Tag Archives | benefits

Remuneration Definition

See Also:
Pension Plans
Cafeteria Plan
How to compensate sales staff
Passive Income
Electronic Funds Transfer (EFT)

Remuneration Definition

We can define remunerations as compensation for employment services. Remuneration can include hourly wages, fringe benefits, salary compensations, and other forms of compensation such as stock options and cash bonuses. Strategies differ across industries and companies.

Remuneration Strategy

A company’s remuneration strategy, or compensation strategy, serves as the basis for planning and addressing compensation issues throughout the organization. Compensation strategies vary across industries and even within companies, depending on the nature of the work and the level of the employee in the hierarchy. Remuneration strategies should include both long-term and short-term incentives, and should include both monetary and non-monetary compensation.

For instance, a remuneration strategy should entail a mixture of long-term and short-term incentives, and a mixture of monetary and non-monetary compensation. Lower level employees should receive more short-term monetary incentives, and to a lesser degree long-term non-monetary compensation. Whereas senior employees should receive a greater proportion of long-term non-monetary compensation, and to a lesser degree short-term monetary compensation.

Basic Remuneration

The most basic type of remuneration is periodic compensation. Under this type of pay plan, compensate workers for spending time at work. Pay rates can differ due to skill, seniority, or education level. With this type of remuneration, there is no direct connection between performance and compensation. Motivate the workers with the prospects of being promoted to a higher pay rate, and avoid demotion and dismissal.

Performance Based Incentives

In certain work environments, it is more appropriate to evaluate and compensate employees based on performance and results. Examples of performance based incentives include merit pay, contingent pay, and piece rate pay.

Merit pay is an incremental pay increase achieved after reaching a certain performance level. For example, merit pay is a pay raise. Contingent pay refers to pay received after achieving a specific objective. Contingent pay may complement a base-salary or wage. An example of contingent pay is a bonus received for hitting a certain sales target. Piece rate pay refers to a flat rate earned for completion of individual units of production or work. For example, a seamstress in a shoe factory might earn a certain monetary amount per shoe. That is piece rate pay.

Another form of incentive based on performance is commission. Employees working on commission earn income based on sales of company products. For a more detailed look at issues regarding commission, see the section below entitled Sales Commission Structures.

Profit Sharing Policy

A profit sharing policy at a company encourages the employees to consider the overall goals and performance of the organization. Profit sharing may be earned as cash, shares of company stock, stock options, or stock appreciation rights. It may be earned in the current period or it may be deferred to a later period. Allocate profit shares among employees based on seniority or other criteria. The idea is to incentivize employees to strive towards success and performance not only at their own individual level but for the company as a whole.

Non-Financial Remuneration

Employees also benefit from and appreciate non-financial forms of compensation. Examples of non-financial remuneration include awards for recognition, a pleasant work environment, opportunities for advancement, employee buy-in in decision-making processes, perks, and fringe benefits.

Sales Commission Structures

Offer employees performance based incentives as part of their compensation. For example, many salespeople work on commission. These sales people earn a certain percentage of each sale and therefore motivates them to sell more. But there are some issues to consider when establish the sales commission structure of employee compensation.

Many companies offer salespeople commission as a percentage of the selling price of the product being sold. This essentially motivates the salesperson to focus on selling the most expensive products so as to earn the highest amount of commission. However, this may not always be the best thing for the company as a whole since the most expensive products may not be the most profitable items.

One way to effectively incentivize sales employees in a way that maximizes the company’s profitability is to pay commission based on a percentage of the product’s contribution margin. Define contribution margin as selling price minus variable production cost. A product with a higher contribution margin is more profitable than a product with a lower contribution margin. Incentivizing sales employees to sell the products with the highest contribution margins – regardless of the selling price – can align the goals of the salespeople with the overall goals of the company.

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Remuneration Definition, remuneration strategy

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Remuneration Definition, remuneration strategy

Source:

Barfield, Jesse T., Michael R. Kinney, Cecily A. Raiborn. “Cost Accounting Traditions and Innovations,” West Publishing Company, St. Paul, MN, 1994.

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Pension Plans

See Also:
How to compensate sales staff
Cafeteria Plan
Keogh Plan
Individual Retirement Account (IRA)
401k
Revocable Trust

Pension Plans

Pension plans are often a key component of your employee’s benefits package from their perspective. But they can be costly for you.

Basically there are two types of pension plans:

  1. Defined benefit
  2. Defined contribution

Let’s expand on these plans!

Defined Benefit Pension

Now, defined benefit pension plans guarantee a certain level of monthly payments for an employee after they retire. These payments are based on factors such as the number of the years of service for the employee and their salary level. These payments are guaranteed regardless of the investment performance of any pension fund used to fund those payments. Over the last couple of decades in the US there has been a significant shift by employers away from offering these kind of plans due to the investment risk borne by the employer and the increasing longevity of retirees.

Defined Contribution Pension

Defined contribution pension plans allow an employee to contribute or withhold a certain amount of pre-tax earnings into a tax deferred savings account (typically a 401(k) plan but also including ESOPs). The amount of payments the employee will be able to enjoy in retirement is solely dependent upon the investment performance of the funds contributed. Often an employer will match some level of the employee’s contributions, since the employee is the one who bears the investment risk. The employee has greater flexibility in how their individual retirement funds are chosen, often being able to select from a menu of equity and bond mutual funds and determine the amount allocated to each fund selected.

