Mapping sustainability for blue collar offerings
The sustainability of Small and Medium Enterprises (SMEs) is imperative in reviving the South African economy, and all efforts need to be made to ensure SMEs succeed.
The reason is simple, according to statistics by the Association for Savings and Investment South Africa (ASISA) SMEs employ 60% of the South African labour force and contribute 52% to the national Gross Domestic Product.
Fighting for skills
One of the major challenges facing SMEs is that competition for skills is fierce, making it difficult for them to compete with larger corporates. This is illustrated by the fact that the proportion of companies offering employee benefits increases with the size of the company.
Employee benefits are an important factor for any prospective employee and needs to be taken into account by employers. It is therefore important for SMEs to offer benefits such as retirement, risk and medical benefits of some form.
Protecting assets
Over and above attracting skills, offering employee benefits ensures that companies look after their most valuable assets, their employees. While the majority of SMEs understand and agree on the importance of providing benefits to employees, they also admit that it is not an immediate priority given other more urgent business priorities.
Number disparity
In order to understand the number of SMEs without employee retirement solutions, one can consider the number of participants in umbrella funds against the number of SMEs in the country.
The five main umbrella funds, which form the bulk of the umbrella market, offer solutions to less than 25 000 participants while research by ABSA found that there were around 750 000 SMEs in South Africa in the middle of 2015.
Navigating roadblocks
There are a number of reasons why SMEs find it challenging to offer these solutions; these include costs, administration, as well as high staff turnovers.
This should, however, not prevent them from making a start. The administrative burden of retirement solutions has also reduced with the use of technology by service providers. This trend is expected to continue and will mitigate the cost concern for SMEs over time.
Furthermore, the industry has managed to reduce product costs over the past few years; this has resulted in cost benefits which have been passed on to employers. Many employers choose to change employment contracts to include employee benefits when annual increases are done. This way a portion of the salary increase is used to absorb the additional cost of the benefits.
Start with the basics
Some employers choose to start with basic risk benefits and the minimum retirement contributions increasing these over time. A viable solution would be for employers to start by offering a retirement solution and add risk or medical benefits at a later stage as employees value retirement and medical benefits ahead of risk benefits.
The tough economic conditions facing companies all over the world have seen small companies going through financial difficulties, resulting in some experiencing problems with paying employee contributions. When this happens, the majority of umbrella funds administrators have made it possible for companies to make suitable payment arrangements, within a specified period of time.
A major booster
Government has identified SMEs as a major component in boosting economic growth. It therefore follows that a conducive environment needs to be created for the small business sector to thrive.
Currently, small businesses are grappling with issues that directly affect the survival of their businesses, making the provision of employee benefits the least of their concerns. However, there are products available that, upon sound financial advice, can be offered at nominal costs, making small companies attractive employers.
It is therefore worthwhile for small companies to consider employee benefits as one of the ways to attract and retain staff, given that for big companies, staff attraction and retention form part of the employee value proposition.
