What are employee benefits?
Employee benefits let staff build retirement savings and protect their families through their work, without each person having to arrange everything alone. They are the retirement savings and insurance that an employer arranges for its staff, and they usually include:
- A retirement fund: a pension or provident fund. This can be the company’s own fund, or a section of an umbrella fund shared by many employers.
- Group risk cover: life cover, disability or income protection, severe illness and funeral cover.
- Medical aid: access to a medical scheme, sometimes with a subsidy from the employer.
How does the retirement fund work?
The employer and employees usually each contribute a percentage of salary every month. The employer’s contributions are a taxable fringe benefit (they are taxed as part of the employee’s pay), but they count as the employee’s own contributions for the retirement tax deduction.
The two-pot system applies to most funds. One-third of contributions goes to each member’s savings pot, which they can withdraw from once a tax year. Two-thirds goes to the retirement pot, which stays invested until retirement, even if the member resigns.
If a member dies, the fund’s trustees decide how to share the death benefit among the member’s dependants and nominees. It does not form part of the member’s estate.
What must employers do?
By law, employers must pay contributions over to the fund within seven days after the end of each month, and send the fund the required information about each member. Late payment attracts interest, and not paying over contributions is an offence.
How is group cover taxed?
When the employer pays for group cover outside the retirement fund, the premiums are a taxable fringe benefit for each employee. The benefits are then paid out tax-free.
Things to know
- Umbrella funds often suit smaller employers, because the employer does not have to run its own fund or board of trustees.
- Costs include administration, investment management, advice and insurance premiums. Compare them in rand and as a percentage.
- Communication matters. Staff need to understand their benefits, especially what happens to their savings if they resign.
- Leaving work. Group cover usually stops when someone leaves, although some policies let them continue cover on their own.
Who it suits
Employee benefits suit employers of any size that want to help their staff save for retirement and look after their families. They can be set up for small teams, not only for large companies.