Employee Benefits in SMEs versus corporate markets

01 April 2015 Adrian Hofman, Health & Accident Underwriting Managers

Many Small and Medium-sized Enterprises (SMEs) in South Africa often have less capital to sustain themselves when compared to corporate companies. However, by design there are more entrepreneurs running many SMEs than those working in corporations – yet the majority of SMEs do not offer Employee Benefits to staff.

Employee Benefits generally include Medical Scheme Cover, Pension/Provident Fund Cover and Group Risk insurance.

What is the difference?

Looking at Pension/Provident funds from an insurer’s prospective, there is a cost of administering a scheme, and for many small schemes this minimum cost is just too high given the general total contributions. In addition, the insurer will probably want to fully underwrite all members as there are generally too few employees to warrant the insurer offering acceptable “free cover limits”.

There is a perception from advisers, the public and possibly insurers, that each and every franchise operation is a part of the larger corporate market, when the business franchise is actually a separate legal entity – and therefore will be burdened as far as administration costs, procedures and medical underwriting are concerned.

The larger corporate markets do not generally experience the above ‘barriers’ such as unusually high administration fees and full underwriting as they often have high numbers of employees.

On the other hand, the monthly costs for various medical schemes, once registered with the Council, are fixed for both individuals and corporate clients, so in this regard there are no additional costs for employees of SMEs, as opposed to those of large corporate markets.

Altering perceptions

In addition the administration burden on SMEs is far less with regards to medical schemes as opposed to Pension/Provident funds. It is for this reason that SMEs prefer to offer medical scheme cover to employees rather than Pension/Provident funds.

Although some medical schemes are priced according to salary levels, most offer a fixed monthly cost per member. However, because SMEs are not deemed large enough to qualify for ‘group scheme status’ (35 or more employees) full underwriting applies and in many cases SMEs may then elect to have employees ‘pay their own way’ with regards to medical scheme contributions, thereby doing away with the perceived “EB” schemes.

Does one size fit all?

In the employment arena most employee packages are based on a ‘cost to company’ basis, however, in the larger corporate markets, the employers will assist in also contributing towards Pension/Provident funds.

Contributions to Pension/Provident funds are generally linked to a percentage of a salary, and generally each fund is risk rated annually. Added to this are employees who are resigning, and as such, initiating their withdrawals or transfer of funds resulting in high administration costs. For example, the owner of a ‘Wimpy’ will not only be the manager, but will also be the administrator of a monthly Pension/Provident Fund.

These administration issues have led to the growth of individual Retirement Annuities, which, although have their own issues, are easily introduced and administered by SMEs and are extremely flexible in cases of employees resigning from SMEs.

Medical scheme cover is fairly easily introduced and administered by both large corporates, as well as SMEs. This is due to the fixed monthly costs associated with medical scheme funds, as well as the fixed monthly tax deductions associated with the monthly contributions. Medical schemes may be taken out by individuals and paid via monthly debit orders, but for Pension/Provident funds this transaction is impossible.

In the event that the proposed mandatory Government Retirement funding scheme is implemented, many SMEs will experience large increases in administration processes, with effects on efficiencies and profitability.

Quick Polls


In its current format, what will the future of medical schemes be in an industry run by the NHI?


I just can’t see it (NHI) happening
There is a real risk of our already fragile healthcare system being placed under even further pressure leading to a total collapse
Medical schemes will struggle to remain in existence if NHI does happen; there isn’t enough money in the system
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