EMPLOYEE BENEFITS AND
COMPENSATION
Module 8:
Employee Benefits
are typically membership-based offered to attract and keep
employees rewards.
do not directly affect a worker’s performance, but inadequate
benefits lead to employee dissatisfaction
benefit and service offerings add about 30% to an
organization’s payroll cost.
benefits become the focus of negotiations with employees
when large wage and salary increases are not feasible
Employee benefits in the Philippines
Who is entitled to benefits in the Philippines?
The labor laws in the Philippines are administered by the Department of Labor and
Employment. (DOLE)
The Philippines employee benefits all depend on which of the four kinds of employment
arrangements is underway: regular, project-based, seasonal, and casual employment.
General minimum conditions of employment in respect to working hours, rest periods,
overtime age, night shift, holidays, and leave are codified in the Book 3 of the Philippines
Labor Code. Exceptions can be made for managerial-ranked employees, field personnel,
and some other workers.
Statutory and Common Employee Benefits (PH)
Statutory benefits, also known as mandatory benefits, are entitlements that
employers are obligated by law to provide to their employees. Common examples
include benefits like paid annual leave, parental leave, worker's compensation
insurance, and paid sick leave.
1. Social Security System (SSS)
Social insurance covers private-sector employees, self-employed workers, as well as
household workers. A spouse of the insured person is also entitled to receive social benefits under this
scheme.
The benefits include:
•maternity pay
•sickness pay
•pensions
•disability benefits
•salary loans
•life insurance
•funeral grants
Health insurance
•PhilHealth is the name of the health insurance plan in place for private employees in the
Philippines. Both PhilHealth and Home Development Mutual Fund (Pag-IBIG) have
changed their contribution rates for 2024. They are as follows: PhilHealth:
Contribution rate jumps from 4% to 5% of the employee's monthly salary
•PhilHealth covers inpatient benefits, outpatient benefits, Z benefits, and SDG benefits
(explained below):
•Z benefits are offered to the patients who need prolonged hospitalization and more
expensive treatment
•SDG benefits include treatment packages for malaria, HIV-AIDS, tuberculosis, animal
bites, and other diseases
•Employers are not obligated to provide any specific insurance benefits since
PhilHealth offers the above entitlements.
Home Development Mutual Fund (HDMF)
• The HDMF, also known as Pag-IBIG fund, provides housing loans. It also
offers financial assistance to Filipinos to enable them to afford decent housing.
•Workers who earn less than PHP 1,500 a month contribute 1% of their salary
to the Pag-IBIG fund. Workers who earn more contribute 2% of their
monthly salary. Employers have to contribute 2% regardless of the salary
bracket of the employee.
•Pag-IBIG Fund increases its minimum monthly contribution rate from P200
to P400 effective February 2024, where P200 is collected from the employee
and P200 from the employer.
Working hours and holidays.
In the Philippines, an employee's regular hours of work are a
maximum of eight hours a day, excluding an hour’s lunch break.
This does include short breaks for rest during the working hour.
Weekly rest day
• Every employee in the Philippines is entitled to get 24 consecutive hours of rest after six
consecutive working days.
Public Holidays
• The workers in the Philippines are entitled to two types of holidays: regular holidays and
special holidays.
Regular holidays: There are 12 paid public holidays.
• Special (non-working) holidays: On special (non-working) holidays, a no-work no-pay
policy is applied. If these days are worked, they can be paid. There are six special holidays
a year.
Minimum wage
• The minimum wage in the Philippines varies between regions. Each region's tripartite
wage boards set the minimum wage rate, which ranges from PHP 282 and PHP 537 a
day.
• The minimum wage rate also depends on the industry sector. The industry sectors are
broadly divided into agricultural and non-agricultural.
• When an employee spends more than the required eight hours working, he or she is
entitled to additional pay, as below:
Night shifts
• The labor laws of the Philippines make it mandatory to pay night shift differential to the
workers working between 10pm and 6pm. The nightshift differential must not be less
than 10% of the worker's regular salary.
Overtime
• If an employee works more than eight hours on an ordinary workday, they are entitled
to an extra 25% of their average hourly rate.
Premium pay
Employees are eligible to receive premium pay for working on their rest days or special
holidays. If an employee needs to work on their rest day or special day, they receive an
extra 30% of their daily salary. If they work on a special day that is also their rest day,
they get 50% extra payment. If the work is performed on a regular holiday that is also a
rest day, the employee gets a total of 260%.
13-month pay entitlement
13 month pay, or the colloquially named “13 month salary” is a statutory requirement
that employers must provide to certain employees.
