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Employee benefits program, an absolute necessity?

Choosing the right people is important; giving them the opportunity to spread their wings is a crucial progression and putting compensation as a carrier behind them is an absolute pre-condition to success, elaborates Sandi Saksena.

Expatriates continue to form the backbone of the UAE workforce, and the SME sector needs to look at providing a stable, long term financial solution that will benefit employer and employee alike.

According to UAE Ministry of Economy, SMEs currently account for 92 per cent of the country’s total registered companies, 86 per cent of the workforce in the private sector and 40 per cent of the GDP. The country is home to several ‘homegrown’ establishments in several sectors. While multinationals operating here may have more sophisticated HR practices, there is now a growing need and an understanding of the direct correlation between workplace culture, employee satisfaction and business performance.

As much as employers choose their employees, it is safe to assume that credibility, respect, pay and severance packages, loyalty rewards, fairness, pride, coupled with organization’s productivity and profitability are employees’ top priority. It is now becoming a challenge for companies in the GCC to attract top talent and ensure staff loyalty within their benefits budget. The rising cost of healthcare, housing, travel and education is increasing the cost of benefits packages offered by employers compared to the past.

In order to achieve a balance of high performance with people-centric management, SMEs must look to investing in their ‘human’ capital. According to the labour law in the UAE, termination benefits for local employees and expatriates are required after one year’s service. Local nationals are entitled to 45 days salary plus allowances for the first 5 years of service, 2 months for the next 5 years and 3 months for each year over 10 years. Expatriates are entitled to 21 days’ salary for each of the first five years of service. This increases to a 30 days’ salary for each additional year of service provided, always that the aggregate amount of severance pay should not exceed two years’ salary.

Thus, an employee gets 2 years’ salary after putting in many years of service; not so much in this day and age! Throughout the region, the majority of employers still continue to leave their end-of-service liabilities on the company balance sheet, using these funds as working capital within the business, expecting to pay out gratuity to employees as and when they leave from day-to-day cash flows. They are actually taking an interest free loan from their own employees, without their consent or understanding, and investing it within the business.

In this scenario, the typical employee has no say in how the money is invested but carries the full risk. If the company invests this money wisely, the organization will continue to profit and leavers will receive their due benefits, but if things don’t work out, it is the employee that risks losing their rightful gratuity payment. The employer is then embroiled in costly litigation and everyone suffers. There is challenge of providing the right employee benefits at the right cost. SMEs need to ensure the benefits are cost effective, meet expectations and help motivate and retain employees, while focusing on the cost of providing these benefits.

According to Duncan Crerar, head of employee benefits at the Nexus Insurance Brokers, “An employee benefits program is cost effective to the employer where the investment returns offset against the future accruals and, of course, in many other slightly softer ways-employee loyalty/engagement/protection/reward to mention a few.”

Regarding terminal gratuities, he responded, “…no, the typical approach is not a mechanism to replace gratuities. Moreover, it is a best practice for how to manage and accommodate the liability that gratuity puts upon a business. Payments to employees will always need to be equal or greater than the mandatory limits set by the labor law.”

He further explained: “As the law merely states what the liability (gratuity payment) is, it does not enforce an employer to ring fence or physically reserve for these payments. Having a specific gratuity fund in place protects the employees’ rights, gives the employer peace of mind and also the opportunity to make investment gains on the present liability (accrued fund) to offset against the ever growing future liability.”

A typical employee benefits program should include:

• Group life and survivors benefits.

• Disability.

• Accidental death and dismemberment.

• Health.

• Retirement savings/Pension

As far as the pension option goes, it will almost always be voluntary, or with option on what the employee might wish to contribute. Typically, employee contributions range from 10% to 20% of their salaries, which will be deducted at source. People are the lifeblood of any organization. Managing, motivating and rewarding them effectively whether in a buoyant or challenging economic environment, is difficult for all organizations.

Consult with preferably a broker that specialises in employee benefits and who has the knowledge, skills and hands-on experience in helping companies put in place robust gratuity funding programs, or group pension arrangements. Independent advice on the choice, cost, implementation, management and communication of all types of employee benefits- from pensions and to health and life disability and critical illness insurance policies is important before you make a commitment.

About sandi_saksena

Sandi Saksena is a financial planning counsellor with over 15 years experience in advising on life, disability and critical illness insurances. She focuses on exit planning for SME owners, working with accountants and lawyers to provide holistic solutions. Sandi can be contacted by email ([email protected]) or by mobile (0506517963).

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