Small and medium enterprises (SMEs) are the lifeblood of the South African economy, accounting for 20% of the country's GDP and employing about 47% of South Africa’s workforce. As SMEs employ such a sizeable portion of the workforce, it is essential that they offer their staff an opportunity for long-term financial security for themselves and their families, through the provision of employee benefit solutions.
Not only will this go a long way to ensuring a meaningful number of South Africans have access to financial security, but it also provides the businesses with a significant competitive advantage. Attracting and retaining quality employees is a major economic motivation for any entrepreneur. Most employees want a competitive and comprehensive range of employee benefits to ensure they retire with adequate savings and are able to look after their families should they become disabled, suffer from a critical illness, or die. Ensuring your employees have access to an appropriate healthcare solution is another important component of caring for your staff.
The National Small Business Chamber (NSBC) Summer 2020/2021 survey of its members found that while the majority of the respondents were aware of their responsibility to provide employee benefits to their staff, only 28% had an employee benefits solution in place.
The main reason respondents gave for not having a solution was their perception that they were too small to offer such benefits. Respondents further indicated their staff were reluctant to allocate a portion of their salaries to employee benefits and preferred to maximise their take-home pay.
The ideal employee benefit solution?
Given the opportunity to implement an employee benefit solution, respondents said their first choice would be a medical aid followed by retirement savings. They ranked the following factors as the most important in their considerations of an employee benefit solution:
- Simple and easily understood
- Cost effective
- Buy in from their staff
- A single service provider
Employee benefits for small businesses
The survey respondents were concerned that their businesses were too small to offer employee benefit solutions and that employee benefits are too complex to understand. But this does not have to be the case. A wide variety of solutions are available that cater to smaller businesses. Many of them offer economies of scale and entry level products that would not be available to employees in their individual capacities.
Although more established corporates are believed to provide better benefits, higher salaries and greater career growth opportunities, SMEs can change this general perception as they can access employee benefits solutions tailored to suit their means and the needs of their staff.
A holistic employee benefit programme provides retirement, risk, and healthcare benefits that many employees would not have in their personal capacity. The range of employee benefit options available to small business owners are outlined below.
1. Primary care
Primary care is designed to cover the cost of primary healthcare. Employees have access to GP consultations, basic dentistry, basic optometry and chronic medication through designated service providers or a network of providers. As primary care is not a medical aid it does not cover planned procedures at private hospitals, but you can choose to add on products that cover emergency stabilisation (allowing members to be stabilised in a private hospital after an emergency or accident). Primary care benefits and the add on products are designed to provide basic healthcare cover, so they are generally more cost effective.
2. Medical aid
Medical aid provides financial cover for medical expenses to members who pay a monthly contribution. Contributions are paid to medical aid schemes and are pooled and safeguarded. Medical aid covers members' healthcare costs such as hospitalisation, treatments and medicine. Costs are covered according to medical scheme’s rules and the type of medical aid. The rules ensure that members are cared for fairly.
3. Group cover
Insurance premiums are based on potential risks that you are insuring against. When a group of people are covered under one policy, the risk is spread, allowing for lower premiums. A number of service providers offer SME business owners affordable life, disability and funeral cover for their staff. Insurtech company, Simply, for example, focuses on providing life insurance products for market niches that are underserviced by traditional insurers. Group cover benefits may be taken together as a packaged solution or separately, depending on the business owner's preference.
4. Entry level umbrella fund products
An umbrella fund is a retirement product that allows multiple employers to use a single retirement fund structure to help their staff save for retirement. The fund is managed by a professional board of trustees. Umbrella funds are about economies of scale — the more money you have invested in the funds, the better able you are to spread the costs of managing the fund among a larger number of members.
In recent years umbrella funds have evolved to offer pre-packaged entry level products, with a five to ten member minimum requirement, that cater for the SME market. The products offer retirement savings and basic risk cover that will pay benefits to staff and their families in the event of death, disability and dread disease. As pre-packaged products, they are designed to be simple and cost effective while offering some flexibility in tailor making solutions. Large established umbrella funds administered by service providers like Alexander Forbes, Liberty, Old Mutual, Sanlam and Momentum offer these entry level pre-packaged umbrella fund products.
Value of an employee benefit consultant
It can be daunting to put together an employee benefit solution as there are numerous aspects to evaluate. If you are a business owner, you probably don’t have time to talk to a number of different service providers. It can be helpful to seek expert advice as SMEs are unique in their product and service offering, size and employee benefit requirements. Each business will require a tailor-made employee benefits solution to suit their staff and organisation.
Having the right employee benefits in place is essential to the success of your business. An employee benefit consultant can assist SME business owners to do better business and achieve superior outcomes through happy, financially empowered employees.
COVID-19 Small Business National Survey (2021). NSB.Africa