5 tips to streamline your employee benefits for a fighting chance amid COVID-19

09 July 2020 Blessing Utete, Executive Director at Momentum Consultants and Actuaries

According to a notice issued from Stats SA last week, more than 84% of companies have reported lower than normal turnover since March 2020 – and more than a quarter of them have reported laying off staff in the short term to help with cash flow.

In this environment, finding ways to manage expenses in order to stay financially viable, may result in many businesses reviewing their employee benefits offering with the reality of needing to reduce costs to stay in business.

But, before cancelling benefits that could have profound ramifications for not only the lives of employees but also for retention of key staff in the business, reviewing your current offering could be a differentiator in managing to stay afloat. Here is some guidance.

Employers belonging to a regulated compulsory benefit scheme can apply for exemption
If a business operates in a sector regulated by, for example, a bargaining council or other regulatory body, the business could belong to a regulated benefits scheme with a compulsory structure.

Employers should remember that they are not tied to one employee benefits structure for life, and they should continuously assess the cost-effectiveness and appropriateness of the benefits they have for their employees. With the challenges of the pandemic and the economic recession, now is a good time to reconsider the overall cost of their current scheme in consultation with a qualified employee benefits adviser to see if there is a way to improve the cost-efficiency of their employee benefits structure.

The option of moving from a standalone retirement fund to an umbrella fund
Employers on standalone retirement funds could consider moving to an umbrella fund. An umbrella fund has numerous advantages, not least of which increased cost-effectiveness made possible by economies of scale and operational efficiencies. Lower costs mean more money goes straight to members’ retirement savings.

Businesses that have undergone fundamental changes should revise their benefits
The first step in analysing an employer’s needs is to understand the nature of the business’s activities, the makeup and needs of its employees, and how any particular benefit structure design will fit into the business’s employee value proposition. As part of the process, factors that will impact the cost of structures, including any insurance benefits, are considered. These factors could include the following:
• The geographical area of the business – whether the business has a national footprint or is only in a specific province.
• The nature of the industry in which the business operates and the occupations of the employees to be covered (for example, a mix of warehousing and administration office staff).
• Any prevalence of certain diseases, illnesses or disability ‘trends’ where the business operates.
• The age, gender and levels of education of employees.
• The levels of occupation.

If a business has been forced to downscale or close down branches in certain areas during this time, revisiting the above factors is crucial. If the business has had to change its core structure or operating model, a review of the categories of employees in the business and number of employees within categories is essential. This is because different categories of employees = different types of cover = different cost implications.

Finding a sensible balance between benefit levels and cost
More now than ever before, businesses have to balance the cost of benefits with benefit options that keep employees motivated and engaged in an employment landscape that has changed.

Retirement savings contributions can be adjusted to an affordable level and can always be adjusted back at a later stage to ensure that employees’ retirement savings stay on track. Employers should consult with their employee benefits advisers to find out what retirement fund relief options are available to them. Their retirement fund may offer an option to place either the full retirement fund contribution, or just the employer portion of the contribution on hold for a limited period. They may also have the option to reduce their employees’ pensionable salaries, which in turn reduces the contribution levels. The saving from the reduced retirement contributions may help them cover the cost of their employees’ insurance benefits.

It is advisable to keep employees’ insurance cover in place, even if the benefits or levels of cover are adjusted. Businesses should not let their employees be without insurance cover at this time, as employer-sponsored benefits are often the only form of cover many employees have. It’s in times like these that employees need their group insurance cover more than ever. If cash flow pressures are severe, an employer should consider suspending retirement funding contributions for a couple of months rather than stopping their group insurance premiums.

As businesses resume operations, it is important that employers consult with their financial advisers to look at ways for employees to make up any retirement savings contribution reductions and draw up a plan to contribute at normal levels again as soon as possible.

Low-cost healthcare cover
Employers may consider low-cost benefit options (LCBOs) to give their employees access to healthcare. In terms of the Demarcation Regulations introduced in 2017, LCBOS are currently exempted from the Medical Schemes Act, but are permissible under insurance laws. They typically offer cover for general practitioner services, acute and chronic medication, as well as basic dentistry, optometry, radiology and pathology.

While offering valuable employee benefits to attract and retain top talent and to keep employees engaged might seem like a challenge for businesses right now, it remains true that employees are most productive when they feel financially secure. Engaged, productive employees can contribute greatly to a business’s survival in this time.

This is a critical time to lean on unbiased professional financial advice to help you analyse the needs of your business and employees and help you balance the cost of benefits while offering the choices that employees want and need in a changing world.

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