NATIONAL COMPENSATION SURVEY 

GLOSSARY OF EMPLOYEE BENEFIT TERMS 

July 2012 
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Table of Contents 

 Page 

Overview 3 

Retirement Benefits 4 

 Defined benefit plans 4 

 Defined contribution plans 7 

Healthcare Benefits 11 

 Medical care 11 

 Prescription drugs 15 

 Dental care 15 

 Vision care 15 

Life Insurance Benefits 16 

Leave Benefits 17 

Disability Benefits 19 

 Short-term disability 19 

 Long-term disability 20 

Other Benefits 21 

 Quality-of-life benefits 21 

 Financial benefits 21 

 Health-related benefits 23 

 Nonproduction bonuses 23 

 Unmarried domestic partner benefits 24 
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Overview 

The definitions of major plans, key provisions, and related terms presented in this 

glossary are those used by the U.S Bureau of Labor Statistics (BLS), National 

Compensation Survey (NCS) program when conducting its survey of employee benefits. 

Under the NCS program, information on the incidence and provision of benefits is 

published in several stages. Data on the incidence of (access to and participation in) 

selected benefits and detailed provisions of paid leave plans, life insurance plans, 

disability benefits, other selected benefits, and the employer and employee shares of 

contributions to medical care premiums are published annually, with a March reference 

period. Separate estimates are published for civilian workers, private industry employees, 

and state and local government workers. 

Data on detailed provisions of health insurance and retirement benefits for both private 

industry and state and local government also are available. See the BLS website 

www.bls.gov/ncs/ebs. 

Information on the scope of the survey, the sample design, data collection, survey 

estimation, and the reliability of estimates for all NCS products are in the BLS Handbook 

of Methods, at www.bls.gov/opub/hom/homch8.htm. 
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Retirement Benefits 

Retirement plans are classified as either defined benefit or defined contribution plans. 

Defined benefit plans determine payments according to a fixed formula based on salary, 

years of service, and age. Defined contribution plans determine the value of individual 

accounts on the basis of the amount of money contributed and the rate of return on the 

money invested. 

Defined benefit plans 

Defined benefit pension plans provide employees with guaranteed retirement benefits 

based on benefit formulas. A participant’s retirement age, length of service, and 

preretirement earnings may affect the benefits received. Definitions, key provisions, and 

related terms follow. 

Traditional defined benefit formulas 

Percent of terminal earnings formulas. Benefits are based on a percentage of average 

earnings during a specified number of years at the end of a worker’s career (or when 

earnings are highest), multiplied by the number of years of service recognized by the 

plan. 

Percent of career earnings formulas. Benefits are based on a percentage of an average of 

career earnings for every year of service recognized by the plan. 

Dollar amount formulas. Benefits are based on a dollar amount per month for each year 

of service recognized by the plan. 

Percent of employer contribution formulas. Benefits are based on employer and, 

occasionally, employee contributions. Benefits equal a percentage of total contributions. 

Nontraditional defined benefit formulas 

Cash balance plans. For each year worked, employees are credited with a specified 

contribution and a rate of interest on that contribution, which together will provide a 

lump sum at retirement. The lump sum may also be converted to an annuity.

Pension equity plans. For each year worked, employees are credited with a percentage 

applied to their final average earnings. Benefits generally are distributed as a lump sum, 

but may be converted to an annuity. 
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Frozen retirement plans 

Frozen retirement plans are benefit plans that typically are closed to new enrollees and 

that may limit future benefit accruals for some or all active plan participants. These plans 

may be of different types. Some may no longer allow participants to accrue additional 

benefits. Others may change the plan’s prospective benefit formula in such a way as to 

limit or cease future benefit accruals for some active participants. 

Normal retirement 

Normal retirement is the age at which plan participants may retire and receive all accrued 

benefits. 

Early retirement

Early retirement is the age (or a combination of age and length of service) at which plan 

participants may retire and receive all accrued benefits, minus a reduction for the number 

of years by which their retirement age precedes their normal retirement age. 

Benefit payment methods 

Payments from defined benefit plans may be in the form of a straight life annuity, a jointand-survivor annuity, a percentage of the unreduced accrued benefit, or a lump sum. 

Straight-life annuity. A periodic payment made for the life of the retiree, with no 

additional payments to survivors. 

Joint-and-survivor annuity. The Employee Retirement Income Security Act (ERISA) of 

1974 requires defined benefit pension plans that offer an annuity as a payment option to 

provide a qualified joint-and-survivor annuity (QJSA) as the normal benefit payment for 

married participants. A QJSA is an immediate annuity for the life of the participant and a 

survivor annuity for the life of the participant’s spouse. The amount of the survivor 

annuity may not be less than 50 percent, or more than 100 percent, of the amount payable 

during the time the participant and spouse are both alive. The annuity payable for the life 

of the participant is lower than that for a straight life annuity; to account for the increased 

length of time over which payments will be made, this reduction may be a percentage of 

the straight life benefit, such as 10 percent, or may be based on the life expectancy of the 

participant and spouse. 

