To a CIPD reward forum this week on the topic of “Rewarding in a Recession”. The scene was set by John Philpott of the CIPD with a number of highly depressing going-downhill graphs followed by general advice on how to get value for your non-pay benefits from Mark Eaton of Personal Group. Chris Johnson of Mercer then gave an all-round view of what is happening in larger companies. I will post some more detailed comments at another date but here are four key points that I brought away with me.

• With at least half of the private sector planning to freeze pay (or worse) are the public sector going to be able to face-down the clamour for them to follow suit? Already this is becoming an issue and treasury pay guidance and benchmarking reports seem to be lost in the long grass. Could we even see a summer of discontent and a who-runs-the-country, Ted Heath style, election this Autumn?
• Much discussion about the importance of hanging onto good staff in order to react when the upturn comes. Focussed benefits, sabbaticals and good communications were seen to be important here. Bonuses are a dirty word at present but, provided they are proportionate and targeted at key performance elements, they can provide a way to ensure make sure you reward the right people but not until you have got the money in first.
• Among all the talk about how to retain the talent there was the warning that first you have to get through to the upturn. This always requires a sophisticated understanding about where employment costs actually lie but a new factor is  speed. New HR and manning strategies are being developed and implemented in days or weeks rather than the lengthier approach many HR teams are accustomed to. Basically, if you do not already have the data at your HR finger tips you will be out of the loop when the big decisions are made.
• Not only are most private sector businesses planning to delay or cancel pay reviews, few really know what to expect after 2010 (when, hopefully, things will have picked up). We may well find a very different reward environment after that – a new normal? More focus on personalised benefits and flexibilities, better targeted pay and a clearer understanding, by both managers and the managed, of what actually contributes to organisation success.

Increasingly, tralatitious benefits packages are leaving from the river playing landscape. As the grappling of the river men continually changes, companies are uncovering it needed to come these shifts. The actuality for some employers is that it is decent more and more arduous to enlist workers if they are not healthy to substance an captivating benefits package. It is not exclusive sufficiency to substance inexpensive upbeat insurance; there staleness also be the choice to choose. Today, some Canadians opt for a ‘cafeteria-style’ benefits collection that offers them the immunity to organisation a bespoken benefits plan.

Although pliant benefits, commonly referred to as ‘cafeteria-style’, hit been around for more than 20 years, they are exclusive today gaining in popularity. Employers and workers like are attracted to the plasticity they offer. They earmark individuals to opt from a schedule of benefits what prizewinning suits their needs. By artful a unequalled compounding of upbeat tending coverage, employees are healthy to wage themselves with a opinion of section and protection. These benefits crapper be offered by an employer in their employee benefits package, or crapper be bought finished a clannish upbeat shelter bourgeois in the modify of added upbeat coverage.

This advise absent from the inelasticity of tralatitious benefits packages comes as no assail when digit considers the difference of chronicle circumstances among the river population. Increasingly, kinsfolk households hit both partners employed thereby feat a goodish intersection in benefits. With pliant coverage, digit partner’s tralatitious organisation is complemented and some gaps in the family’s news are easily filled. Younger Canadians haw encounter themselves thinking for a kinsfolk and requirement to conceive most the requisite for exteroception shelter and/or dental insurance. Alternatively, old individuals haw requirement to bonded a difference of previously unneeded benefits, much as impairment insurance.

It is predicted that when the child boomers are primed to retire, a large employ insufficiency module result. Subsequently, employers haw encounter it hard to contend for likely employees. Perhaps it module be the employer who crapper revalue the evolving needs of Canadians who module triumph.

One aspect of reward that came up several times, from both speakers and delegates, in this week’s Reward Forum seminar was that of communications to employees about the true extent of their reward package. Never easy, but charities and voluntary organisations (the focus of the seminar) can have their own set of difficulties in this area.

In many cases employees are personally and emotionally involved with the organisation’s work in a way not found in the private, or even public, sectors. This, together with their typically longer service, can lead staff to assume a greater right to have their say, if not their way, on matters of pay and conditions. Coupled with, in many charities, a workforce that is geographically spread this makes getting the message across more than usually difficult. In particular, all those non-pay benefits, terms and working conditions can be taken for granted and their actual cost, or true worth, dismissed. This is often accompanied with an exaggerated view of what is on offer in the private sector: all contributing to a general feeling of dissatisfaction.

Many organisations in the sector are some way off introducing a full-blown total reward system but that is no excuse for not trying to get the message across. There is lots written on this subject but one key factor is language. Avoid HR speak. For example, avoid the word ‘reward’ in communications to employees. This is another of those everyday words that HR has appropriated and assigned a different meaning to. It is fine amongst us professionals but to most people a reward is something akin to a prize and certainly nothing contractual. Talk about ‘pay and benefits’ or the ‘employment package’.

