Christine recently set up her own catering business, which currently employs five people. Two years since its launch, she is planning on doubling her workforce. Two employees currently work in management roles, the other three work as catering assistants. She is interested in providing some form of protection for her staff, to act as an incentive when hiring new employees. She also wants to protect the business from sickness absence costs should they occur in the future. What benefits should she be looking to provide?
First we need to understand which of the staff will affect the business if they are absent through sickness. It is unlikely the catering assistants will adversely affect the business other than requiring replacement. The likely risk to the ongoing viability of the business is from the two employees working in management roles and the owner. If this is the case then key person income protection (IP) is required to provide regular payments to an employer if an employee suffers long-term incapacity and is unable to work. A leading provider is Scottish Equitable.The alternative is key man critical illness (CI) cover, which will pay out if an employee covered by the policy is diagnosed with having one of a number of specified illnesses. Although the premiums are likely to be cheaper, CI is not as comprehensive as IP.
In terms of incentivising employees or attracting new employees, either a death in service arrangement, or a group IP policy are probably the most obvious answers.
Caution needs to be exercised here, particularly with the introduction in 2006 of age discrimination legislation, which will mean that these benefits will have to be provided to all employees. This means that, longer term, the cost of these benefits is likely to rise and consideration of these benefits should be deferred until after the age discrimination legislation is published later this year. In terms of cost, IP, particularly for catering staff, will be an expensive option. A small death in service arrangement might be more appropriate – it may also remove the need to provide Stakeholder pensions under current legislation.
Nick Homer, Norwich Union Healthcare
When considering the provision of group risk benefits an employer needs to understand not only how valuable employees perceive the benefit to be, but also whether it will provide other business benefits.
For instance, death in service benefit is a highly valued, relatively low-cost employee benefit, however it doesn't really deliver any additional business benefits. This is also true of group critical illness (CI) cover, which has a lower perceived value.
Group private medical insurance (PMI) on the other hand is not only valued by employees, but can also reduce the time a sick employee is away from work. Should their condition prevent them from working they wouldn't have to wait for NHS treatment. Some PMI providers also support the provision of information aimed at promoting a healthier lifestyle to staff.
However, I believe group income protection (IP) best meets the criteria of this company, as it provides both a highly valued employee benefit and significant business benefits. It provides continuation of salary throughout a period of prolonged sickness absence, while also covering the employer's associated National Insurance and pension contributions. It helps protect the company against the volatile cost of sickness by restricting its financial liability to short-term absence only.
The insurer's expertise and resources will help to ensure a consistent approach is taken towards the assessment and on-going management of incapacitated employees. The potential intervention of the insurer can also help the company meet its obligations under the Disability Discrimination Act.
Simon Bailey, Scottish Equitable
As a new company, Christine's business faces many challenges and there is a need to align product purchases firmly with the employer's, rather than employees', interests in mind. Our recommendation would be to consider initially business protection in the form of key person insurance. At this stage of a company's development, the loss of someone in a managerial role, either through death or illness, can cause a significant disruption to business development. In terms of tackling sickness absence costs a good vehicle for this is group income protection (IP), particularly where the insurer actively provides rehabilitation services within the deferred period of any potential claim. Additional support and advice can also be provided to the employer on employment law issues such as the Disability Discrimination Act, which is being rolled out further later this year to cover all employers.
However bearing in mind the size of the company, even following its expansion a more appropriate vehicle may be private medical insurance, which copes well with more common causes of absence in the short term and is certainly viewed as a 'good' benefit by employees.
Alternatively as cash flow may be a significant issue, a healthcare cash plan could be considered. These provide a cheaper form of benefit contributing to the cost of secondary and primary care. The inclusion of primary care benefits is a strong addition as it increases the ability of the employee to use the product, which logically means they value the benefit more, which would reflect well on the employer.