Percentage of unreduced accrued benefit. Under this method, the participant’s pension is 

not reduced to adjust for survivor benefits. The participant will receive an amount equal 

to the straight life annuity, and the spouse will receive a proportion of that amount, often 

50 percent, should the participant die. 

Lump-sum payment. The participant may opt for a full lump sum, with no further benefits 

received from the plan. If a plan provides for a partial lump-sum payment, the participant 

will receive a reduced annuity as well. 
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Vesting 

Vesting refers to the amount of time a participant must work before earning a 

nonforfeitable right to a retirement benefit. Once the participant is vested, the accrued 

benefit is retained even if the worker leaves the employer before reaching retirement age. 

Immediate full vesting. An employee is 100 percent vested immediately upon enrollment 

in the plan. 

Cliff vesting. No vesting occurs until an employee satisfies the service requirements for 

100-percent vesting—for example, 5 years. 

Graded vesting. An employee’s nonforfeitable percentage of employer contributions 

increases over time, until reaching 100 percent. 

Integration with Social Security 

Defined benefit plans may integrate retirement benefits with Social Security benefits. 

Under this approach, the employer’s contribution to Social Security (FICA taxes) is taken 

into account when plan benefits are computed. Integration may be accomplished by an 

offset or a step-rate method. 

Offset. Part of a participant’s Social Security benefit is subtracted from the benefit 

otherwise payable by the plan. The maximum allowable offset is 83.3 percent of the 

Social Security benefit. The most common offset is 50 percent. 

Step rate. Lower benefit rates are applied to earnings up to the specified taxable Social 

Security wage base (that is, the earnings subject to Social Security tax); higher benefit 

rates are applied to earnings above the wage base. 

Portability 

Portability is a participant’s ability to maintain and transfer accumulated pension benefits 

when changing jobs. Portability provisions in defined benefit plans generally cover 

portability of assets, portability of credited service, or both.

Portability of assets. Participants can withdraw their accumulated pension benefits or 

transfer them to another retirement arrangement. 

Portability of credited service. Participants are allowed to count the years of service with 

a previous employer when determining benefits from their current employer. 

Disability retirement 

Disability retirement is retirement resulting from a totally disabling injury or illness prior 

to eligibility for early or normal retirement. Plans providing disability retirement benefits 

may have a service requirement, such as 10 years or longer. Benefits may be immediate 

or deferred. 
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Defined contribution plans 

Defined contribution plans are retirement plans that specify the level of employer 

contributions and place those contributions into individual employee accounts.

Types of plans 

Savings-and-thrift plans. Employees may contribute a predetermined portion of earnings 

(usually pretax)—all or part of which the employer matches—to an individual account. 

Employers may match a fixed percentage of employee contributions or a percentage that 

varies by length of service, amount of employee contribution, or other factors. 

Contributions are invested as directed by the employee or employer. Although usually 

designed as a long-term savings vehicle, savings-and-thrift plans may allow withdrawals 

and loans before retirement. 

Deferred profit-sharing plans. In this type of defined contribution plan, a company 

credits shares of company profits to participating employees’ accounts. Plans may set a 

fixed formula for sharing profits, but are not required to do so. Profit-sharing 

contributions to employees’ accounts may be at the discretion of the company. 

Companies must set a method of allocating profit-sharing contributions to individual 

employees. Common allocation methods include allocation proportional to employee 

salary and equal allocation to all employees. Contributions and any accrued investment 

earnings on the accounts normally are not distributed until an employee’s retirement from 

the company. The plan may allow employee contributions, but employees seldom are 

required to contribute to the plan. 

Money purchase pension plans. Fixed employer contributions, typically calculated as a 

percentage of employee earnings, are allocated to individual employee accounts each 

year. Some plans may allow employee contributions, but employees usually are not 

required to make any contributions. Employers also may make profit-sharing 

contributions to these plans at their discretion. 

Employee stock ownership plans (ESOPs). The employer pays a designated amount, 

often borrowed, into a fund that is then invested, primarily in company stock. Any debt 

incurred in the purchase of the stock is repaid by the company. Stock is then distributed 

to employees according to a formula. 

Individual retirement accounts (IRAs). An IRA is a retirement savings plan. There are 

several types of IRAs: traditional IRAs, Roth IRAs, simplified employee pension (SEP) 

IRAs, and savings-incentive match plans for employees (SIMPLE) IRAs. Traditional and 

Roth IRAs are established by individuals who are allowed to contribute earnings up to a 

set maximum dollar amount. SEPs and SIMPLE plans are retirement plans established by 

employers. 
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Simplified employee pensions (SEPs). An individual retirement account (IRA) is 

established for each eligible employee. The employee is immediately vested in employer 

contributions and generally directs the investment of the money. 