One element that can always cause trouble is not coming clean about where you position yourself in the pay market. Aiming to pay at around the median is sound practice for many charities but do your staff understand this? Or do you have to explain this means you expect their to be higher payers every time someone runs into HR waving a better-paying job ad? But do not talk about the median. It is a well-known fact (well, an urban myth at any rate) that only 30 per cent of the population know what a percentage is so guess what percentage understand ‘median. Just say you pay around the average. It is only a white lie.

To a CIPD reward forum on the topic of Total Reward at Browns Hotel (better food but the layout makes networking less easy). These events are usually interesting sessions and provide good value CPD and the chance to meet a wide range of people.

The four sessions ranged from a speaker from HAY who seem to be overstretching the term total rewrad to a description of RBS’s global approach to flex, a fascinating account of what the new borders agency is up to and a graphic description of problems local government employers have in getting staff to think beyond base pay and two per cent increases.

Everyone knows (though often forget) that what makes a job worth having is a lot more than just the pay and benefits but HAY are  wrapping just about everything that is not purely operational under the heading of Total Reward. This seems something of a land-grab. Why not “Total Management” or “Total HR”?

The two public sector speakers after coffee focused on the more practical issue of bringing staff to an understanding of just how much they really get. Both these environments (central and local government) are highly unionised somewhat insular: staff think of benefits as entitlements and often do not realise that their level of holidays, pension, opportunities for flexible working, training, generous sick leave, etc, etc, are well ahead of private sector averages.

The border agency (UKBA) has a massive task of merging three major government departments covering some 26,000 staff and they are taking an imaginative approach. Obviously most organisations do not face their range of challenges but two specific tactics, among many, seem worth passing on. The first, which anyone can do is to collect up all those non-salary conditions of service that are scattered around your staff handbook and put them together in a section entitled “Benefits” (or, better, a personal Total Reward statement).

The other, which might not be so easy for a small organisation, is that they have set up an internal Blog which anyone can post comments on (max 100 words, nothing rude and no criticism of individuals). The comments appear anonymously and have generated an interesting level of employee debate. In particular, people find it easier to make positive comments about the Agency than they might in a face-to-face discussion with colleagues.

I have always thought one difficulty about getting your views across to those in charge is that they are obliged to give defensive answers even if they privately agree. A blog could be a great way to overcome this and to tap into employee attitudes.

Every few weeks, I am showcasing a different advantage of owning a Health Spending Account in this segment called…

HSA Advantage….

Many readers would argue that this is the number one benefit of having a Health Spending Account.  Others will say it is the tax-savings.  Personally, I would agree with the Flexible Spending crowd on this one.

In case you did not know, Health Spending Accounts cover a wide range of services and procedures – far more than any insurance plan on the market today.  While an HSA is technically an insurance plan in the eyes of Canada Revenue Agency (CRA), it follows a claiming schedule designed for tax deduction purposes as opposed to caps or maximums based on general insurance risk and claiming patterns.   To clarify, think of your traditional health insurance plan from Manulife or Sun Life.  The plan has maximums for things like prescription drugs, massage therapy visits, and private duty nursing.  These caps or maximums are tied to the premium you pay.  The lower the maximum or allowance for each item, the lower the premium you pay – similar to the deductible on your car insurance and the price you pay in premiums. 

A Health Spending Account on the other hand has no plan design and the items you can claim for reimbursement are at the discretion of the owner - as long as you have sufficient funds in the account and the claim is considered eligible by CRA.  The rules for claiming come from Canada Revenue Agency’s interpretation bulletin IT-519R2 Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction.  In addition to covering the basic items (drugs, therapy, dental, etc..) the funds can also be used to pay for many of the items insurance plans refuse to cover – such as smoking cessation, fertility drugs, elective surgery, cosmetic surgery, special needs schooling and more…

The key advantage is that you dictate the amount you want to spend and what you want to cover, not your insurance provider.  If you or your employer decide to deposit $1,200 into your Private Health Services Plan (PHSP) or Health and Welfare Trust (HWT), you can spend it all on one service (such as massage therapy) or on a variety of services for you and your family.  The flexibility of the HSA means that you have complete control over what you spend and when you spend it – a true advantage.  For more information on claiming, feel free to view our making claims information page here at HSACanada.com.

