Term Paper on "Create a Benefits Package"

Term Paper 25 pages (6242 words) Sources: 5

[EXCERPT] . . . .

Komo, Inc. Comprehensive Benefits Package

Employees are the lifeblood of any company. Experienced employees are more valuable because they are past the learning curve and represent the most productive members of the working staff. Retaining experienced employees represents a critical strategic move that can have excellent payoffs in the end. Experienced employees make fewer mistakes and often represent the most efficient workers. Training new employees costs money and it often takes time until they become proficient at their jobs. These are only a few reasons for the necessity to attract quality workers and then take positive measures to keep them for the long haul.

Kokomo, Inc. has plans to expand its Flooost forming production to include Flooost formers from an international employee base. As a result of this expansion, it is necessary to revise the current benefit package for all employees so that Kokomo, Inc. will be able to attract the most qualified Flooost formers from around the globe. The new benefits package will also help to retain existing staff and reduce the current turnover rate. The following outlines the new benefits package and implementation of it.

Budget

In accordance with a mandate that the budget shall not exceed 30.50% of the entire payroll budget. This places a budgetary cap of $575,687.50 for the entire employee benefits package. This includes retirement, Workman's Compensation, and Social Security for all employees.

Employee Demographics

Kokomo, Inc. has 30 full time employees. The top four positions are held by the two major shareholders, Sally Toon and Eileen Toon, the president and CFO. The company has two upper managers, one for each shift of production. The company also employs an Administrative Assistant, Artist and Webmaster. The company employs eight valuable flooost formers. The remainder of the employees are grunts and perform various tasks as needed. The following charts summarize the employee demographics of the plant.

The plant is relatively equally weighted in terms of gender. Employees are divided into nine different groups according to job title. Of these, the largest employee group consists of grunts, with 13 grunts in the entire plant. Flooost Formers are the second largest group of employee class.

The median age is 45.5 years of age. Ages range from 19-69 years of age. The average age is 43.4 years of age. The mode is 28 with two employees falling into this age category. The following chart summarizes the age ratios of the company for all employees.

The most notable characteristic of the employee population is that there are three employees that are already past the retirement age, including one Flooost Former. A majority of the employees are in the 31-50 category and must be concerned with saving for retirement. The average population of the plant is middle aged, with several within 6-7 years of retirement. These employees. It would be safe to say that the plant's attrition rate will rise rapidly in the next 6-7 years as a result of a high population of older age employees that are approaching retirement age. This will be an important factor in planning the benefit package.

Choices for benefits such as health care, dental care, and other similar types of benefits depend on the number of people that comprise each family unit. The following summarizes employee marital and dependent status.

The following chart extrapolates the previous chart, with attention to the number of dependents.

As one can see, the number of employees with dependents exceeds the number of employees without dependents. Therefore, it is likely that if given a choice, these employees will most likely choose the lowest cost option for those with 1-2 dependents).

The employee population at Kokomo, Inc. can be summarized as a diverse population with a majority comprised of middle-aged employees with dependents. However, there are number of employee categories that when combined, make up the clear majority of employees. Many of the lower salary employees have dependents to support, therefore are likely to choose the cheapest healthcare option available. It is hoped that these employees are thinking about retirement, therefore the plan must include an adequate, but affordable retirement package for these employees.

Analyzing Benefit Options

The primary purpose for choosing a new benefit package is to help retain valuable flooost formers. A majority of the employees are low-wage grunts. The focus of the benefits package will be on the primary shareholders of the company and the flooost former class of employee. Grunts are easily replaced and the company has a large local population of low wage employees from which to draw more low-skilled workers. However, to be a flooost former requires a specific type of skill that goes beyond the average member of the local population. Flooost forming is a highly skilled trade that requires years of training and an eye for perfection. The production of quality flooosts is dependent upon the ability to find and retain highly skilled flooost formers. Therefore, the focus of the benefits package will center on the ability to attract and retain highly-skilled flooost formers.

The entire benefits budget has a cap of $575,687.50 for the entire employee benefits package, as calculated by the sum of all employee salaries. From that, we must deduct benefits overhead of $22,500, leaving an actual budget of $553,187.50. Workman's Compensation requires ad addition 2.1% of payroll, as insurance against on the job injuries. When calculated from the total payroll, this amount totals $39,637.50.

Next we will calculate Social Security. There are two types payroll deductions for Social Security. The first is Old Age Survivors and Disability Insurance (OASDI) and Medicare Part a. This portion is 6.2% on the first $87,000 taxable income earned by an employee. An additional payroll tax rate of 1.45% is added to this amount, totaling a total payroll deduction of 7.65% (SSA, 2008). The net Result is that the first $87,000 is taxed at a rate of 7.65%. Any amount in excess of this is taxed at 1.45%. It has been determined that the amount deducted for social security should be included in the amount allowed for benefits. The total deducted for Social Security is $106,697.75.

Retirement Plan

When one deducts, overhead, Workman's Compensation and Social Security, it leaves a total workable budget of $406,852.30. A Retirement plan is a necessity, as mandated by upper management. Therefore, this will be the first item to be determined in the new benefits package. There are several types of retirement plans offered by employers, according to the U.S. department of labor (2008). The first type is the defined benefit plan. This type of plan promises the employee a fixed amount of monthly income after retirement. This type of plan uses a formula that may include salary, age, and number of years worked at the company. This type of benefit plan rewards employees for the number of years they were with the company, encouraging them to stay with the company. They longer they are with the company, the more they will get at retirement.

The second type of benefit is the defined contribution plan. This type of plan does not promise a specific plan at retirement, but represents shared contributions into individual accounts (U.S. DOL, 2008). The employee contributes a certain percent and the employer contributes a certain percentage. The employee received this amount at retirement. How much the employee receives depends on how well the investment performs. This is risky and the employee is not guaranteed of a return. The potential for gain is greater than with the fixed plan, but the potential for loss is greater as well. This may not be the best option for employees that are close or that have already exceeded retirement age. It does not encourage longevity at the plant, unless there is a program where the employee becomes vested after a certain amount of years, or if the employer contribution increases over time.

The goal of the new benefits plan is to increase longevity of the employee at the plant, therefore, this will be a key factor in the retirement plan chosen. Setting the sights of the employee on the future will be the best way to ensure that they are thinking about long-term employment with the plant as well.

One of the most difficult tasks in designing any benefits package is that every employee has different needs. The same is true of the retirement package. It is assumed that older employees, particularly those that are already past retirement age already have substantial retirement savings, either from previous employment or from Kokomo. These employees will be offered a different retirement package than those that are in the lower age categories. These employees need to focus on saving for their later years.

Older employees (57 or older) will be offered $100.00 per month in a defined benefit plan. This will affect seven employees and will amount to a total maximum of $8,400 per year. Employees from 19 to 56 years of age will be offered a 401(k) plan with matching up to 5% of the base salary before contributions are… READ MORE

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