Feasibility Study

Topics: Insurance, Pension, Employee benefit Pages: 8 (2564 words) Published: August 27, 2013
Employee benefits encompass a broad range of benefits—other than salary—that companies provide to their employees. Some of these benefits, such as workers' compensation, social security, and unemployment insurance, are required by law. The majority of benefits offered to employees, however, are bestowed at the discretion of the business owner. Such benefits, which are commonly called "fringe" benefits, range from such major expenditures as paid holidays, health insurance, paid vacations, employee stock ownership plans (ESOPs), and profit sharing to more modest "extras" like bestowing performance awards and prizes, providing an employee lunchroom, or paying for a company picnic.

Employee benefits are an indirect means of compensating workers, but they can be quite important in fostering economic security and stability within the work force. Insurance coverage, for instance, is often terribly expensive, so the company that offers medical and/or life insurance to employees as part of its benefits package is bestowing significant savings on those employees and their families. Companies, however, must be careful when putting together a compensation package for their work forces, and prudence is especially important for the small business owner. As Irving Burstiner remarked in 1989 in The Small Business Handbook, "all the 'extras' that firms have added to the basic compensation of their employees over the years amount to a sizable cost factor today." Noting that financial 'fringe benefits' can often add up to a startling amount of money, Burstiner added that "small firms are cautioned against adopting these fringe benefits too quickly and too freely. Some are almost mandatory if an organization is to compete effectively for personnel against other firms in the industry. Other fringe benefits, while perhaps desirable, should be postponed until the company is in a strong, healthy position."

Employee benefits are any kind of compensation provided in a form other than direct wages and paid for in whole or in part by an employer, even when they are provided by a third party such as the government, which disburses social security benefits that have been paid for by employers. Employee benefits can be most easily divided into two categories: mandatory and optional.

Mandatory Benefits. Mandatory benefits are required by law. They serve to provide economic security for employees (and their dependents) who have ceased working because of retirement, unemployment, disability, poor health, or other factors. Notable mandatory benefits include: Medicaid; basic Medicare; Public Assistance; Social Security retirement; Social Security disability; Supplemental Security income; unemployment insurance; and workers compensation.

Optional Benefits. Optional benefits are those that an employer has the option of providing. These optional, or supplementary, benefits include such major compensation areas as insurance and tax-qualified plans of deferred compensation. Such compensation programs are designed for the exclusive benefit of employees and their beneficiaries and are subject to specific Internal Revenue Service (IRS) regulations. Primary deferred compensation plans include: 1) Pension plans—established and maintained by employers and paid out to employees over a period of years after retirement; 2) Annuity plans—paid out of annuity or insurance contracts; 3) Stock bonus plans—arrangement wherein employees are given stock in the company and receive money from appreciation in the value of shares and/or the dividends or income from that stock; 4) Profit-sharing programs—plan in which business profits earned by the employer are shared with employees; 5) 401(k) Plans—option that allows employees to deduct a portion of their pre-tax salary and invest it in a profit-sharing, fixed contribution, or stock bonus plan.

Optional benefits are handled in a variety of ways under the tax code. Some are fully taxable, but others are tax-preferred,...
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