Empowering your workforce: employee benefits for small businesses

8 Dec 2024

There are many options for setting up a retirement fund for your staff. This can range from a small stand-alone scheme that helps your employees to save for retirement to one that includes many of the risk benefits.

Question

I have a business with 20 employees. I would like to set up some kind of retirement fund for them. Is this financially feasible for a company our size? And if so, what would a typical arrangement look like?

Answer

Putting a retirement fund in place for your employees can make a massive difference to their lives.

The typical arrangement used for small businesses is umbrella funds. They are usually run by large retirement administrators and smaller companies like yours would form part of the bigger fund.

The costs of providing for retirement and risk cover are usually lower in an umbrella fund than through an individual life arrangement. I find that a group structure works really well for companies that have at least five employees. For smaller enterprises, an individual life arrangement may be more appropriate.

There are a number of benefits that you can choose for your employees:

Retirement savings

The employer would typically contribute a percentage of each employee’s salary to the retirement fund. A popular contribution rate is 7.5% of an employee’s salary.

A benefit here is that the contributions are usually fully tax deductible up to 27.5% of the employee’s taxable income.

Funeral cover

This is a popular benefit among employees. The plan usually pays out a lump sum on the death of an employee or member of their immediate family.

The premiums are low and no underwriting is required.

Life cover

Here the scheme pays out a multiple of the employee’s salary if they die. The typical cover level is three times the employee’s annual salary.

A nice feature of group risk schemes is something called a free cover limit. Depending on the size of the group, cover will be granted up to a certain limit, with no medical underwriting required.

This is a fantastic benefit for employees who may have medical conditions that would prevent them from getting life insurance on an individual basis.

Disability and sickness cover

Lump sum disability cover is usually structured to pay out a multiple such as three times your salary if you become disabled and unable to work.

You need to be careful with this type of benefit, because the definition of what constitutes a disability varies greatly from company to company.

It is always worthwhile speaking to a financial adviser who has experience with these types of employee benefits and can guide you to choose the product with the right definition terms.

Income protector

This benefit will pay someone a percentage of their salary (usually 75%) if they are unable to work for an extended period because of illness.

Critical illness cover

If someone is diagnosed with a critical illness, this benefit will pay out a lump sum of money.

This is an extremely useful benefit for staff, as they often suffer real financial hardship if they get a critical illness, even if they have an excellent medical aid.

As you can see, there are many options open to you when it comes to setting up a retirement fund for your staff. This can range from a small stand-alone scheme that helps your employees to save for retirement to one that includes many of the risk benefits described above.

A good employee benefit structure can result in your company making a meaningful difference in the lives of your employees and their families. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to [email protected].

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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