The cafeteria approach

by Sree Rama Rao on October 1, 2010

Individualized plans allowed by employers to accommodate employees preferences for benefits.

Because employers do have different preferences for benefits employers often let employees individualize their benefit plans. The cafeteria approach is one way to do this. (The terms flexible benefits plan and cafeteria benefits plan are generally used synonymously). A cafeteria plan is one in which the employer gives each employee a benefits fund budget, and lets the person spend it on the benefits he or she prefers, subject to two constraints. First, the employer must of course limit the total cost for each employee’s benefits package. Second, each employee’s benefits plan must include certain required items – for example, Social Security workers compensation and unemployment insurance. Employers can often make mid-year changes their plans if for instance, their dependent care costs rise and they want to divert more contributions to these expenses.

Types of plans

Cafeteria plans come in several varieties. To give employees more flexibility in what benefits they use, about 70% of employers offer flexible spending accounts for medical and other expenses. This option lets employees pay for certain benefits expenses with pretax dollars (so the IRS in effect subsidizes some of the employee’s expense). During the open enrollment period, the employee may choose how much for his or her pay the employer will deposits in this account. To encourage employees to use this option without laying out cash, some firms are offering debit cards that employees can use at their medical provider or pharmacy. Core plus option plans establish a core set of benefits (such as medical insurance) which are usually mandatory for all employees. Beyond the core, employees can then choose from various benefits options.

The Life Plan at Pitney Bowes provides an example, Pitney Bowes attaches a price to every benefit offered and allows employees to shop for the benefits they need each year. Each employee gets a certain number of flex dollars to spend each year on the benefits be or she prefers, Employees can buy whatever benefits they want up to the limit of their available flex dollars they can even supplement that amount with their personal funds if they so choose.

Many businesses – particularly smaller ones – don’t have the resources or employee base to support the cost of many of the benefits we discussed.

Flexible Work Arrangements

Flextime

A work schedule in which employee’s workdays are built around a acre of mid day hours and employees determine within limits what other hours they will work.

Flextime is a plan whereby employee’s workdays are built around a core of mid day hours, such as 11am to 2 pm. Workers determine their own starting and stopping hours. For example, they may opt to work from 7am to 3 pm or from 11 am to 7pm. The number of employees in formal flextime programs – from 4% of operators to 17% of executive employees – doesn’t tell the whole story. Many more employees about 46%, actually take advantage of informal flexible work schedules.

In practice, most employers hold fairly close to the traditional 9am to 5pm workday. In short, half the firms, employees can’t start work later than 9am and employees in about 40% of the firms must be in by 10m. Therefore the effect of flextime for most employees is to give them about one hour of leeway before 9 am or after 5pm.

Compressed worksheets

Schedule in which employees works fewer but longer days each week

Many employees like airline pilots do not conventional five day, 40 hour worksheets similarly hospitals may want doctors and nurses to provide continuing care to a patient, or manufacturers may want to reduce the productivity lost whenever workers change shifts. Firefighters usually work for several days straight. Workers like these typically have compressed worksheet schedules, which mean they work fewer days each week, but each day they work longer hours.





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