEL) a saving of 33% compared to receiving the money as salary. For example, an employee that exchanges £200 per month of their salary for childcare vouchers and