Crafting a benefits and policies plan: the packages and procedures you choose should aid both employer and employee.

An employee manual is an invaluable tool that virtually every business owner should use in running his or her operation. By crafting a personnel handbook, employers provide specific guidelines concerning job performance as well as details about company benefits, policies and procedures.

In the first part of this series (February 1997), you learned the primary function of an employee handbook, the best format to use and some basic items to include. The next step is crafting each section in detail. Benefits and policies/procedures are two of the most important parts of the manual. These two areas will help business owners attract and retain employees, carry out objectives and avoid possible litigation.

The first step is to know what's available and then choose options that work well for both you and your employees. There are a variety of options, so to make your approach easier, distinguish between company-paid benefits, such as short- and long-term term disability insurance and cost-sharing benefits, which include health care and retirement plans.

Preparing a benefits package can be very costly. In fact, in 1994 all benefits, including health, retirement, workers, compensation and group life insurance, cost employers about $746 billion, according to the Employee Benefit Research Institute, a private nonprofit public policy research organization in Washington, D.C. But not having benefits can be just as costly, cautions Armentha "Mike" Cruise, CEO and president of Aspen Personnel Services Inc. in Takoma Park, Maryland. If you don't offer benefits, "initially you can hold a person for a couple of years, but after two or three years, they will leave," she says. Their departure will mean decreased production, thus less profits. Cruise, who employs 300 people, spends about $11,000 per month on company benefits.

Health care is a major concern for business owners, so when choosing a plan, consider managed care through health maintenance organizations (HMOs) and preferred provider organizations (PPOs). These systems save money and give the employer some leeway in selecting and monitoring the doctors who will provide care. Under an HMO, patients make only a small co-payment each time they see a doctor, but their choice is limited to a group of affiliated physicians. PPOS, on the other hand, provide more flexibility. Employees can see a doctor outside the group, but for a higher cost.

When considering retirement plans, there are a number of options, including the typical and widely used 401 (k) plans, the Simplified Employee Pension Plan (SEP-IRA) and the new retirement plan option called Savings Incentive Match Plan for Employees (SIMPLE). According to a survey released by Fidelity Investments, the nation's largest mutual fund company and a leading provider of financial services, 80% of small business owners think it's important to help employees save for retirement, but only 35% currently offer an employer-sponsored retirement plan. Some business owners don't make this offer because they are overwhelmed by the choices, the expense of employer contributions and the time it takes to implement and administer these plans, says Wendy Taussig, director of marketing for the Small Company Retirement Plan for Fidelity Investments. But there is help: the firm's 82 branches nationwide provide free seminars and consultations about preparing a retirement package. Call 800-544-5373 to speak with a Fidelity specialist.

There's no specific formula to use when financing a benefits package, however. "I've seen a 401 (k) plan for as many as 200 employees cost as much as $3,000-$4,500 a year," says Kevin Hutt, a certified public accountant with Bennett, Hutt & Co. in Columbia, Maryland. A typical health care package, depending on the employee's age and demographics, can cost employees roughly $120-$140 per month, explains Janice Haynes Davis of Davis Planning Associates in Washington, D.C. But companies have different needs, and the rate of employee contribution differs with each of the plans. Nevertheless, the basic components should include a managed health care plan (usually an HMO), a retirement package, a minimum one-week paid vacation and 10 paid holidays.

In terms of policies and procedures, there are a number of things to consider. Government regulations such as the Family Medical and Leave Act need to be included. This legislation entitles employees to take up to 12 weeks of unpaid leave for serious health and family conditions. Employers should clearly indicate policies concerning sexual harassment and racial discrimination, conduct standards, including substance abuse in the workplace, and company theft as well as specifics pertaining to employee duties, like probationary periods and attendance. Personal and sick leave, bereavement and jury duty regulations should also be noted.

Donald Clark, president of Clark, Clark & Clark Associates in Mt. Airy, Maryland, and past senior vice president of the Black Human Resources Network, says that in generating policies and procedures, companies can even go into such technical subjects as the protocol to use when operating the company's computer network. In essence, each company should have a "uniform policy that primarily outlines the day-to-day things that could cause conflict either between employees or things that could cause conflict between employees and employers," notes Clark. Even something as simple as when the cafeteria opens should be considered, he adds.

Before formulating her company's policies and procedures, Cruise first did a little research. "On the commercial side or private side, we did market studies to find out what other companies were doing," she says. "We looked at the government because the government has guidelines [that businesses must follow]." In the end, Clark urges companies to have the entire manual reviewed by an attorney.

Next month, our third installment on crafting an employee manual will take a look at the cost of producing the handbook, and organizations that will help you review this critical document.

RETIREMENT SAVING PLANS FOR EMPLOYEES

401 (k) SIMPLE-IRA

Eligibility: Any public or private Eligibility: Businesses with 100 company, typically with 25 or fewer eligible employees or more employees Funded by: Employee elective Funded by: Employee; deferrals and employer optional employer contributions contributions Annual participant Annual participant contribution: Employee, up to contribution: Employee, up $6,000 per year (indexed); to 20% of compensation employer, can match (maximum $9,500); contributions up to 3% of employer/employee combined, employee's compensation up to 25% of compensation (maximum $6,000) or (maximum $30,000) contribute 2% of each eligible Administration: Form 5500; employee's compensation up IRS testing to prevent to $3,200. discrimination in favor of highly Administration: No employer compensated employees tax filings

Source: Fidelity Investments Institutions Services Co., Boston, 1996