An Examination of Employee Benefits Cost Control Strategies in New Jersey Local Governments

Article excerpt

Employee benefits are an essential and costly component of the compensation and human resources management system. This research effort surveyed 118 New Jersey local governments on benefits cost management strategies. The results indicate that the majority of local governments are utilizing displacement strategies that shift or impose costs onto either taxpayers (higher taxes) or employees (outsourcing, higher co-payments) in contrast to structural solutions that address the macro-level financial variables that influence either the demand or supply side of benefits finance (i.e., self-insurance, benefit consortiums, or service regionalization).

Only a quarter of the strategies employed entailed structural solutions. Recommendations are provided to enhance the effectiveness of benefits plan cost-control strategies, including systematic needs assessment and technical assistance.

Employee benefits are a key component of local government compensation systems. Global economic, social, demographic and technological changes are transforming the nature of work, necessitating innovation in employee benefit practices.[1] There has been a dramatic proliferation in employee benefits, increasing both the cost and importance of the overall package.[2] The objective of this research effort is to explore benefits cost-control strategies employed by a sample of New Jersey local governments. The goal is to identify and categorize the general cost-control strategies employed to reduce present and future benefits-related fiscal pressures.

Employee benefits are garnering an increasing share of total compensation costs. The percentage of compensation expenditures devoted to benefits grew from three percent in 1929 to approximately 30 percent in the mid-90s.[3] Concurrent with the elevation in total benefit costs is the enhanced significance that employees attach to the benefit package in job choice.[4] Research indicates that employee benefit satisfaction is linked with more effective staffing, lower absenteeism, reduced turnover and higher levels of organizational commitment, among other positive outcomes.[5]

Benefit Categories

In order to remain competitive, public sector organizations must not only maintain an attractive traditional benefits package consisting of health insurance and pension coverage, but also offer selected family-friendly benefits that accommodate changes in employee needs and characteristics. A categorization of the various types of benefits appears in Figure 1. There are two broad categories of benefits. Traditional benefits address basic hygiene needs of employees and are subdivided into three categories. Health and income security benefits include the following coverages: health insurance, mental health, dental, vision, prescription, employee pensions, life insurance, and short-and long-term disability insurance. This is the costliest category of employee benefits. The second category is paid time off benefits such as sick leave, holidays, vacations, compensatory time and personal days. These provide employees with opportunities for increased time for family, leisure and community service activities. The third category is workday benefits, which provide opportunities for work time rest and stress reduction such as lunch and rest breaks.

Benefits Topology Figure 1

Traditional Benefits

1. Basic Health, Safety and Security Benefits

Examples: Pensions, Health Insurance, Life Insurance, Disability Insurance

2. Paid Time Off:

Examples: Maternity, Family, Vacation, Sick, Holidays, Personal Days, Compensatory

Time and Bereavement Leave

3. Workday Benefits:

Examples: Overtime, Paid Lunch and Breaks

Work-Life Benefits

1. Family-Friendly Benefits:

Examples: Subsidized Child Care, FlexTime, Elder Care, Flexi-Place

2. Human Capital:

Examples: Training Leave, Tuition Remission, Conference Attendance and Sabbaticals

3. …