Employee benefits: A business investment, not an expense

Feel free to reach out to PSG Wealth Adviser  Juanita Myburgh directly.

In today’s competitive job market, employee benefits are no longer a ’nice-to-have‘– they are a strategic necessity. Talented professionals are increasingly assessing employers not just in terms of the potential salary but also in terms of the overall benefit offering of the company – including healthcare, retirement contributions, wellness programmes, group risk cover, and more.

Employee benefits are often misunderstood and perceived merely as a cost centre. When designed properly, they protect your business, support your team, and enhance your employer brand.

Benefits drive retention and productivity

Studies show that companies offering comprehensive benefits see up to 30% higher retention and 20% greater productivity. When employees feel secure about their future, they are more focused and committed at work.

Why it matters

• Retention = reduced recruitment costs
  Replacing an experienced employee can cost up to 6 – 9 months’ salary. A well-structured benefits package encourages loyalty and reduces these hidden expenses.
• Business continuity through group risk cover
  If an employee becomes disabled or passes away unexpectedly, the right cover ensures that your business does not suffer a financial setback. Group life cover, disability and income protection are not just for staff – they offer protection for your company’s operations.
• Retirement planning
  Many employees face challenges in saving adequately for retirement. Structured contributions, supported by tax incentives, can enhance long-term financial security.
• Tax advantages
  Many contributions to retirement funds and risk benefits are tax-deductible, making them a smart allocation of company funds.

Benefits for the employer

Retirement and insurance benefits play an increasingly vital role in the lives of employees and their families and have a significant financial and administrative impact on a business. Benefits for the employer include:

• Tax deductibility of employer contributions to the retirement fund (up to 20% of payroll, if contributed to a retirement fund or medical aid).
• Assisting employees with the discipline of saving for retirement.
• Ability to provide cost-effective insurance benefits for all employees at lower rates than employees would be able to get in their personal capacity.
• Removing the corporate ‘moral responsibility’ dilemma when an employee retires, passes away or becomes disabled.
• Possible limitation to compulsory participation in the future National Social Security Scheme.

Benefits for the employee

Today, less than 10% of the working population in South Africa retire with enough money to maintain their existing standard of living. The need for retirement funds, as well as the need for employees to preserve their benefits when they move from one employer to another, is as great as ever. Benefits for employees include:

• Employer contributions are taxed as a fringe benefit in the hands of the member (employee).
• Tax deductibility of employee contributions to the retirement fund (up to 27,5% of total remuneration, limited to R350 000 per tax year).
• Insurance benefits providing financial security to employees and their families at affordable rates, lower than those on individual benefits taken out by the employee.
• Insurance cover without medical underwriting up to the free cover limit for benefits. Likewise, smoking status and dangerous hobbies are not taken into consideration under group cover.
• Members do not have access to the money until retirement but can make emergency withdrawals once per tax year through the two-pot system.
• Access to a wide range of cost-effective investment portfolios.
• Retirement funds do not form part of a member’s estate and is therefore free of estate duty and executor’s fees. 

South Africa’s retirement and employee benefit legislation continues to evolve, with the two-pot retirement system being one of the more recent changes. This shift has implications for how benefits are structured and communicated to employees.

Employers are encouraged to periodically review their benefit structures to ensure they remain compliant, cost-effective, and aligned with employee needs.