Savings-incentive match plans for employees (SIMPLE) plan. This type of plan is limited 

to employers with fewer than 100 employees and who also do not have any other 

qualified retirement plan. SIMPLE plans can be either part of a 401(k) plan or established 

as IRAs. Employers must either make matching contributions of up to 3 percent of 

compensation or make a 2-percent nonelective contribution to all eligible employees. 

Participants who are 50 years or older may make additional pretax employee 

contributions into a SIMPLE plan. 

Methods of contributions 

Internal Revenue Code (IRC) Section 401(k) pretax contribution. This type of

contribution is a feature of many savings-and-thrift and other defined contribution plans 

that allow employees to make pretax contributions to deferred compensation plans 

through salary reduction agreements. 

Roth 401 (k) posttax contributions. This type of contribution combines features of a Roth 

IRA plan and a 401(k) plan. Under these plans, employees are allowed to make part or all 

of their retirement plan contributions on a posttax basis, similar to the way a Roth IRA 

plan works. Posttax contributions and their earnings are not subject to income tax upon 

distribution. 

Amounts up to Internal Revenue Code (IRC) limit. The IRC provides for dollar 

limitations on benefits and contributions under qualified defined contribution plans. 

Investment choices 

Company stock. Employees receive equity in the company that sponsors the defined 

contribution plan. 

Common stock fund. This is a professionally managed fund invested in the common stock 

of a variety of companies. 

Fixed-interest securities. These securities include bonds and other nonfederal instruments 

that pay a fixed interest rate over a predetermined period. 

Diversified investments. These are professionally managed funds that are invested in 

more than one type of equity or debt instrument. 

Money market fund. This is a professionally managed mutual fund that invests in shortterm Treasury bills, certificates of deposit, or corporate bonds. The fund managers sell 

shares to investors, who receive regular payments of interest. 
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Life cycle fund. This is a balanced fund designed to become more conservative as the 

investor approaches retirement by moving from equity funds to fixed-income mutual 

funds. 

Withdrawals, loans and transfers 

Withdrawals. Prior to normal payout (usually at retirement), defined contribution plan 

participants may be allowed to withdraw all or a portion of the employer funds from their 

accounts. Although most early withdrawals incur tax penalties, hardship withdrawals do 

not. To avoid tax penalties, many plans have loan provisions that allow employees to 

borrow from their accounts, with interest, for a specified period. 

Hardship withdrawals. Employees usually are not penalized when money is withdrawn 

as a result of a hardship, often defined as the death or illness of a family member, 

educational expenses, sudden uninsured losses, or a need to prevent eviction from one’s 

primary residence. 

Loans. Defined contribution plans may allow participants to borrow employer funds, with 

interest, from their accounts. Loan amounts often are limited to a portion of the account 

balance. They usually have to be repaid within 5 years, but longer payment periods may 

apply for home purchase or renovation loans. 

Transfers or rollovers. A rollover is a direct payment of plan benefits from a defined 

contribution plan into an IRA or another employer’s plan. In a direct rollover, the 

employee is not taxed on the payment until it is withdrawn or distributed later. 

Vesting 

Vesting refers to the amount of time a participant must work before earning a 

nonforfeitable right to a retirement benefit. Once the participant is vested, the accrued 

benefit is retained even if the worker leaves the employer before reaching retirement age. 

Under ERISA, defined contribution plans are subject to the same vesting rules as defined 

benefit plans, but vesting schedules vary. Vesting schedules apply only to employer 

contributions; employee contributions (including pretax contributions) are always 100 

percent vested. 

Immediate full vesting. An employee is 100 percent vested immediately upon enrollment 

in the plan.

Cliff vesting. No vesting occurs until an employee satisfies the service requirements for 

100-percent vesting—for example, 5 years. 

Graded vesting. An employee’s nonforfeitable percentage of employer contributions 

increases over time, until reaching 100 percent. 
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Employer contribution methods 

Specified matching percent. This feature is common in savings-and-thrift plans. The 

employer matches a specified percentage of employee contributions. The matching 

percentage can vary by length of service, amount of employee contribution, and other 

factors. 

Fixed percentage of profits formula. This feature is common in deferred profit sharing 

plans. The employer contributes a fixed percentage of total annual profits to the plan. For 

example, no matter what the level of profits, 5 percent is contributed to the plan. Profits 

may include those for the entire company or just those in a specific business unit. In a 

variation of this formula, employers set aside a reserve amount of profits (for example, $1 

million) and pay only a fixed percentage of any profits above this amount into the 

employees’ defined contribution plan. 

Percentage of employee earnings. The employer contributes a fixed percentage of each 

employee’s earnings to his or her individual account. This feature is common in money 

purchase plans. 