All non-management employees in the Philippines are entitled to receive 13th-month
pay. This extra month of salary must be released by 24 December. Some employees
opt to receive the payment into two installments — in May and December.
Employees who have worked for at least one month for an employee are entitled to
receive the 13th-month pay. This is paid pro rata for those who work less than the year.
Employers need to file a compliance report by 15 January of the following year to
confirm payment has been made.
Service incentive leave
Employers in the Philippines are obligated to grant five days of paid leave to
every employee who has worked for at least one year. This can be used either as
sick leave or vacation leave.
Sick leave
Insured employees are entitled to receive at least 90% of their average daily wage
if they get hospitalized or incapacitated at home for at least three days. The
three-day waiting period does not apply to the cases of injuries and acute diseases.
Maternity and paternity leave
The Maternity Benefit is granted to a qualified female worker in every instance of pregnancy, miscarriage or
emergency termination of pregnancy regardless of frequency. Married male workers can have seven days of paternity
leave for the first four pregnancies of their wives. Male workers can apply for paternal leave only when they are
living with their spouse at the time of delivery or miscarriage. They need to apply for leave within a reasonable
period.
60 days for miscarriage/emergency termination of pregnancy
105 days for live childbirth (normal or caesarean section delivery)
120 days for solo parent under R.A. 8972 (Solo Parents' Welfare Act of 2000)
105 days + 15 days
Solo parent leave
Solo parents can take up to seven daysʼ leave to fulfill their parental duties, especially
where physical presence is necessary. To be eligible for solo parent leave, one must work
for at least one year, including holidays and authorized absence. This one-year period of
service can be continuous or broken.
Leave for victims of gender violence
In the Philippines, female workers who are the victims of violence are entitled to ten days
of paid leave. The violence may include physical, sexual, psychological, or economic
abuse.
Special leave for gynecological surgery
Women requiring gynecological surgery who have worked for at least six months are
entitled to get up to two months of fully paid leave.
Bereavement Leave
Employees can take up to three days of unpaid leave on the occasion of a death in the
family.
Retirement benefit
The pension scheme in the Philippines is regulated under Social Security System. Retired
employees who have paid their contribution to SSS for at least 10 years before their
retirement are eligible to receive a monthly pension.
Contemporary Benefits Offerings
benefits today reflect a diverse workforce
challenge -- designing a benefits package that is lawful and
attractive
meets legal Attract applicants
requirements and current
workers
social security Health insurance
unemployment retirement plans
time off
compensation disability
workers’ compensation life insurance
LEGALLY REQUIRED BENEFITS
Social Security System
retirement, disability and survivor benefits paid by the
government to the aged, former members of the labor
forced, the disabled or their survivors.
financed by equal employee and employer contributions,
based on a percentage of earnings.
provides income for retirees, disabled workers and
surviving dependents.
LEGALLY REQUIRED BENEFITS
Unemployment Compensation
employee insurance that provides some income continuation in the
event an employee is laid off.
tax varies based on organization’s unemployment experience: the more
layoffs, the higher the rate
provides employees with some income continuation during periods of
involuntary unemployment
LEGALLY REQUIRED BENEFITS
Workers’ Compensation
employee insurance that provides income continuation if the
worker is injured on the job.
paid for by the organization
rates based on likelihood of accidents, past history, and
the type of industry
benefits pay expenses and/or compensate for losses resulting
from work-related accidents or illness, regardless of fault
LEGALLY REQUIRED BENEFITS
Family and Medical Leave Act
•requires employers with 50 or more employees to allow up to
12 weeks of unpaid eave for family or medical reasons
•specifies record-keeping and communication
requirements
VOLUNTARY BENEFIT
Health Insurance
increases in healthcare costs have made health insurance a
critical benefit.
healthcare costs are growing faster than wages
Traditional Health Insurance
typically has the fewest coverage limitations for the employee
usually the most expensive
provides coverage in three areas:
hospitalizations
medical/surgical
major medical
VOLUNTARY BENEFIT
Preferred Provider Organizations (PPOs)
Organization that requires using specific physicians and health-care
facilities to contain the rising costs of health care.
Point-of-Service Plans (POS)
The health care plan that includes the primary care physicians
but allows greater flexibility for using services out of the
network.
Consumer-driven Health Plans
Combines a health plan with high deductible with a health
savings account that the insured uses to pay for deductibles
and medical care.
VOLUNTARY BENEFIT
Employer-operated Coverage
•employers self-fund insurance programs
•operated under a Voluntary Employees Beneficiary Association
(VEBA) to reduce costs
•often hire third party to administer
Health Maintenance Organizations (HMOs)
Provide comprehensive health services for a flat rate.
