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Employee Benefits

A company has to consider the following question concerning employee benefits

  • What opportunities are there to promote employee loyalty to attract high-quality staff, to provide financial incentives and to enjoy tax   concessions?
  • What arrangements have been made to provide retirement, disablement and death benefits for employees, or for self-employed or   professional persons?
  • Is there a pension or provident fund? If so, are the benefits adequate in relation to members' current standards of living? What is the   benefit formula and what percentage of salary will be provided for each employee? Will the employee be able to live on that income?
  • Are all employees eligible for membership, or are there certain categories op people (such as married women) who are not allowed to join   the pensions fund?
  • If there is no pension or provident fund, are retirement benefits provided by means of retirement annuities?
  • If the pension fund benefits do not fully cater for the needs of some employees, do these employees have retirements annuities?

Employers' contributions to pension or provident funds are deductible from taxable income. The employer can pay retirement annuity contributions by means of an increase in salary. A good pension fund, provident fund or retirement annuity scheme for employees can ensure settled conditions of employment.

  • Has adequate provisions been made for dependants of deceased employees?
  • What retirement benefit will be provided for older employees who may be ineligible to join a new pension fund, or whose benefits under the newly formed fund may be totally inadequate?
  • Has the employer used all opportunities to provide incentives using the available tax concessions?

What happens if any Employee is disabled?

You have to ask the following questions:

  • Are employees (and self-employed people) protected against loss of earnings in the event of permanent or temporary disability?
  • For how long will the employer bear the cost of a disabled employee's salary?

A solution to individual problems may be to grant increases to selected employees, on condition that these increases are supplied as premiums under �income protection policies�. The employer will enjoy tax relief on the increased salary. The increase in the employee's taxable income will be offset by the corresponding premium, which is allowed as a full deduction from his or her taxable income under section 11 (a) of the Income Tax Act 58 of 1962.

What is the importance of Employee Benefits?

Pension, provident and benefit funds as they exist today are modern development. the main purposes of these funds are to provide:

  • income for employed people from the time they are no longer able to work to earn a living;
  • benefits for the dependents of fund members who are breadwinners; and
  • sickness, accident or unemployment benefits for their members.

The provision of these benefits is done by accumulating capital in a pension, provident fund or benefit fund. The fund releases this capital when a member dies or retires, or when the member is sick, has been in an accident, or is unemployed.

Pension, provident and benefit funds have become an important feature in our society, because they provide the economy with a major source of capital. The government has assumed a major role in the development, which is evidenced by:

  • tax concessions made available through the Income Tax Act; and
  • state supervision of the funds' financial soundness through the machinery of the Pension Funds Act.

What are the basic features of Pension and Provident Funds?

The difference between a pension and a provident fund is that a pension fund is primarily established for the payment of pensions, while a provident fund pays its benefits in the form of lump sums. (Provident funds allow members to take their benefits in the form of an annuity, if they so wish). However, a member of a pension fund can take up to one-third of his or her pension benefit in the form of a lump sum.