Related plans and terms 

Stock bonus plan. Contributions are placed in a trust fund that invests in securities, 

including those of the employing company. This type of plan is financed by the employer 

or jointly by the employer and employee. Upon the employee’s retirement or separation 

from the company, proceeds from the trust fund are paid out in the form of company 

stock or cash. 

Automatic enrollment. As soon as eligibility requirements are met, employees become 

covered under a plan, but have the right to decline coverage at any time. A minimum 

default employee contribution and default investment vehicles usually are set, but 

employees may choose to contribute a different percentage and change investments. 

Automatic escalation. Employee contributions are automatically increased at a 

predetermined rate over time, raising the contribution rate as a share of earnings. 

Employees may choose to contribute a different percentage. 
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Healthcare Benefits 

Healthcare benefits provide preventive and protective medical, dental, vision, or 

prescription drug coverage to employees and their families. Most employer-provided 

plans cover the employee and the employee’s dependents, including spouse and children. 

Medical care 

Medical care plans provide services or payments for services rendered in the hospital or 

by a qualified medical care provider. 

Fee-for-service plans 

Traditional fee-for-service plan. This type of plan finances, but does not deliver, 

healthcare services; the plan allows participants the choice of any provider, without 

affecting reimbursement. Employers pay premiums to a private insurance carrier to 

provide a specific package of health benefits. Some employers may choose to self-fund a 

fee-for-service plan, in which case the employer, as opposed to an insurance company, 

assumes responsibility for payment of all eligible benefits. 

Preferred provider organization (PPO). This type of plan provides coverage through a 

network of participating healthcare providers. Enrollees may receive services outside the 

network, but at higher costs. The additional costs may be in the form of higher 

deductibles, higher coinsurance rates, or both, or in the form of nondiscounted charges 

from providers. 

Exclusive provider organization (EPO). This type of plan obligates employees to use 

only the plan’s providers in order to receive coverage, in contrast to PPO benefit plans, 

which merely offer a financial incentive for enrollees to use the preferred provider. An 

EPO is a specific type of PPO plan that can be either self-insured or insured through an 

insurance company. 

Consumer-driven health plan (CDHP). This type of plan combines a high-deductible 

health policy that provides protection from catastrophic medical expenses with a taxfavored account that pays routine healthcare expenses such as those for prescription 

medications and doctors’ visits. 

High-deductible health plan (HDHP). This type of plan typically has a higher deductible 

and lower premium than a traditional health plan. Normally, the plan includes 

catastrophic coverage to protect against large medical expenses, but the insured is 

responsible for routine out-of-pocket expenses. 

Point-of-service (POS) plan. This type of plan combines features of PPOs and traditional 

HMOs. POS enrollees receive more generous benefits for services within the network 

and for specialist care authorized by their primary care physicians. Benefits are less 

generous for care received outside the network and for self-referrals. 
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Health Maintenance Organizations (HMOs) 

HMOs assume both the financial risks associated with providing comprehensive medical 

services and the responsibility for delivering healthcare in a particular geographic area, 

usually in return for a fixed, prepaid fee from members. HMOs emphasize preventive 

care and cover most types of care in full or subject to a copayment. 

Traditional HMOs. This type of HMO provides no benefits for services obtained outside 

the network. 

Open-access HMOs. This type of HMO allows enrollees to receive services from a 

specialist within the network without a referral from a primary care physician. 

Limitations on coverage 

Maximum dollar limit. This limit is the maximum amount payable by the insurer for 

covered expenses for the insured and each covered dependent while the ensured is 

enrolled in the health plan. Plans can have a yearly or a lifetime maximum dollar limit. 

The most typical maximum limit is a lifetime amount of $1 million per individual. 

Maximum out-of-pocket expense. This feature limits the dollar amount a group member is 

required to pay out of pocket during a year. Until it is met, the plan and the member share 

in the cost of covered expenses. After the maximum is reached, the insurer pays all 

covered expenses, often up to a lifetime maximum. 

Deductible. The deductible is a dollar amount that an insured person pays during the 

benefit period—usually a year—before the insurer starts to make payments for covered 

medical services. Plans may have both individual and family deductibles. Some plans 

have separate deductibles for specific services. For example, a plan may have a 

hospitalization deductible per admission. Deductibles may differ between services 

received from an approved provider (that is, a provider with whom the insurer has a 

contract or an agreement specifying payment levels and other requirements) and those 

received from providers not on the approved list. 

Coinsurance. This form of medical cost sharing requires an insured person to pay a stated 

percentage of medical expenses after the deductible amount, if any, is paid. After any 

deductible amount and coinsurance are paid, the insurer is responsible for the rest of the 

reimbursement for covered benefits, up to the maximum allowed charges. The individual 

is responsible for any charges in excess of what the insurer determines to be “usual, 

customary, and reasonable.” Coinsurance rates may differ between services received 

from an approved provider and those received from providers not on the approved list. 

Copayments. The fixed dollar amount that an insured person must pay when a service is 

received before any remaining charges are paid by the insurer. 