In recent years, I have seen a growing number of Health Spending Account solutions appear in the market.  Some are great and I applaud those providers who have done their research and developed a product that is respectful of the interpretation bulletins published by Canada Revenue Agency (CRA).  However, a growing number of companies have entered the market in recent years looking to make a quick buck without truly investing in their knowledge of the product.  To help, I thought I would start a new blog series…. items you should look for when choosing an HSA provider…

Unused Funds Being Returned to Company

Canada Revenue Agency is pretty clear on this issue - funds can NEVER revert back to the employer.  The only time this can happen is when an HSA is used in a notional credit program combined with a flexible benefits plan.  If you are working with a supplier and they allow you to take back unused funds from an employee if they quit, then you should re-evaluate your choice of supplier.  Many of the new suppliers have taken the rules outlined in CRA bulletin IT-529 Flexible Employee Benefit Programs, and confused them with the guidelines outlined in IT-339R2 Meaning of Private Health Services Plan. 

The guidelines outlined in the later bulletin, and to an extent those outlined in the original IT-85R2 Health and Welfare Trusts for Employees, are truly the best bulletins to follow regarding PHSPs and HWTs.  The information in IT-529 is related to flexible benefit programs and provides an overview of how to account for benefits using a notional credit program.  A notional credit program supports flexible benefits or cafeteria plans – common in many large corporations.  Running a flexible benefits program using notional credits uses an HSA (in the form of a PHSP) in addition to a core plan offering varying levels of coverage for the employees to choose – traditionally as part of an annual election process.

In summary, funds can ONLY revert back to the employer if the program is part of a notional credit arrangement supporting a flexible benefits program.  They belong to the employee! If you have a Private Health Services Plan or Health and Welfare Trust where the supplier allows you to take back the money if an employee is terminated or leaves…..buyer beware!

There is a perception that working for a small to mid-size business (SMBE) provides many advantages in terms of personal and professional growth due to their, well, smaller size.  The trade-off, though, is frequently a reduction in benefits opportunities, either through a lack of funds, HR personnel, or simply awareness of the diversity of low- to no-cost programs out there which can take advantage of significant breaks in the tax code for employees.

Dependent Care Assistance Programs (DeCAPs) and other flexible benefits / Section 125 programs can be set up and administered easily, have almost no direct costs associated with them, and the benefits to employees can be substantial, primarily in the form of income and other tax savings, such as social security.  Employers can also realize some savings on their share of payroll taxes as well. 

The mechanism for the savings is simple:  pre-tax money is withheld from the employee’s paycheck for qualified benefit expenditures like DeCAPs, so neither the employee nor employer are taxed on that portion of the employee’s income.  Depending on an employee’s marginal state and federal tax rates, plus social security, this could result in savings approaching 40-50% on the total amount of the pre-tax set-aside.  DeCAPs are limited to $5,000 per year (with some qualifications), so the tax benefit here could approach $2,500 for the employee, and a $400 savings for the employer (in the form of reduced SSN payments), with very little set up costs.  For other qualified flexible benefits plans, such as Section 125 withholdings for, say, the employee’s share of health plans, the tax benefits can also run into the thousands of dollars.

So what, exactly, is a DeCAP?  In short, DeCAPs help employees pay for the costs of dependent care which they are likely already paying for, up to $5,000 if both parents earn at least that much and file a joint return.  These costs can include day care programs, nanny care, educational institutions up to kindergarten, before and after school programs, and even summer camp in some cases.   Broad enrollment in the plan is important, both in terms of qualifying for the plan and avoiding the characterization that the plan provides excess benefits to owners or key employees.

I have provided links to several helpful resources below:

• ProAssurance Group Employee Benefits Plan from RealDealDocs - this Employee Benefits Plan contains a somewhat detailed section on DeCAPs.  It was filed by ProAssurance, a company in the Insurance sector, with the SEC a couple of years ago.  Many other similar employee benefits plans or other employment agreements are available at www.RealDealDocs.com.
•  DeCAP Program Summary from Beneflex Inc - I found this on the web and thought it provided a helpful overview of the programs (caveat – I’ve never worked with Beneflix, and I have no opinion on their work or benefits plans)
• For those of you with a more legalistic bent, here’s a link to a helpful but much more technical resource at the Cornell University Law School - not for the faint at heart.

From an owner / employer’s perspective, employees very quickly realize the value in the programs, and that is a powerful inducement to set them up, especially given their low overhead.  As with any employee benefits plan, widespread participation in the plan is important, but given the ease with which it can be established and the immediate benefits received, they are well worth the effort.

Press comment, picked up by Pensions Age, warning that organisations should take a considered approach and not just drift into establshing flexible benefit arrangements.

Phizackerley says that many organisations are now drifting into flexible benefits as a result of changes in the law that are incentivising them to participate in various initiatives