Employer Benefits

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

You as employer, what do you want to know about employer benefit? 

Ask Elsa 

Are you looking for an adviser that can show you wisdom, experience, and insight? 

Ask Elsa 

Benefits for you as employer:

  1. You recruit and retain employees easier. (cost of training new employees is normally extremely high)
  2. You get tax benefits
  3. With death and disability, you made provision for your people, don’ have to pay

provision out of your business. 

What do you want from this plan for you and your employees?  

With the employer benefit, you can create a Pre- Retirement program for your employees, which will include: 

  1. The Psychological effect

How to manage the emotions that come with retirement?

  1. Health insurance after retirement
  1. Financial impact of Retirement

How much do I have for retirement and how does it work, what products must I use?

  1. Life insures after retirement.

Must I keep it or let it go?

  1. Personal Finances and budgeting after retirement?

What must I do and how must I do it?

 

Who is Fin Tip Financial Services?     Who is Elsa Pienaar?

In accordance with FATD legislation (Financial Advisory and Intermediary Service Law), I would like to bring the following to your attention:

My name is Elsa-René Pienaar, a representative employed by Fin Tip Financial Services (PTY) and 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 have been an independent broker since 1997.

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:

  1. Discovery Life
  2. Discovery Health
  3. Discovery Invest
  4. Stanlib
  5. PPS Investments
  6. PPS Risk
  7. Hollard
  8. Old Mutual
  9. Liberty Life
  10. Allan Gray
  11. BrightRock

 

I have the following appropriate qualifications:

NQ 5 Qualification

 

Different kinds of Employer’s Benefits

Employers could choose to provide employees with a retirement fund for savings only

employee Benefits: Retirement Savings Options

Approved Group Benefits vs. Unapproved Group Benefits(Risk benefits)

Approved benefits are provided through a retirement fund, while unapproved benefits are furnished through a separate employer policy.

The employer could opt for a retirement fund plus group risk cover for members, known as approved group benefits. In this case, the cover is provided within a retirement fund (pension or provident fund) and the fund is the policyholder.

The tax treatment of approved cover differs as members are not taxed on the premium. Should a member pass away while employed by the company, the death benefit will be paid out through the retirement fund. As the pay-out is considered part of the retirement benefit, it will be taxed.

An approved benefit is recognised by the Registrar of Pension Funds and approved by the South African Revenue Service for tax deduction purposes.

Unapproved simply means the cover is not offered under a tax approved retirement fund in terms of the Pension Funds Act. The “unapproved” status does not affect its legitimacy in any way.

The employer offer employees group risk benefits – such as death, disability, income protection or funeral cover – through an insurance policy cover, known as unapproved group risk benefits. The employer is the policyholder and responsible for the premium payments.

In the case of unapproved cover, members pay a fringe benefit tax on premiums. However, the death benefit is then not taxed.

 

Another important difference between approved and unapproved benefits is the way in which a lump sum is distributed to beneficiaries in the event of an employee’s death.

For approved benefits, retirement fund Trustees have a duty to distribute the death benefit in the most fair and equitable way to the member’s beneficiaries and dependants, in line with Section 37C of the Pension Funds Act. The Trustees may override the beneficiaries nominated by the member, although they will refer to the beneficiary nomination form when making the distribution decision

For unapproved risk benefits, the insurer will pay the death benefit to the beneficiaries nominated by the member. Neither the employer nor the Trustees can override the member’s decision.

 

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.

Employee Benefits Umbrella Fund Infographic

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.

 

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 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.

Tax on Pre-retirement Resign/Withdrawal

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)

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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