Overall limits. The NCS uses this term to refer to restrictions that apply to all or most 

benefits under the plan, as opposed to selected individual benefits. An example of an 

overall limit is a $300-per-year deductible that must be paid before medical expenses 
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become eligible for reimbursement. Another example is an 80-percent coinsurance that 

applies to all categories of care except outpatient surgery. 

Internal limits. An internal limit applies to individual categories of care—for example, a 

$250-per-procedure deductible for inpatient surgery. 

Alternatives to hospitalization 

Alternatives are offered as a means of reducing costs. 

Skilled nursing facilities. This benefit provides rehabilitation and convalescent services, 

as well as skilled nursing care, to patients who require less intensive treatment than that 

provided in a hospital. 

Home healthcare. This benefit provides skilled nursing and therapeutic services to 

patients in their own homes. 

Hospice care. These programs provide nursing care and psychological support for 

terminally ill patients and their families, either on an inpatient basis or in the patient’s 

home. 

Outpatient surgery. Surgical procedures performed in the outpatient department of a 

hospital or ambulatory facility. 

Mental health and substance abuse treatment 

These services comprise inpatient and outpatient care for psychiatric conditions and 

alcohol and/or drug dependency. Coverage usually is more restrictive than that for 

general medical conditions. 

Substance abuse treatment. Plans provide at least partial payment for addiction to alcohol 

and/or drugs. 

Inpatient care. Includes institutional treatment in a hospital or specialized facility. 

Outpatient care. Includes treatment in one or more of the following: outpatient 

department of hospital, residential treatment center, organized outpatient clinic, day-night 

treatment center, and doctor’s office. 

Detoxification. Involves supervised care by medical personnel that is designed to reduce 

or eliminate the symptoms of chemical dependency. Treatment must occur on an 

inpatient basis. 

Rehabilitation. Intended to alter the behavior of substance abusers and usually are 

provided after detoxification is complete. Services can be provided on an inpatient or 

outpatient basis. 
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Miscellaneous terms 

Premium. A premium is the fee paid for coverage of medical benefits for a defined 

period. Premiums can be paid by employers, unions, or employees or can be shared by 

the enrollee and the plan sponsor. 

Self-insured plan. Under this type of plan, employers directly assume the major cost of 

health insurance for their employees. Some self-insured plans bear the entire risk. Other 

self-insured plans insure against large claims through the purchase of stop-loss coverage. 

Some self-insured plans contract with insurance carriers or third-party administrators for 

claims processing and other administrative services; other self-insured plans are selfadministered. 

Provider network. Under nontraditional fee-for-services plans and HMOs, this is a 

network of approved providers with whom the insurer has a contract or an agreement 

specifying payment levels and other requirements and whose services are covered more 

generously by the plan than if they are obtained elsewhere. 

Administrative services only (ASO). Under this type of plan, a third party disburses the 

employer’s funds to pay claims and handle other administrative details. 

Insured plan. In an insured plan, the employer contracts with another organization to 

assume financial responsibility for the costs of enrollees’ medical claims. 

Well-baby care. A well-baby care benefit provides for preventive doctors’ visits for 

children 2 years of age and younger. The benefit includes preventive pediatric care, 

routine pediatric care, and routine pediatric immunizations. Care immediately after the 

birth of the child is not included.
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Prescription drugs 

Prescription drug plans provide coverage for outpatient prescription drugs. Prescription 

drugs dispensed during a hospital stay are covered as hospital miscellaneous charges. 

Name-brand drugs. These are drugs that once were, or still are, under patents. 

Generic drugs. These are drugs that are not under any patents. Once a drug’s patent has 

expired, some plans provide more generous coverage for same-formula generic drugs 

than for name-brand drugs; the practice is adopted as a cost containment measure. 

Mail-order drugs. These are drugs that can be ordered through the mail. As a cost 

containment measure, some plans use mail-order pharmacies that typically provide a 3-

month supply of maintenance drugs. 

Formulary drugs. These are both generic and brand-name drugs approved by the 

healthcare provider. Drugs not approved by the healthcare provider are nonformulary 

drugs, for which enrollees receive less generous benefits, such as a higher copayment per 

prescription. 

Dental care 

Dental care plans provide services or payments for restorative care and related treatment 

to the teeth and gums. 

Preventive services. Services include routine exams, cleanings, xrays, and other 

preventive care. 

Basic services. Services include fillings, dental surgery, periodontal care (treatment for 

gum disease), and endodontics (root canal therapy). 

Major services. Services include procedures such as crowns and prosthetics (replacement 

of missing teeth with bridgework or dentures). 

Orthodontia services. These are services for the correction of malpositioned teeth. 

Vision care 

Vision care plans provide coverage for the improvement of eyesight, including eyeglasses 

and contact lenses. Coverage typically is limited and is subject to applicable copayments 

or scheduled cash allowances. 

