In an ideal world, loyal employees who work in your home or help you to run a small business would be rewarded with subsidised benefits similar to those that higher-earning salaried employees enjoy. But there are challenges to providing these benefits, not least of which is the ability of employers and employees to afford them. A lack of suitable products and the fact that these employees typically earn below the tax threshold and therefore do not benefit from tax deductions for retirement savings, for example, are also hurdles. Personal Finance has the following advice on how to provide domestic and micro-business employees with benefits. If you have more ideas, share them with us on Facebook (www.facebook.com/persfinza) or Twitter @persfinza
Help them to get out of debt
An overindebted employee is a demotivated and unproductive employee. It stands to reason: if you can’t enjoy the fruits of your labour, because all or most of your pay is going to service your debts, you won’t feel inspired to do your job.
In research by PricewaterhouseCoopers last year, nearly half of the employees surveyed described their financial situation as stressful, and almost one in five said their personal finances were a distraction at work. About 40 percent of employees said they spent more than three hours a week or more at work dealing with their personal financial issues.
Debt-stressed employees are also more prone to taking time off work and succumbing to illness, including psychological problems.
“Debt-related stress can lead to a nervous breakdown, and in recent years, there has been an increase in the number of patients suffering from this specific type of stress,” debt counsellor Philip Nortje says.
Nortje, who has worked as a volunteer at the Neuro Clinic in George since 2012, says debt-stressed patients tend to feel overwhelmed by their debts.
“They see their money problems as an insurmountable mountain. I try to help them gain perspective. We look at their finances holistically. Sometimes, they are victims of reckless lending, and debt counselling can work for them. And sometimes they just need someone to help them problem-solve: to break down the problem so they can take baby steps in the right direction.”
Nortje says one of the aims of the National Credit Act (NCA) is to promote access to credit, which is to be welcomed. However, there hasn’t been a concurrent effort to make consumers financially literate or to educate them about the responsible use of credit.
He says many over-indebted consumers have a mindset that is rooted in scarcity, and because their parents couldn’t give them what they needed or wanted, they set out to satisfy their own and/or their children’s needs and “greeds” – at any cost.
“Debt is not the problem, financial illiteracy is,” Nortje says. If you can help an employee to acquire this essential life skill, you will be serving him or her well.
So, what can you do to help your employee to become financially literate and debt-free. Personal Finance suggests the following:
1. Offer your employee a “hand up, not a hand out”. As an employer with the best intentions, you have to resist the paternalistic response, which is to step in and “take charge”. Offering an employee the option to take a course in financial literacy is a more helpful response.
Not-for-profit organisations, such as Learn to Earn (LtE), offer a life-skills course that includes Old Mutual’s On the Money financial skills programme. Although this course is typically offered to unemployed people, Aleks Jablonska, the head of resource and partnership development at LtE, says the organisation also customises courses, and these are priced according to the course content/duration, the number of participants, and so on. Other modules in the course include self esteem, goal-setting, communication, writing a CV and job preparation, work ethics, conflict resolution, domestic violence and HIV/Aids.
For more information,go to www.learntoearn.org.za or email [email protected]
If you’re certain that all your employee needs is a financial literacy course, Old Mutual’s On the Money course is available free in all 11 official languages, as downloadable booklets. Old Mutual also offers free one-day workshops to employers seeking to serve their staff in this way. The material has been vetted by the Financial Services Board and does not promote any products.
For more information, go to www.omonthemoney.co.za or email [email protected]
2. Help your employee to check his or her credit report. In terms of the National Credit Act (NCA), every consumer is entitled to a free credit report every year from each of the four major credit bureaus (Compuscan, Experian, TransUnion and XDS). This means you can check your credit report for free four times a year.
Checking your credit report is a cinch if you have access to the internet. You enter your personal details on the bureau’s website and then verify your identity, which may or may not entail uploading a copy of the first page of your identity book and proof of address. Last, you verify an existing account and then wait for your report to be emailed to you.
Everyone should check their credit reports to ensure that the information supplied by credit providers to the bureaus is accurate. A credit report will show the debts of registered credit providers only. So if your employee has obtained credit from a loan shark, or “mashonisa”, this will not be reflected on his or her credit report.
A credit report is a good indicator of a person’s exposure to credit, and also shows how well or badly the consumer is managing debt. The key message to any consumer is: if you manage credit well, you enjoy more favourable interest rates when you borrow. The flip side is also true: poor management of credit means you’ll pay more or the maximum interest that you can be charged.
