Weekend Argus (Saturday Edition) - - FRONT PAGE -

To work out the to­tal value of your re­mu­ner­a­tion pack­age, take your ba­sic salary and add your em­ployer’s con­tri­bu­tion to your re­tire­ment fund, in­clud­ing what your em­ployer con­trib­utes to group risk ben­e­fits (life cover and in­come pro­tec­tion), plus all your em­ployer’s other con­tri­bu­tions, such as sub­si­dis­ing your med­i­cal scheme con­tri­bu­tions and a travel al­lowance. You must also add a 13th cheque or bonus, if you are con­trac­tu­ally en­ti­tled to one, plus any over­time and ex­tras that you re­ceive, such as an in­ter­est-free loan. All of this makes up your cost to com­pany.

Eric Jor­daan, a di­rec­tor of fi­nan­cial plan­ning com­pany Crue In­vest, uses the fol­low­ing ex­am­ple to ex­plain how you can end up worse off if you move to a job with a higher ba­sic salary but with­out em­ployee ben­e­fits.

Stan is em­ployed by Com­pany A, where he earns a ba­sic salary of R40 000 a month and re­ceives a num­ber of em­ployee ben­e­fits. Com­pany B of­fers Stan a job with a ba­sic salary of R45 000 a month, but with­out em­ployee ben­e­fits.

If Stan ac­cepts Com­pany B’s of­fer, his net in­come will increase from R26 393 a month to R26 524 a month. This is a neg­li­gi­ble increase in the con­text of what it will cost him to re­place his lost ben­e­fits.

Jor­daan’s ex­am­ple (re­fer to the ta­ble on the right) as­sumes that Stan’s em­ployee ben­e­fits are:

• Com­pul­sory mem­ber­ship of a pen­sion fund, to which Stan must con­trib­ute 7.5 per­cent of his ba­sic salary.

• An em­ployer con­tri­bu­tion of 5.5 per­cent of Stan’s tax­able in­come to­wards the com­pany-spon­sored pen­sion fund. Stan’s em­ployer con­trib­utes a fur­ther two per­cent of his tax­able in­come to cover the cost of ad­min­is­ter­ing the fund and to pay for group risk ben­e­fits.

• Group risk cover pro­vides Stan with life cover equiv­a­lent to twice his an­nual salary (that is, R960 000) and an in­come pro­tec­tion ben­e­fit of R30 000 a month un­til age 65. (Com­pa­nies that of­fer group risk cover nor­mally pro­vide a death ben­e­fit of twice your an­nual in­come plus an in­come pro­tec­tion ben­e­fit of 75 per­cent.)

• A 50-per­cent sub­sidy of Stan’s med­i­cal scheme con­tri­bu­tions. The op­tion to which Stan be­longs costs R4 278 a month for his fam­ily.

For Stan to work out his cost to com­pany, he must take his ba­sic monthly salary of R40 000 and add 7.5 per­cent of this amount (R3 000), which is what his em­ployer is con­tribut­ing to his pen­sion fund, in­clud­ing group life costs. He must also add the R2 139 that his com­pany is con­tribut­ing to­wards his med­i­cal scheme con­tri­bu­tion. So, Stan’s cost to com­pany is R45 139.

If Stan ac­cepts Com­pany B’s of­fer of a ba­sic salary of R45 000 a month, he’s mov­ing jobs for a slightly higher salary. How­ever, he needs to con­sider that risk cover will cost him more. Jor­daan says that life cover of R960 000 and an in­come pro­tec­tion ben­e­fit of R30 000 a month will cost Stan R580 a month, as­sum­ing that Stan is healthy and will be able to re­place his cover at stan­dard rates.

“The pre­mium of R580 a month is based on an ac­tual quote from a ma­jor in­surer for this par­tic­u­lar pro­file of per­son. If you have any health is­sues or ill­nesses, this pre­mium would nat­u­rally be loaded, or ex­clu­sions may ap­ply,” Jor­daan says.

From Stan’s R45 000, he will have to pay R4 278 to cover the full con­tri­bu­tion to his med­i­cal scheme, plus R5 200 to cover the full cost of sav­ing for re­tire­ment (mean­ing, the 7.5 per­cent he was con­tribut­ing, plus the 5.5 per­cent that his em­ployer was con­tribut­ing), plus R580 a month for risk cover.

Jor­daan says that peo­ple in Stan’s po­si­tion usu­ally stop sav­ing for re­tire­ment and spend the money on their life­style. But when it comes to re­tire­ment, they are woe­fully un­pre­pared. Ac­cord­ing to the Fi­nan­cial Plan­ning In­sti­tute, only six per­cent of South Africans can main­tain their stan­dard of liv­ing dur­ing re­tire­ment.

Peo­ple of­ten think that they could make more money work­ing for them­selves, but for­get to add their em­ployee ben­e­fits, in­clud­ing paid leave of 15 or 20 days a year, plus sick leave. The self-em­ployed per­son needs to make enough ex­tra money to fund these ex­penses – or the cost of be­ing off work, Jor­daan says.

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