Lasik surgery. An elective surgical procedure that is capable of correcting a variety of 

nearsightedness, farsightedness, and astigmatism. 
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Life Insurance Benefits 

Life insurance provides a lump-sum payment to a designated beneficiary or beneficiaries 

of a deceased employee. Companies may provide a basic amount of life insurance 

benefits, which may vary with an employee’s age, income, and occupation. Companies 

also may allow employees to pay for additional amounts of coverage. 

Benefit formulas 

Fixed-multiple-of-earnings benefit plans. These plans link the benefit amount to 

employee earnings, usually rounded to a stated dollar amount. This link enables the level 

of protection to increase automatically as income rises. 

Variable-multiple-of-earnings benefit plans. Benefit calculations under these plans use 

multiples that are based on employee earnings. For example, employees earning up to 

$50,000 per year might receive a benefit equal to their annual earnings, whereas 

employees earning more than $50,000 per year might receive twice their annual earnings. 

Flat-dollar-amount benefit plans. These plans provide a fixed life insurance benefit 

amount. Insurance amounts ranging from $10,000 to $25,000 are common in such plans. 

Variable-dollar-amount benefit plans. These plans provide a dollar amount that varies 

with an employee’s earnings and length of service. 
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Leave Benefits

Paid holidays. Holidays are days off from work on days of special religious, cultural, 

social, or patriotic significance on which work and business ordinarily cease. Employees 

may receive either full or partial pay for holidays. 

Paid vacations. Vacations are leave from work (or pay in lieu of time off) provided on an 

annual basis and normally taken in blocks of days or weeks. Paid vacations commonly 

are granted to employees only after they meet specified service requirements. The 

amount of vacation leave received each year usually varies with the length of service. 

Vacation time off normally is paid at full pay or partial pay, or it may be a percentage of 

employee earnings. 

Paid personal leave. Personal leave is a general-purpose leave benefit, used for reasons 

important to the individual employee, but not otherwise provided by other forms of leave. 

Some employers place restrictions on the purposes for which personal leave may be used. 

Paid sick leave. Sick leave provides all or part of an employee’s earnings if he or she is 

unable to work because of a non-work-related illness or injury. Employees commonly 

receive their regular pay for a specified number of days off per year. Sick leave is 

provided on a per-year basis, usually expressed in days, and is never insured. 

Paid military leave. Military leave is paid absence from work to fulfill military 

commitments. Pay may be either regular pay or the difference between employees’ 

regular earnings and the amount they receive from the military. 

Paid funeral leave. Funeral leave provides time off from work because of a death in the 

family. The period of absence is usually limited to a few days (for example, 3 paid days 

for immediate family members and 1 paid day for other relatives). 

Paid jury duty leave. Jury duty leave provides a paid absence from work when one is 

summoned to serve as a juror. Employer payments commonly make up the difference 

between the employee’s regular pay and the court’s jury allowance. 

Paid family leave. Family leave is granted to an employee to care for a family member 

and includes paid maternity and paternity leave. The leave may be available to care for a 

newborn child, an adopted child, a sick child, or a sick adult relative. Paid family leave is 

given in addition to any sick leave, vacation, personal leave, or short-term disability leave 

that is available to the employee. 
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Unpaid family leave. This leave is granted to an employee to care for a family member. 

The leave may be used to care for a newborn child, an adopted child, a sick child, or a 

sick adult relative. A typical family leave plan extends leave without pay to an employee 

for a period of several months while the employee cares for the family member. The 

Family and Medical Leave Act (FMLA) of 1993 is a Federal law providing unpaid jobprotected leave to eligible workers for the care of their families or themselves for 

specified family and medical conditions. The FMLA provides eligible workers with up to 

12 workweeks of unpaid leave per year for the birth, adoption, or foster care placement of 

a child; the care of a spouse, son, daughter, or parent with a serious health condition; or 

the employee's own serious health condition resulting in an inability to work. Employers 

with fewer than 50 employees at a worksite (and within 75 miles of that worksite) are 

excluded from the FMLA. 

Consolidated leave plans. These are plans that provide a single amount of time off for 

workers to use for any of a number of purposes, such as vacation, illness, and personal 

business. 

Leisure leave. This leave provides access to one or more of the following benefits: paid 

vacation, paid holidays, and paid personal leave. 

 
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Disability Benefits

Disability benefits provide protection against loss of income due to a nonoccupational 

illness or injury. 

Short-term disability 

Short-term disability plans provide benefits for non-work-related illnesses or accidents on 

a per-disability basis, typically for a 6-month to 12-month period. Benefits are paid as a 

percentage of employee earnings or as a flat dollar amount. Short-term disability benefits 

vary with the amount of predisability earnings, length of service with the establishment, 

or length of disability. 

Plans can be funded in any of the following ways: 

Unfunded salary continuation. The employer pays the benefit from operating revenue, 

assuming all associated risks and expenses. 