3. Look for reckless credit. Credit is deemed reckless if the consumer couldn’t afford the credit when it was granted, or if the credit provider failed to carry out a proper affordability assessment.
When taking on a new client, debt counsellors should check for reckless lending. If a debt counsellor finds that a consumer has been granted credit recklessly, he or she must take your case to court or the National Consumer Tribunal (NCT). The debt counsellor must also report the lender to the National Credit Regulator (NCR). A magistrate or the tribunal can set aside the credit agreement if it is found to be reckless.
If you suggest to your employee that he or she considers debt counselling, make sure you inform him or her that it is not free and it will mean that he or she won’t be eligible for more credit (except a debt consolidation loan) until he or she is debt-free, which can take years.
Curbing reckless lending will have a positive impact on employers, Shelley van der Westhuizen, the head of financial wellness and client engagement at MMI, says.
Van der Westhuizen’s comments follow an announcement by the Department of Trade and Industry that it plans to empower the NCR to impose fines on credit providers that engage in reckless lending. Currently, only the NCT is empowered to fine reckless lenders, and it has a substantial backlog of unheard cases.
4. Discourage the use of microloans and mashonisas. Microloans are small unsecured loans with very high interest rates. The NCA defines a microloan as a loan of up to R8 000 and payable over six months.
Until May, you could be charged interest of up to five percent a month on these loans, which are often treated like a revolving credit facility , resulting in consumers paying interest of 60 percent a year. The maximum rate that can be charged on these loans has been reduced to five percent a month for the first loan and three percent a month for subsequent loans taken in the same calendar year. However, this relief applies to each credit provider, not to the individual consumer, which means that a consumer could still end up paying interest of 60 percent a year if he or she has microloans with more than one provider.
If your employee has no option but to use a microloan, strongly discourage him or her from getting one from a mashonisa, because they typically charge extortionate rates and insist on keeping the consumer’s identity book or bank cards as a form of collateral.
5. Beware of debt consolidation. Be very wary of encouraging an employee with multiple debts to go the way of debt consolidation. And be even more wary of offering a debt consolidation loan out of your pocket, Nortje advises.
It might seem a great idea – one loan to settle all loans; one service fee rather than several; and a more favourable interest rate – but these loans are for disciplined consumers only. Not only is there a risk of the consumer not using the consolidation loan for the intended purpose, there’s also the risk that he or she might fall for offers of more credit before paying off the consolidation loan.
Help them to find a low-cost bank account
You can really help your domestic or micro-enterprise employees by insisting that they be paid via a bank account and offering to help them find a low-cost account that suits their needs.
Each of the traditional “big-four” banks has a low-fee account. The most appropriate one will depend on the number and type of transactions your employee typically performs each month. Does he or she need debit orders, to buy airtime, and how many withdrawals does he or she make a month?
* Although Capitec’s Global One account requires a minimum balance of R25 and has a monthly subscription fee of R5.25, you can earn interest on the balance in your account. You can choose from four savings options. On the flexible option, account-holders earn interest from 5.35 percent a year on daily balances.
Cash withdrawals at tillpoints at Pick n Pay, Shoprite, Checkers and Boxer cost R1.30, while withdrawals from Capitec ATMs cost R5.50. It is free to deposit your salary into your account.
There is no monthly fee for cellphone banking or using the app, and there is no fee for buying airtime, data bundles and electricity, except if you use another bank’s ATM. Payments to other accounts cost up to R4.
* The First National Bank (FNB) Easy Account costs R4.95 a month for pay-as-you-use and R49 a month for the bundled option.
On the former, you pay R3.50 for payments and scheduled payments and external debit orders, and prepaid airtime purchases cost R0.50 per R5. Electronic transfers are free, while payments and scheduled payments are R3.50.
For the bundle, you get 10 free electronic transactions, four free FNB ATM withdrawals, and free deposits at an FNB ATM up to R4 000 a month. External debit orders cost R7.50. Sending an eWallet voucher via your cellphone to anyone in South Africa to draw out at an ATM costs R9.95, while it costs R20 or more to send cash to Zimbabwe or Mozambique.
You can earn monthly coupons on your FNB banking app for discounts on products from Checkers and Shoprite.
There is a free linked savings account that earns interest. You have the option to “bank your change”, which means that FNB rounds up your card purchase value and transfers the difference between your purchase amount and that amount into your linked savings account.
* The Absa Transact account costs R4.95 a month. It does not require a minimum balance, and offers free internet banking, cellphone banking and telephone banking.
