PROVIDING EMPLOYEE BENEFITS TO STAFF
Many South Africans are fortunate enough to work for companies that offer additional employee benefits to their staff members. Some of these are legislated such as UIF, SDL and COIDA contributions however a large number of companies go further by providing employee benefit structures to assist their staff towards providing for retirement and covering any risks that may arise from events that impact their ability to provide for themselves and or their families. In this month’s Financial View, we look at why the provision of Employee Benefits is almost a no-brainer.
There is a trend for employers to take a more holistic view on their employees’ wellbeing. We are not just talking about bean bags and pause areas at Google’s offices or beer and chill areas that was one of the perks that WeWork offered. The holistic view tends to encompass the physical wellbeing, the mental wellbeing and the financial wellbeing of the employee. The provision of employee benefits can be directly linked to the financial wellbeing of the employee but indirectly also tied to their mental wellbeing. Knowing that you and your family are being looked after induces a sense of security and sense of being valued.
The Problem in South Africa
Employee benefits are those perks that are provided to the employee in addition to their basic salary. In many instances it is the employer taking a paternalistic approach to their employee’s financial wellbeing. Despite an abundance of financial products available to South Africans very few people actually manage to get the right structures in place themselves. We have written extensively in the past on human nature and one of the things that is well documented is that money does indeed burn holes in pockets – so despite the best intentions, individuals actually save very little at the end of each month, no matter how much they earn. This fact is backed up in numbers which detail how few pension accounts there are in South Africa. In a report, Fedusa estimated that just one third of South African adults have any form of retirement savings. No wonder the country pays out so much in government grants.
Many of us have heard stories of a deceased employee’s family approaching their employer to find out what has been provided for them now that the breadwinner has passed on. That can be a very difficult discussion to have and fortunately avoided by employers that have some type of benefits in place. With employee benefits in place one can feel comfortable that after the loss of a loved one, the family will be looked after.
Standing out amongst the crowd
The vast majority of large and reputable employers tend to have employee benefit structures in place. This is often because they acknowledge that every successful business requires skilled employees which need to be taken care of. As the required skills become more specialised one finds fewer qualified individuals. This means that companies often compete against each other to hire scarce resources. Being able to offer additional benefits or to offer something more to the individual can often make the difference in making their decision.
A book worth reading dealing with this aspect is the “The Manager’s Guide to Rewards” which indicates that it will tell you what you need to know to get the best for and from your employees. The three authors cut to the heart of the matter when it comes to HR when they write, “Business strategies, products and services can often be replicated, but it is nearly impossible to replicate a company’s talent pool, a fundamental aspect whereby a business distinguishes itself from its competitors.”
How many companies have lost a valued staff member that they just cannot replace?
An often-cited reason why some companies don’t offer employee benefits is that of cost and that the employee can do it for themselves. But in reality, group employee benefits actually offer reduced cost that aren’t available to the man on the street.
The Benefit of Bulk Pricing
Anyone that has ventured into a Makro certainly knows that buying in bulk is the cheaper way of shopping. Most of us cannot however buy bulk because of transport and storage issues – who wants a year’s supply of coffee for example at one time? Fortunately buying in bulk is very possible in financial products now offered in electronic format with electronic records. Employer provided products such as a Pension or Provident funds, and any risk benefit cover, tends to be cheaper than the cost offered by their direct retail counterparts. The total costs are spread across a number of members with different ages making the total cost more effective while reducing the risk profile of the group.
The Pooling of Risk
Employee benefits work on the concept of the pooling of risk. The pricing is worked out on the average demographics of the funds which means that the young members subsidise the pricing of the older members, the healthy subsidise for the unhealthy and so on. In an average company management tends to be older than the people working for them. By implementing employee benefits the management benefit by reducing their own costs compared to exorbitant pricing that may be available on policies taken on an individual basis.
Conclusion
It is no secret that South Africa has a retirement savings problem however it is not doom and gloom for everyone. We have provided financial advice to many individuals as they approach retirement, and it is clear how those that have received assistance from their companies are often better set for retirement. Surprising to say but those that are often most comfortable are those that have worked for the government as policemen, teachers and nurses. These members often joined their profession at a young age and have been members and contributed to the same fund for a number of years. The GEPF (Government Employees Pension Fund) provides them with a lump sum at retirement, a monthly pension and covers their medical expenses and allows them to live comfortably in retirement. Retirement should be very a pleasant experience without money worries. Gives one the time to do what you enjoy doing or couldn’t do previously. The companies that take a holistic view of their employee’s wellbeing, protect them and implement the right savings vehicle that is well priced will be doing just that for their employees.
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