Noncommercially insured. The employer is required to have liquid assets corresponding 

to the projected liability of the plan. These plans must be registered with the Department 

of Labor and are guaranteed by ERISA. The employer assumes all risks and expenses of 

providing the benefit.

Commercially insured. The employer pays monthly premiums to an insurance carrier in 

exchange for the carrier assuming all risks of underwriting a short-term disability policy. 

The actuarially determined premium is often specified as a rate per $10 of weekly benefit 

per month. In some cases, the employer contributes a specific amount (often, a number of 

cents per hour worked for each employee) to a designated union fund that provides 

welfare benefits. 

State temporary disability plans. The states of California, Rhode Island, Hawaii, New 

Jersey, and New York require temporary disability insurance (TDI) coverage. These 

plans provide temporary income for a limited period to workers who are unable to work 

because of non-work-related accidents or illnesses. California and Rhode Island 

mandated plans do not require employer contributions; Hawaii, New Jersey, and New 

York require employer contributions to disability plans. 
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Long-term disability 

Long-term disability plans provide a monthly benefit to eligible employees who, because 

of a non-work-related illness or injury, are unable to work for an extended length of time. 

Benefits usually are paid as a fixed percentage of predisability earnings, up to a set limit. 

Most participants have a waiting period of 3 to 6 months, or until sick leave or short-term 

disability benefits end, before long-term disability benefits begin. Long-term disability 

benefits generally continue until retirement or a specified age, or for a period that varies 

with the employee’s age at the time of the disability. 
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Other Benefits

Quality-of-life benefits 

Flexible work schedule. This benefit permits employees to set their own schedules within 

a general set of parameters. Employees generally are required to work a minimum 

number of core hours each day. 

Childcare assistance. This benefit provides either full or partial reimbursement for the 

cost of caring for an employee's children in a nursery or daycare center or by a babysitter. 

Care can be provided in facilities either on or off the employer's premises. 

Flexible workplace. This benefit permits workers to work an agreed-upon portion of their 

work schedule at home or at some other approved location, such as a regional work 

center. Such arrangements are especially compatible with work requiring the use of 

computers linking the home or work center to the central office.

Wellness programs. These programs provide a structured plan, independent from health 

insurance, that offers employees two or more of the following benefits: smoking 

cessation programs, exercise or physical fitness programs, weight control programs, 

nutrition education, hypertension tests, periodic physical examinations, stress 

management programs, back-care courses, and lifestyle assessment tests. 

Employee assistance programs (EAPs). These programs provide structured plans, closely 

related to employee wellness programs, that typically deal with more serious personal 

problems than the essentially medical problems covered by wellness programs. EAPs can 

offer referral services, or referral services in combination with counseling services. Both 

the referral services and the counseling services may be supplied by company personnel, 

by an outside organization under contract, or by a combination of both. 

Financial benefits 

Health savings accounts (HSAs). These financial tools are employee-owned portable 

accounts that use tax-exempt contributions to pay for medical expenses. HSAs are used in 

combination with employer-provided high-deductible health plans (HDHPs) with annual 

maximum limits on out-of-pocket and deductible expenses. Other features include the 

rollover of unused contributions from year to year and tax-free interest.

Flexible benefit plans. Also known as cafeteria benefit plans, flexible benefit plans are 

operated under provisions of Section 125 of the Internal Revenue Code. Section 125 

allows employees to make a choice between cash (taxable) and noncash (nontaxable) 

benefits. The code permits companies providing flexible benefit plans to offer employees 

the following options: accident and health insurance plans, including healthcare spending 

accounts; group term life insurance and dependent coverage; disability benefits and 

accidental death and dismemberment plans; employee contributions to 401(k) plans or 

other thrift or savings plans (either pretax or after tax); dependent care assistance plans, 

including spending accounts; vacation days; and group legal services. Flexible benefit 
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plans may be funded solely by the employer or through joint employer-employee 

contributions. Employers usually grant each employee credits to purchase benefits 

covered by the plan. Many plans include a core group of benefits (for example, life 

insurance coverage of $25,000) and allow employees to purchase additional levels of the 

core benefit as well as benefits not included in the core group. An example is the 

employer’s offering an additional $20,000 in life insurance coverage. 

Healthcare reimbursement accounts. Also known as flexible spending accounts, 

healthcare reimbursement accounts can be part of a flexible benefit plan or stand alone. 

Employees participating in these accounts allocate a declared pretax amount, up to a set 

limit, for out-of-pocket healthcare expenses such as deductibles, copayments, 

coinsurance, and other qualified healthcare expenses not covered by their health 

insurance. Any money not used by the end of the plan year is forfeited. 