Cheque deposits at an Absa ATM are free, while cash deposits start at R3; cash withdrawals from an Absa or Barclays ATM are R4.55 and are R1.15 at tillpoints.
Account payments at Absa ATMs are R3 and R1.50 by internet and cellphone banking. They cost R14.50 if a consultant helps you to bank by telephone.
Fund transfers are free from an Absa ATM and through internet, cellphone and telephone banking. External debit orders cost R3, while CashSend from an Absa ATM, cellphone or internet banking costs R7.99.
* Standard Bank’s AccessAccount is a pay-as-you-transact offering for R4.99 a month. Its AccessAccount Plus has a monthly fee of R59, but it also offers a R2 000 death benefit paid to your beneficiaries.
Cash deposits at a Standard ATM for an AccessAccount are R4.50, while withdrawals cost R6.80 or more. Withdrawals are free at tillpoints. External debit orders cost R9.50. Internet, cellphone and telephone banking are free, as are depositing your wages, payments by debit or stop order and electronic account payments.
In addition, it costs R9.95 to send an InstantMoney voucher via your cellphone to anyone in South Africa, and there are no charges for cashing out these vouchers. The money can be collected at Standard Bank ATMs and other access points, including certain Spar, Cambridge and Rhino Cash and Carry stores.
* Nedbank has two low-fee accounts. The Pay As You Use account is suitable if you perform only a few transactions each month and costs R5 a month. Its KeYona Bundle is a better option if you do more transactions. It costs R50 a month for eight free transactions. It also has a R2 000 funeral benefit for the cardholder. Internet, cellphone and app banking are free.
Both accounts require a minimum balance of R50.
With KeYona, after the first eight transactions, electronic deposits are free, and cellphone top-ups at Nedbank ATMs and online are free. They cost R6 at other banks’ ATMs. External debit orders cost R9; inter-account transfers start at R4. Withdrawals cost a minimum of R4.32 at Nedbank ATMs. They cost R3 from tillpoints and R5 if you use the card to pay for something at a shop.
Pay As You Use deposits at a Nedbank ATM cost R15 and withdrawals at an ATM cost R6.
On both accounts, sending Send-iMali vouchers via your cellphone to someone to draw at an ATM costs R10.50.
Help them to set up a long-term savings plan
Employees in the formal sector are typically offered a retirement fund, but this may not be the best savings vehicle for your employee.
Retirement-savings products are suitable when you earn more than the tax threshold (R75 000 a year for a person below the age of 65), because you can benefit from the tax deductions. Members of retirement annuity funds cannot access their savings until the age of 55.
Similarly, a tax-free savings account makes sense only if the interest earned on the savings will exceed the interest exemption (R23 800 a year for people under the age of 65).
Anne Cabot-Alletzhauser, the head of the Alexander Forbes Research Institute, says you should discuss with your employee what will have the greatest impact on their lives: saving for an emergency or to buy an asset, such as a house, or saving for retirement.
Saving for a house may meet an immediate need and also provide some capital at retirement if your employee can sell the house and, for example, return to a former rural home.
Cabot-Alletzhauser says when saving for an emergency, you and your employee should agree on what constitutes an emergency, or he or she may be tempted to access the money for any reason.
Bank savings accounts are appropriate to save for short-term needs; most money market unit trust funds require higher minimum investment amounts, although Gryphon’s fund accepts R200 a month, according to ProfileData.
For medium- to long-term savings, some equity and multi-asset unit trust funds accept low investment amounts. The Absa Balanced Fund, for example, accepts R200 a month. Its annual average return over the 10 years to the end of March was 10.26 percent, according to ProfileData. The FNB Momentum Growth Fund accepts as little as R40 a month. Its annual average return over the 10 years to the end of March was 10.48 percent.
Your employee needs to understand that such investments are for the long term, and there may be times when they show a loss.
Craig Torr, an independent financial adviser at Crue Consulting in Cape Town, gives free talks to domestic employees during Financial Planning week, an initiative of the Financial Planning Institute. Torr says he explains growth on investments and how this compounds using a cattle analogy. Cattle give birth to calves that grow up to give birth to their own calves. He explains market downturns by likening them to a sickly calf that can die.
Stokvels may be a suitable savings option, because the monthly obligation to the group must be fulfilled, Riaan Appelgrein, the senior manager for customer financial solutions at Standard Bank, says. It is hard to justify a withdrawal from a stokvel when the members are your friends.