RETIREMENT BENEFITS
Employee Retirement Income Security Act (ERISA) of 1974
• vesting rights – right to pension benefits even if one leaves the company enables pension
rights to be portable sets up Pension Benefit Guaranty Corporation (PBGC)
• The organization that lays claim to corporate assets to pay or fund inadequate pension
program.
• requires Summary Plan Description (SPD)
Defined Benefit Plans
• A retirement program that pays retiring employees a
fixed retirement income based on average earnings
over a period of time.
RETIREMENT BENEFITS
Disability Insurance Programs
•provides salary continuation for:
•short-term disabilities (sick leave)
•long-term disabilities (coverage usually effective after 6
months)
•some companies provide financial incentives to employees to not
use their sick leave
•long-term disability plans usually replace a portion of the
employee’s salary, often 60%
RETIREMENT BENEFITS
Defined Contribution Plans
• employee and employer may contribute to account based on rules established for contributions
• amount of benefits depends on success of account investments
money purchase profit-sharing
pension plans plans
IRAs
RETIREMENT BENEFITS
Money Purchase Pension Plan
type of defined contribution plan organization commits to depositing
fixed amount of money or percentage of employee’s pay annually
Profit-Sharing Plans
variation of defined contribution plan
company amount contributed depends on profit level in the
organization
contribution is optional, not required
Individual Retirement Accounts (IRAs)
a type of defined contributions plan with employer contributions.
PAID TIME OFF
Vacation and Holiday Leave
vacation time is usually related to the length of time on the job
some companies also allow personal days that can be used for any
reason
Disability Insurance Programs provides salary continuation for:
• short-term disabilities (sick leave)
• long-term disabilities (coverage usually effective after 6 months)
some companies provide financial incentives to employees to not use their
sick leave
long-term disability plans usually replace a portion of the employee’s salary,
often 60%
SURVIVOR BENEFITS
Group Term Life Insurance
•benefit is usually based on one’s annual rate of pay
•supplemental insurance increases coverage to two to five-times
the employee’s salary
Travel Insurance
•life insurance for business travel-related deaths (not including
normal commuting)
Survivor Benefits
The Service Side of Benefits
1. Social and recreational events
2. employee assistance programs
3. credit unions
4. housing
5. tuition reimbursement
6. uniforms
7. company-paid transportation
8. parking
employers often can provide services at no cost or at a significant reduction
from the usual cost
AN INTEGRATIVE PERSPECTIVE ON EMPLOYEE BENEFITS
Flexible Benefits
These programs allow employees to choose which benefits they want and help
to keep costs down.
AN INTEGRATIVE PERSPECTIVE ON EMPLOYEE BENEFITS
Flexible Spending Accounts
• under Section I25 of the Internal Revenue Code employees can set
aside a designated dollar amount before taxes for specified services such
as
1. health-care premiums
2. medical expenses
3. dependent child or elder care
4. group legal services
• IRS requires that accounts for different purposes be separate and that all
money be spent during the year or forfeited
AN INTEGRATIVE PERSPECTIVE ON EMPLOYEE BENEFITS
Modular Plans
•employees choose a pre-designed package of
benefits from several options
Core-Plus Options Plans
•employees given core coverage (e.g. medical, life,
disability) with option to select other benefits
COMPENSATION
COMPENSATION
There are many work motivators, including
promotions
desirable work assignments
peer recognition
work freedom
they all help maintain employee commitment
Rewards Review
Intrinsic Extrinsic
Financial Non-financial
participation in
decision making
Performance Implied Explicit assigned
greater job based membership-based membership-based parking space
freedom
preferred
cost of living protection
more bonuses assignments
increase Program
responsibility
business
labor market pay for time
opportunities piecework cards
adjustment not worked
for growth
own
services/
diversity commission profit sharing secretary
perks
of activities
impressive
incentive time-in-rank title
plans increase
merit pay
plans
Types of Reward Plans
Intrinsic versus Extrinsic Rewards
intrinsic rewards (personal satisfactions) come from the job itself,
such as:
pride in one’s work
feelings of accomplishment
being part of a work team
extrinsic rewards benefits provided by the employer or come
from a source outside the job, mainly by management:
money
promotions
benefits
Types of Reward Plans
Financial versus Nonfinancial Rewards
financial rewards:
wages
bonuses
profit sharing
pension plans
paid leaves
purchase discounts
nonfinancial rewards:
make life on the job more attractive; employees
vary greatly on what types they like
Types of Reward Plans
Performance-based versus Membership-Based
performance-based rewards exemplified by the use of:
commissions
piecework pay plans
incentive systems
group bonuses or other from of
merit pay
membership-based rewards such as cost-of-living
increases, benefits, and salary increases are offered to all
employees
Compensation Administration
The process of managing a company’s compensation
program.