Dependent care reimbursement accounts. Also known as flexible spending accounts, 

dependent care reimbursement accounts can be part of a flexible benefit plan or stand 

alone. Employees participating in these accounts allocate a declared pretax amount, up to 

a set limit, for out-of-pocket qualified expenses, including childcare, elder care, or 

services to a disabled dependent. Any money not used by the end of the plan year is 

forfeited. 

Pretax savings with no employer contributions. These are cash or deferred arrangements 

used to fund savings and retirement plans authorized by section 401(k), 403(b), or 457 of 

the Internal Revenue Code. The employees’ contributions reduce their salaries for tax 

purposes. 

Payroll deduction IRA. This plan is established by the employer but with no employer 

contributions. The employee makes contributions to either a traditional IRA or Roth IRA 

plan with a financial institution, and authorizes payroll deductions by the employer. 

Financial planning. This is a service to help employees make decisions related to 

savings, borrowing, investing, home purchases, education expenses, and retirement 

income. 

Stock options

Stock option plans allow establishment employees the right to buy company stock at a 

fixed price by a fixed time. Stock options are available only to employees of for-profit 

private industry establishments. 

Performance. This type of stock option is offered to employees only if certain company 

performance criteria, such as earnings-per-share targets, are met. 

Signing. This type of stock option is offered to employees to join a firm by giving them a 

chance to make a significant capital gain. 
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Health-related benefits 

Long-term care insurance. This type of health plan provides long-term (more than 1 year) 

custodial care, home care, and nursing home care. Coverage may be extended to active 

employees, retirees, parents of active employees, and dependents of active employees and 

retirees. Premiums are generally, though not necessarily, paid by employees. These plans 

are separate from coverage for extended care facilities and home healthcare found in 

health insurance plans that provide posthospitalization benefits for a limited period. 

Retiree healthcare. This type of health plan provides coverage to a retiree beyond what is 

mandated by COBRA or other health continuation laws. Coverage must include 

provisions typically found in a medical plan, such as hospitalization and doctor’s care. 

The retiree plan does not have to be the same plan provided to active employees, nor does 

it matter whether the retiree pays the entire premium. Plans that cover only dental, vision, 

or prescription drugs are not included. 

Nonproduction bonuses 

Nonproduction bonuses are payments to employees that are not directly related by any 

formula to individual employee productivity. 

Attendance bonus. This is a payment to employees who achieve a specified attendance 

goal. For example, all employees who take 2 or fewer days of sick leave within a given 

year are paid an attendance bonus of $500. 

Cash profit sharing. This is a payment to employees in recognition of their contribution 

to company profitability. Payments may vary with length of service. 

Employee recognition bonus. This is a payment to employees that rewards performance 

or significant accomplishments. An example is an employee-of-the-month award. 

End-of-year bonus. This is a payment to employees near the end of the year as a sign of 

appreciation for working hard throughout the year. 

Holiday bonus. This payment to employees is made on a holiday and as a sign of 

appreciation. The payment is usually a token gesture, with all employees receiving the 

same amount. 

Payment in lieu of benefits. This is a payment to employees in lieu of the employer’s 

providing a benefit, such as healthcare. In some cases, the employer offers cash to 

employees who waive employer-sponsored benefits, such as sick leave. When this 

occurs, the employer passes the savings from the waived benefit to the employee. 

Safety bonus. This is a payment to employees for maintaining a high level of safety in the 

workplace. For example, a department may receive a bonus for experiencing no injury 

days during a quarter. 
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Suggestion bonus. This is a payment to employees whose innovative suggestions to 

create better work processes and improve efficiency in the establishment have been 

considered or implemented. 

Hiring bonus. This payment is made by an employer to induce an individual to accept 

employment with the company. 

Longevity bonus. This is a bonus or a lump-sum payment of some kind (for example, a 

government savings bond or an add-on to severance pay) paid to employees on the basis 

of their length of service. 

Referral bonus. This payment is given to employees for recommending a qualified 

applicant who is hired by the establishment. 

Retention bonus. This payment is made by an employer to an incumbent to retain that 

individual within the establishment. 

Union-related bonus. This is a payment to employees covered by a collective bargaining 

agreement upon signing a new labor contract or in lieu of a general wage increase. 

Management incentive bonus. This is a payment to managers or supervisors, rewarding 

them for their ability to direct the performance of a group of employees in their charge in 

the attainment of a specified goal. For example, a manager may receive a bonus for 

having the highest sales. 

Other bonus. This is a payment to employees that is not applicable to other listed 

nonproduction bonus categories. Examples are birthday bonuses and retirement bonuses. 

Unmarried domestic partner benefits 

Some employers extend benefits to domestic partners, defined as two unrelated, 

unmarried adults who share the same household. In order to qualify for benefits, an 

employee may need to demonstrate that a partner meets certain criteria set by the 

employer. Employers may set their own criteria for what constitutes an eligible domestic 

partner. Benefits offered to domestic partners include healthcare plans and survivor 

benefits under defined benefit retirement plans.