Choosing the right retirement plan can go a long way towards retaining valuable employees and keeping them happy. Give attention to this significant part of the benefits you offer employees.

If you want to determine which candidates are the right fit for your company, then download and access the 5 Guiding Principles For Recruiting a Star-Quality Team.

Pension Plans

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Pension Plans

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Cafeteria Plan

See Also:
Employee Stock Ownership Plan
Evaluating and Renewing Employee Health Insurance Plan
Insulate Your Company from Rising Health Insurance Costs
How to Hire New Employees
How to Run an Effective Meeting

Cafeteria Plan Definition

The cafeteria plan definition is a flexible employee benefit plan that allows employees to choose from a selection of fringe benefits. In a cafeteria, the customer chooses components of a meal from a selection of food items. Furthermore, in a cafeteria employee benefit plan, the same concept applies to selecting employee benefits from a menu of options. There are typically terms and limitations to a cafeteria employee benefit plan. The IRS Code Section 125 describes this plan.

Cafeteria Plan Advantages

Let’s look at cafeteria plan advantages! One key advantage of the cafeteria plan is the potential for tax savings. According to IRS Code Section 125, a cafeteria plan allows employees to choose certain pretax benefits. Furthermore, these are benefits excluded from the employee’s gross income. Another advantage is that it allows employees to select a package of fringe benefits based on what is most important to them, rather than having the benefits plan dictated to them by their employer.

Features

Cafeteria plans give the employee the option of selecting between taxable and non-taxable fringe benefits. Examples of benefits that may be offered in this plan include the following:

IRS Code Section 125

If you want a list of FAQs regarding IRS Code Section 125 Cafeteria Plans, then go to: www.irs.gov

cafeteria plan, Cafeteria Plan Advantages, Cafeteria Plan Definition

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401k

See Also:
Pension Plans
How to select a PEO
Gross Up
Payroll Accounting
Keogh Plan
W2 Form

401k Account Definition

A 401k plan is a retirement plan that allows employees to contribute pre-tax earnings to a group company account. The 401k account or the funds in the account are invested for the employees in stocks, bonds, or money market instruments. These contributions are then taxed as they are withdrawn when the employee decides to retire. Often times there is an employer contribution percentage that is associated with the employee contributions.

401k Explained

401k plans have several benefits to investors or employees. First of all, it allows employees to contribute pre-tax earnings. This allows the fund to make more over time even if it is taxed when withdrawn. Generally, it is better to pay taxes later and contribute more to a fund up front.

Another great thing about 401k plans is that they invest with a pool of money from all the employees in that company with a 401k plan. Like the pre-tax earnings this allows the fund to make more over time than if one employee were investing for him/herself. This type of fund is not only contributed by the employee, but often times by the employer as well. Again this allows an employee to max his 401k benefits, and gives him/her a wonderful retirement. A disadvantage is the fact that there is only a certain amount that you are allowed to contribute. It limits for the years 2009 and 2010 the amount is equal to $16,500.

401k, 401k account

 

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Taxes Drive Behavior!

scottish maid

Taxes Drive Behavior Example

Taxes drive behavior in business! In 1839, a new design of sailing ship, the Scottish Maid, was launched in Aberdeen, Scotland. The Scottish Maid was the first British clipper ship designed to take advantage of the tonnage regulations imposed by Britain in 1836. The new regulations measured the depth and breadth and the length at half the mid-ship depth. Any length above the halfway mark was tax free.

As a result of the new design, the ship has a more squared off bow than other designs. This new design was so successful that many frequently copied and used the design for more than 50 years. A floating example of the clipper ship is the Elissa. It is harbored in Galveston Texas.

This is just one example of tax regulations driving behavior. As our government enacts the new tax codes, expect companies and investors to react in a way to minimize their tax liability. With the new health care laws taking affect in 2014, businesses will rethink their employee benefits. In some cases, they are going to change who is an actual employee.

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taxes drive behavior

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Insulate Your Company from Rising Health Insurance Costs

Refer to the following wiki about how to insulate your company from rising health insurance costs:

Insulate Your Company from Rising Health Insurance Costs

“How many times have your employees — or even potential employees — expressed concerns about the cost of the health insurance that your small business provide? It’s an employee concern that most small business owners dread discussing because providing comprehensive health care can be a substantial cost burden. There are small business owners who can afford to provide a competitive benefits package in the short-term[; however,] many are not aware that their rates can increase in the long-term as the result of employee illnesses… [Some of these illnesses] require substantial medical care and cost.

Going It Alone

Often times, small businesses implement a health insurance plan one year, only to see their costs skyrocket in subsequent years due to the health experience of their small employee base. If there have been health conditions that resulted in significant costs, insurance rates for the small group plan rise, and a once competitive plan becomes a cost burden to the company. When a small or medium-sized business obtains its own health care coverage and is faced with a significant rate increase due to the performance or cost burden generated by the small pool of employees, difficult choices emerge, [including the following]:

  • Eliminate or reduce coverage
  • Increase the employer contribution to the premium
  • Increase employee premiums

Partnerships Can Help

To help protect themselves from these types of increases, many small businesses choose to partner with a Professional Employer Organization (PEO). PEOs operate under a co-employment model… [It] is based on a commitment by the PEO… [They] share employment-related risk with clients, thereby helping to reduce financial exposure…”

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Insulate Your Company from Rising Health Insurance Costs

 

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