But if you are going to assist an employee to save in a stokvel, look for one that has the hallmarks of a good stokvel, as outlined by the National Stokvel Association of South Africa.
A stokvel should have a constitution, a leadership structure and a bank account. The better ones invest on the JSE or in unit trust funds launched by asset managers for stokvels’ needs.
Life assurers offer products with a savings component that splits the savings between short- and long-term goals. However, the life company pays tax on the growth within the policy, which makes these policies expensive for employees who earn below the tax threshold. They are often bundled with disability and funeral cover, and the costs can be difficult to establish.
Help them to save for their children’s education
Large employers can make bursaries available to their employees, but you, too, can assist a loyal employee by contributing to education savings and making him or her aware of schemes such as the National Student Financial Aid Scheme (NSFAS). The unit trust-based Fundisa Fund pays a bonus into the accounts of those who are saving for the tertiary education of a South African citizen or permanent resident from a household earning R180 000 or less a year.
Last year, Fundisa distributed a bonus payment of R5.4 million to boost the savings of more than 26 000 beneficiaries from lower-income families by 25 percent.
The fund was set up in 2007 as a public-private initiative by the Association for Savings & Investment SA, the Department of Education and the NSFAS.
The minimum investment in the fund is R40. Top-up payments can be made as and when money is available, or you can commit to a monthly investment of R40 or more. Monthly payments can be stopped or started without any penalties.
Fundisa is administered by Stanlib. The fund invests in bonds, fixed deposits and other interest-earning securities that are managed by selected asset managers.
Funds can be withdrawn at any time if the beneficiary needs the money. However, the annual bonuses are based on the amounts still invested the fund.
An annual fee of no more than 1.25 percent (excluding VAT) applies, which is taken from the return earned on the money invested.
Fundisa is available from Standard Bank, Nedgroup Investments and Absa. More information is available from www.fundisa.org.za
Register yourself and your employees with the UIF
If you have staff who work 24 or more hours a month, you have to register with the Unemployment Insurance Fund (UIF). And as soon as you have an employee who earns a taxable income, you also have to register with the South African Revenue Service (SARS).
It is your responsibility to fill in and submit the forms to register yourself and your staff with the UIF. There are a number of ways to do this, but first you need to obtain the forms and have the necessary documentation. The forms are available on the Department of Labour’s website: www.labour.gov.za > Documents and look under “Forms”. Have your and your workers’ identity numbers and addresses ready.
You must fill in:
* Form UI-8D – application for registration as an employer of workers in a private household;
* Form UI-19D – information of employee (domestic worker) to register/declare domestic workers with the UIF; and
* Form UI.19-UIF – information of employee. You have to complete and submit this form before the seventh day of each month.
You must complete the forms for both yourself and your staff. The form for the registration of workers asks for an employer reference number. If you don’t have a reference number yet, leave this part open. The UIF will create a reference number and send it to you.
You can fill in the forms online, through Ufiling, or email them to [email protected]. You can fax the forms to 086 713 3000. You can also register via telephone. Phone the UIF on 012 337 1680.
You can also use snail mail and send the completed forms to The UIF, Pretoria, 0052.
If none of these options appeals to you, and you want to speak to a person, you need to register at a Labour Centre. Make sure you take your and your employees’ identity books and addresses with you.
Employers must pay UIF contributions to the UIF or SARS before the seventh of every month. Check the Labour Department website for a list of bank accounts into which you can pay the contributions: Labour Department www.labour.gov.za > Legislation > Basic guides and look for “UIF”.
The UIF sends employers the payment advice form every month, although you can also find it on the website. You need to complete this form when you pay, and send it to the fund.
Workers can check whether their employer has registered them with the UIF by contacting their nearest Labour Centre. Have your identity number at hand. Alternatively, you can telephone the UIF call centre on 012 337 1680 or 0800 843 843/0800 UIF UIF.
Subsidise their basic private medical cover
Private healthcare is expensive, but using public healthcare facilities typically means your employee will have to take a day off to see a doctor. The cheapest medical scheme options cost more than R500 a month for a single member.
Insurance companies offer primary healthcare plans, together with, for example, accident insurance or a hospital cash plan. These packages cost between R400 and R500 a month.
About three years ago, CareCross Health and Occupational Care South Africa launched DomestiCare, which offers unlimited access to general practitioners, acute medicines, basic X-rays and pathology services to domestic workers and small business employees. The product now falls under Momentum and costs R238 a month. For R265 a month, you can include basic optometry and dentistry benefits. Chronic medicines must be obtained from state hospitals.