Employee Benefits

Employee benefits are defined as indirect, non-cash, or cash compensation paid to an employee above and beyond regular salary or wages. Employee benefits such as health insurance, life insurance, paid vacation, and workplace perks are common offerings used to recruit and retain employees

Employee Benefits FAQ

1. What are Employee Benefits?

Employee benefits are defined as indirect, non-cash, or cash compensation paid to an employee above and beyond regular salary or wages. Employee benefits such as health insurance, life insurance, paid vacation, and workplace perks are common offerings used to recruit and retain employees

2. How does this benefit an Employer?

  • Easier recruitment and retention of employees; a great benefit considering the high cost of training new employees.
  • An Employer can enjoy certain tax benefits.
  • Provision are made in the case of death and disability, relieving the Employer from having to incur these expenses out of their business.

3. What is the best way of using Employee Benefits in your business?

Numerous conversations can be had with Employees regarding Employee Benefits and creating a Pre-Retirement program for your employees is a consistent and structured way to approach it. This program can include:

  • Working through the Psychological effect, e.g. How to manage the emotions that come with retirement?
  • Discussing Health Insurance/ Medical Aid after retirement.
  • Having conversations around the financial impact of retirement, e.g. How much retirement funds will I have at retirement? Which products can I use to save towards retirement? How do retirement funds work?
  • Conversations about Life Insurance after retirement, e.g. Must I keep it or let it go?
  • Personal Finances and budgeting after retirement, e.g. What must I budget for and how do I do it?

 

4. How do I find out more about Employee Benefits?

  • When discussing financial matters with your Employees, it will add a lot of value to include a financial adviser in the discussion to ensure that advice is appropriate for every individual’s needs.
  • Elsa Pienaar, a representative of Fin Tip Financial Services and independent broker, has been providing financial advice since 1997 and with her experience and expertise can add insight and guidance in this process.
  • More about Fin Tip Financial Services and Elsa Pienaar attached.

 

More about Fin Tip Financial Services and Elsa Pienaar

I have been an independent Financial Adviser for the last 24 years, started doing my beginners course with Old Mutual in 1996. In 1998 I worked at ABSA where I did a lot of intensive training. April 1999, I started my own company named Absolute Pro Makelaars. In 2008 I re branded my business and changed my name to Fin Tip Financial Services.

In 2009 I changed my focus point to investments and pension funds as this is my passion.

It is my vision and mission to teach clients to be financially independent and to maintain their financial independence. I do strive to deliver such a service to my existing clients that they refer me to their friends and family as a credible and trustworthy Financial Services Provider.

My contact details are as follows:

PHYSICAL ADDRESS POSTAL ADDRESS

CONTACT DETAILS

24 Paul Roux Street 24 Paul Roux Street Office: 051 436 3141
Dan Pienaar Dan Pienaar Fax: 0866 121 484
Bloemfontein Bloemfontein Cell phone: 082 923 5118
9301 9301 Email: elsa@fintip.co.za

 

I am a proud member of the Masthead Financial Advisers Association, which provides me with services such as compliance, practice management and technological support due to my membership. Masthead can be contacted at PO Box 856 Howard Place or 021 686 3588.

A copy of my license, which contains details of the financial services I am authorized to provide, as well as any exemptions, is available for inspection on request.

Boundless Trade 172 (Pty) Ltd t/a Fin Tip Financial Services has written authorization and is accredited to market the products of the following insurers and/ or financial institutions:

  • Discovery Life
  • Discovery Health
  • Discovery Invest
  • Stanlib
  • PPS Investments
  • PPS Risk
  • Hollard
  • Old Mutual
  • Liberty Life
  • Allan Gray
  • BrightRock

 

I have the following appropriate qualifications:

  • NQ 5 Qualification
employee Benefits: Retirement Savings Options
Employee Benefits Umbrella Fund Infographic

Employee Benefits: Risk Benefits

 

Approved Risk benefits

Unapproved Risk Benefits

 

Definition

If the cover is provided within a retirement fund (pension or provident fund), it is known as approved cover.

 

The policy holder is the retirement fund.

If the cover is provided under a separate or free-standing group risk policy, it is known as unapproved cover.

 

The policyholder is the employer or company on behalf of the eligible employees.

 

Employer – taxation   of premiums

Can claim tax deduction.

Can claim tax deduction.

