By Shreekanth Sing, Technical Legal Adviser, PSG Wealth
Offering an employee benefits (EB) package benefits the employer as well as the employee. For the employee it typically means that they will be saving regularly for retirement and that they will have medical and risk benefits in place. For the employer, employee benefits have been shown to reduce absenteeism, increase productivity and reduce staff attrition. Not to mention that an attractive EB package may be a crucial if you want to attract top talent to your business.
Recent technological and legislative developments mean that EB advisers and product suppliers are increasingly able to provide individual employees with more personalised advice that takes their retirement savings, medical aid and group risk benefits into account. EB advisers and product suppliers are also investing a lot of effort into ensuring members are educated and understand the impact of their decisions.
Components of a typical EB offering
1. Retirement fund (pension, provident fund or group retirement annuity)
Typically, an employer offers a pension, provident or group retirement annuity fund. Contributions are usually made monthly to the employee’s retirement savings, according to a percentage of their annual salary, for example 10%. Contributions must be invested in line with Regulation 28 of the Pension Funds Act and are meant to generate stable growth over the long term, which in turn aims to provide for employees when they reach retirement. Major benefits of these funds include that investment returns within these funds are tax free and contributions to the fund are tax deductible.
2. Group risk benefits
Group risk products are designed to insure employees and protect them and their families in the event of long-term illness or death during their working lifetime.
• Group life benefits
Group life benefits automatically apply to all employees who are eligible to be members of the retirement fund, as it is run on a pooled-risk principle. This means individuals do not need to undergo medical underwriting to be covered up to the predetermined free cover limit. Because of this pooling of risk, group risk benefits are often cheaper than individual life assurance premiums, although it will vary from company to company based on their company’s risk profile. For example, a mining company would be considered higher risk than an architectural firm.
• Income or capital disability
Most companies also include disability benefits as part of their employee benefit offering. These can either be in the form of a lump sum (also known as a capital disability benefit) or an income continuation benefit.
o Lump sum disability benefits pay a lump sum that can, for example, be used to settle debt or make alterations to a home if specialised care is needed.
o Income protection benefits pay a percentage of the employee’s monthly salary (the industry standard is 75%) until the earlier of recovery, death or retirement.
o To qualify for the lump sum disability benefit, the disability must be deemed to be ‘total and permanent’ while in the case of income continuation disability benefits, the employee needs to be unable to pursue their own career (although this definition usually broadens to ‘own or similar’ after a period of two years).
• Critical illness
Critical illness can have long-term consequences for the financial well-being of a family. This benefit covers most severe illnesses and dread diseases like cancer, heart disease and stroke, and is usually expressed as a multiple of salary, as in the case of death benefit cover. The lump sum can help offset any shortfall on your employee’s medical aid, help them access the best medical technology, or be used to offset additional expenses or reduced income because of lifestyle changes.
• Funeral cover
Many employers provide funeral cover in addition to death and disability benefits. This type of cover is usually paid out quickly (within 24 to 48 hours).
3. Medical aid
Access to quality private healthcare can make a major difference to the lives of your employees. Since it helps to eliminate the long waiting times associated with public health facilities, it can also enhance overall productivity. Most employers offer a choice of a few different plans, and selecting the right one is important. Medical aid tax credits (with amounts defined by Government) reduce the normal tax a person pays, thus helping to make medical aid somewhat more affordable.
4. Extra benefits
Employers can choose to add even more options to their offering. These could include:
• Education benefits – Cover to help meet educational and living expenses for children.
• Gap cover – General practitioners, specialists and private doctors often charge higher rates than what the medical aid covers. The costs quickly add up when individuals are hospitalised, and gap cover is designed to help cover any shortfall
• Employee wellness programmes – These programmes typically offer employees support to ensure their physical and psychological well-being and to prevent these issues from affecting their productivity. They aim to help employees manage personal and work-related issues and stress and can include psychological counselling and financial and legal support.
Employee benefits can play an important role in encouraging good financial behaviours and promoting a savings culture and financial inclusivity. They are an investment in your company and employees’ well-being, and should be reviewed in collaboration with EB adviser as part of your annual business plans.