The goal of Compensation Administration is to
design a cost effective pay structures that will :
attracts
motivates
retains competent employees.
Compensation Administration
The Fair Labor Standards Act requires
minimum wage
overtime pay
record-keeping
child labor restrictions
exempt employees nonexempt employees
include professional and eligible for premium pay
managerial employees (time and one-half)
not covered under when they work more than
FLSA overtime provisions 40 hours in a week
Job Evaluation and the Pay Structure
Job Evaluation Methods
ordering classification point
method method method
A committee places jobs Jobs placed in grades to Jobs are rated and
in a simple rank order compare their allocated points on
from highest (worth descriptions to the several criteria.
highest pay) to lowest. benchmarked jobs. Look Jobs with similar point
for a common totals are placed in
denominator (skills, similar pay grades.
knowledge, Offers the greatest
responsibility). stability.
Job Evaluation and the Pay Structure
Establishing the Pay Structure
compensation wage wage
surveys curves structure
Used to gather factual Drawn by plotting A pay scale showing
data on pay practices job evaluation data ranges of pay within
among firms and (such as job points or each grade.
grades) against pay
companies within
rates (actual or from
specific communities. survey data).
Indicates whether pay
structure is logical.
Job Evaluation and the Pay Structure
External factors also influence pay structure.
geographic differences (local supply and demand)
labor supply (low supply = higher wages and vice versa)
competition (HR can match, lead, or lag)
cost of living as determined by the CPI
collective bargaining (unions)
employees must know how the pay structure is derived
Special Cases of Compensation
Incentive Compensation Plans
organization-
individual
wide
group
incentives can be added to the basic pay structure to
provide rewards for performance
Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 11, slide 41
Special Cases of Compensation
Individual Incentives plans
Motivation system based on individual work performance.
Group Incentives
Motivation plan provided to a group of employees on their collection
work.
ADVANTAGE DISADVANTAGE
Focuses the group on specific performance targets. Can be costly to install and administer.
Since rewards are controllable by individuals, the De-emphasizes individual performance, which can result in
programs can be very motivational. excessive peer pressure.
The program can be integrated with other corporate Requires open communication with employees on costs,
initiatives and leads to improved communication and profitability, etc. If the performance targets are not carefully
employee relations selected, adverse results may occur.
these work best where clear objectives are set and tasks are independent
Special Cases of Compensation
Organization-wide Incentives
A motivation system that rewards all facility members based on how well the entire
group performed.
Scanlon Plan – an organization wide incentive program focusing on cooperation
between management and employees trough sharing problems, goals, and ideas.
IMPROSHARE - formula is used to determine bonuses based on labor
cost savings.
See http://www.qualitydigest.com/jul/gainshre.html
Special Cases of Compensation
Pay-for-performance program
rewarding employees base on their performance.
Competency-based compensation
Organization pay system that rewards skills, knowledge and behavior.
Broad-banding
Paying of employees at present level of competency
Team-Based Compensation
Pay based on how well the team performed
depends on:
- clarity of team purpose and goals
-ability of the team to obtain needed resources
-effective team communication skills and trust
Executive Compensation Programs
Salaries of Top Managers
executive pay can run 400 times higher than that of the average worker
competition for executive talent raises the price of hiring an executive
high salaries can be a motivator for executives and lower-level managers
Supplemental Financial Compensation
deferred bonuses – paid to executives over extended time periods, to encourage them to stay with the
company
stock options – allow executives to purchase stock in the future at a fixed price
hiring bonuses – compensate for the deferred compensation lost when leaving a former company
Executive Compensation Programs
Supplemental Nonfinancial Compensation Perquisites
club
memberships paid life insurance
free financial, legal and
tax counseling
supplemental
retirement accounts
interest-fre
e loans
perks may postretirement
include consulting contracts
mortgage assistance
expense accounts
company cars supplemental
disability insurance
Fundamentals of Human Resource Management, 10/e, DeCenzo/Robbins Chapter 11, slide 46
Executive Compensation Programs
Supplemental Nonfinancial Compensation
Perks
Golden parachutes a financial protection plan
for executive in case they are severed from the
organizations.
International Compensation
International compensation packages generally utilize the
“balance-sheet approach,” using these four factors:
base pay: the pay of employees in comparable jobs at home
differentials: compensation given to offset higher costs of living abroad
incentives: inducements given to encourage employees to accept overseas assignments
assistance programs: payment for expenses involved in moving a family abroad and in
providing some services overseas
HR needs to understand the statutory requirements of each country
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