Member – taxation of premiums

Members are not taxed on the premium.

Members pay fringe benefit tax on the premium.

Payment of benefit

Benefit is taxed prior to being paid to      the member’s beneficiaries.

No tax is paid when the benefit is paid to the member’s beneficiaries.

Payment of benefit

In terms of Section 37C of the Pension     Funds Act,  the Trustees of the retirement fund have  a  duty to  distribute  the death  benefit  in  the  most  fair and   equitable way to the beneficiaries and dependants of the deceased member, at the date of distribution/payment of the benefit.

 

The member must complete a beneficiary nomination form and updated it to account for life changing events. This form will be used to assist the Trustees in making the distribution decision.

The insurer will pay the death benefit to the beneficiaries nominated by the member. Neither the employer nor the Trustees of the Fund can decide who the benefit will be paid to.

 

Members who are covered under this arrangement need to complete new beneficiary nomination forms when there are changes in their life, to ensure that dependants who count on them for financial support are paid a share of this benefit.

 

If a member has not completed a beneficiary nomination form, the benefit will be paid to the member’s deceased estate.

There are two different types of group risk benefits. Approved benefits are provided through a retirement fund, while Unapproved benefits are furnished through a separate employer policy.

 

Employee Benefit Risk Benefits Infographic

Employee Benefit Risk Benefits Infographic
Employee Benefit Risk Benefits Infographic

Employee Benefits: Tax and Retirement Savings

 1. Tax on Retirement:

The lump sum is taxed upon retirement using special tax rates, as indicated below:

Taxable income from lump sum benefits

Rates of tax

1 – 500 000

0% of taxable income

500 001 – 700 000

18% of taxable income above 500 000

700 001 – 1 050 000

36 000 + 27% of taxable income above 700 000

1 050 001 and above

130 500 + 36% of taxable income above 1 050 000

​​Example

X received a lump sum of R682 000 from the ABC Pension Fund, and had received no previous lumps sums prior to this. Over many years, the total contributions which did not previously rank for deduction or qualify for exemption in X’s hands amounted to R50 000. Calculate the normal tax payable on this lump sum.

Result

The gross lump sum on which normal tax will be calculated amounts to R682 000 less R50 000, which equals R632 000. R632 000 falls within the taxable income bracket of R500 001 to R700 000. The normal tax is therefore 18% of the taxable income above R500 000. Thus:

Normal Tax
= 18% of (R632 000 – R500 000)
= 18% of R132 000
= R23 760

The normal tax on the lump sum of R682 000 therefore amounts to R23 760, and the net lump sum after tax (“cash in pocket”) would equal R658 240.

2. Tax on Retrenchment

How do I benefit?

When you are retrenched, your employer may pay you a lump sum for the termination of your services, and this lump sum may qualify as a severance benefit. From 1 March 2011, special tax rates applicable to severance benefits were implemented, where the first R315,000 of the severance benefit was not subject to tax. From 1 March 2014, the first R500,000 is not subject to tax. The R315,000 and R500,000, whichever is applicable, could however be reduced because of various lump sums or severance benefits having been received in the past.

Top Tip: Leave pay out and pro-rata bonuses that are paid at the time of the termination of employment do not form part of a severance benefit and are subject to tax at normal rates applicable to individuals.

How do I declare the lump sum payment?

Your employer must submit a tax directive application to SARS before the lump sum amount is paid to you.

Your employer will apply for a tax directive by filling in an IRP3(a) form,  and sending it to SARS. Upon receipt of this form, SARS will work out the correct amount of employees’ tax that your employer must withhold on the severance benefit, and you will receive that benefit net of tax from your employer. Your employer will issue you with an IRP5 tax certificate reflecting the gross amount of the benefit and the employees’ tax that was deducted. You will need to declare this in your annual income tax return.

 

3. Tax on withdrawals or resignation lumpsums before Retirement

Only the first R25 000 of a pre-retirement lump sum withdrawal remains tax-free. The table below illustrates how withdrawal lump sums will be taxed:

 

Taxable lump sum (R) Rate of tax (R)

Rates of tax

0 – R25 000

0% of taxable income

R25 001 – R660 000

18% of taxable income above R25 000

R660 001 – R990 000

R114 300 + 27% of taxable income above R660 000

R990 001 and above

R203 400 + 36% of taxable income above R990 000

Where to find FinTip

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