I have been approached by the owner of a small arts foundry with 22 employees who is interested in offering a basic level of employee benefits. He already has a life cover plan for all employees, but would like to offer something else as well. However, he is not keen on paying for plans that will keep sick employees on his books for a long time after being taken ill. What suggestions should I make for him?
Henrietta Oxlade, Bond Wealth Management
Group income protection (IP) should be a consideration. Employees attach huge value to this benefit as they take great comfort knowing that their income is not at the mercy of their health. Income protection is especially attractive to younger members of staff who are not married, and/or do not have any dependents, as many perceive it to be more relevant to their financial planning than life insurance. However, the downside of organising cover personally is that it can be very expensive.
With traditional IP policies (PHI), the benefit is payable until recovery or retirement age (whichever is the soonest), however, if the benefit period was limited this would offer a solution to the employer.
The policy could have a benefit period limited to three years, by which time the employee would have either returned to work, or the benefit would cease. This would have two effects: it would remove employees from the books after a maximum of three years absence; and it would also significantly reduce the cost to the company.
The following is an idea of cost, assuming a total scheme salary of £1m, which is an average salary of approximately £45,000 in a company with 22 employees, and a deferral period of 13 weeks. This would result in an annual premium of around £1,700, but that cost could be further reduced by increasing the deferral period to 26 weeks or even 52 weeks.
Declan White, Friends Provident
There are a vast range of insured and non insured options available to employers. The first consideration should be preventing staff from being off sick in the first place. Options range from simple and cost effective engagement with staff to more expensive choices such as Employee Assistance Programmes (EAPs), absence management, health screening, wellness plans etc. As a smaller employer, they should also be thinking of short-term recruitment needs and how they can replace sick staff at short notice.
The employer should also consider options for treating those staff who fall ill. These range in cost and could be paid for by the employer or employee, or a combination of the two. Cash plans allow staff to claim the cost for treatments and are a cheaper alternative to private medical insurance (PMI). Group income protection (GIP) can cover sickness absence and help get staff back in to the workplace quicker through early intervention and rehabilitation services.
The product can provide shorter benefit payment periods, lump sum payments and the option to pay benefits direct to the claimant, thus avoiding the employer having to retain sick staff on their books. Many of today’s GIP providers also offer free EAPs.
The employer could also consider reducing their own costs by bringing advice into the workplace and allowing staff to understand their own personal protection needs. Whatever the employer decides and can afford, it is important that the package is attractive to staff as it will be key for retention and future recruitment.
Wojciech Dochan, Unum
In a situation like this, where the employer wishes to adopt a more flexible approach to financing and managing employee sickness absence, there are new income protection plans available, like Unum’s Pay Direct plan, that will help. Such plans allow employers to either continue to receive the income replacement benefit in respect of any incapacitated employee who remains in service, or allow the benefit to be paid directly to the former employee should they cease to be employed by the company.
These plans also continue to give the employee access to vocational rehabilitation services. This helps meet the needs of employees wishing to return to work and those who are unable or unwilling to continue working for the company.
Having a pay direct-style solution available is important as employers have statutory obligations under the Disability Discrimination Act (DDA). For example, an employee whose illness has a substantial, long-term and adverse effect on their ability to undertake normal day-to-day activities is likely to be covered by the DDA. Employers cannot discriminate against an employee who has a disability, or whose disability worsens.
All employers, except the armed forces, have a duty to make reasonable adjustments to premises and working practices if not doing so would put their employee at a substantial disadvantage. An employee who believes they may have been discriminated against on the grounds of their disability may instigate proceedings at an employment tribunal.
