Could flexible benefits provide financial relief during Covid-19?
The Covid-19 outbreak has propelled countries around the world to implement strict measures to combat the virus. President Cyril Ramaphosa imposed minor restrictions on gatherings and alcohol sales as a start.
These measures quickly escalated into a declaration of a national disaster to a complete lockdown period of 21 days with a further extension of 2 weeks.
The economic impact of such drastic measures is proving to be a massive blow to the already struggling economy of South Africa.
Employers are faced with a unique situation that require a sharp and tactful approach to balance the payment of employee salaries, looking after the individual employee needs and keeping the business afloat.
Between a rock and a hard place
While salary cuts and reduced working hours are realities many South Africans are facing currently, another mechanism employers can implement is to allow employees to identify what their suitable blend between cash and benefits are, based on their individual needs.
This involves offering employees the opportunity to make certain changes regarding their benefits vs cash portion of their overall remuneration package. Employers need to be innovative to optimally utilise flexible benefits according to employees personal and financial requirements.
How does this help your employees? It empowers them to exercise the choice on how to structure their package according to their personal and financial requirements.
An easy way to understand this can be illustrated in the below two examples:
A family member currently on their medical aid might be sick and in the hospital so they would choose to keep their current medical aid choice as is, or if they might have an immune compromised member of the family on their medical aid – they would rather choose to move to a more comprehensive plan reducing their cash portion but providing peace of mind that should their loved one need medical care they would be sufficiently covered.
Similarly a employees’ spouse might have been affected by retrenchment and the family is in much need of more cash to cover day to day essentials – so they might opt to reduce their pension contributions for the time being in order to increase the cash portion of their package as this is what they need most in their situation.
By providing employees with the above structuring options two things happen –
1 You empower your employees regarding their personal choices which makes sense to their individual needs in a time where so much power over your own decisions have been taken away – ultimately leaving them with a sense of security on various levels.
2 The employer will experience more focussed employees not being weighed down with the burden of how they will make ends meet, thereby enabling them to be more productive.
What’s in it for the Employer?
By implementing the above structure, the employer ensures that there are no extra costs in terms of their existing salary bill.
This should also be an employer’s key focus now, where salary increases may become non-existent in 2020 and possibly thereafter.
Providing employees with the flexible benefits option is a cost neutral exercise for the company where the employees package value is exactly the same before and after implementation.
The only difference is that the benefit structuring within the same cost structure is just different.
What if I don’t have a flexible benefit structure in place?
Should this be the case it is a good time to implement firstly a Cost to Company salary structure, and then consider flexible benefits as an additional offering to compliment the structure. This is really where the value in a cost to company structure lies.
The perfect accompanying tool for this implementation is a Package Structuring Tool (PST). This will enable each employee to make changes to their package as it suits their current circumstances and immediately see the effect of their choices on the tool.
In doing so they are able to try different scenarios to see what changes would best suit their needs also illustrating the direct impact their selections will have on the net take home pay. They then sign off their final selections to be implemented on payroll.
In a time where costs are being scrutinised as part of the company’s bottom line this is a win-win situation for both employers and employees alike.
Janine O’Riley, Reward specialist at Remuneration Consultants & Tanya Tosen, Tax & Remuneration specialist at Tax Consulting SA