Payroll insight
they were not using the benefit. (One partner could be listed on the medical plan of their partner’s employer.) This resulted in the payroll/HR department constantly needing to review gross remuneration figures and adjusting basic salaries to ensure that there was equality in remuneration packages. If this was not done, employees expressed dissatisfaction that they had no control over their remuneration level. Employees were also concerned that they were powerless to choose the level of benefits they desired. As a result of these challenges companies began to roll out CTC packages. With the change to CTC package, each employee had control over the level of benefits they desired within certain parameters, but at the same time retaining the same total remuneration package as other employees on the same job level. The best way of understanding CTC packages is to use the analogy of a cake assigned to each employee. If the employee selects medical cover for themselves and their dependents, the cost of that benefit will be recovered from the total package – the equivalent of removing a slice of the cake. The cost of retirement benefits is also removed from the total cost of package – the equivalent of another slice of cake being removed. The remainder of the cake becomes the cash component or basic salary. Most employers would enforce membership of a retirement funding scheme, as the scheme often has insurance cover incorporated into the plan, which provides cover in the event of disability. However, the employees would generally have carte blanche choice with regards to which medical plan cover they desired. Employers would in a worse-case scenario offer one provider with whom they have contracted to
provide the benefits, should employees take up the option; but employers with larger populations often offer a choice of multiple providers. ...clearly communicating what costs the employer is taking responsibility for it critical The more benefits the employee chooses, the smaller the cash component or salary as illustrated in the diagram above. Under the CTC structuring, employees have a sense of being in control of their final offering and their cash salary. Should the employer decide that a global standard is to be adopted, what should they put in place to reduce the financial exposure on the company in terms of ever-increasing costs, and to ensure that there is equality in gross remuneration paid to employees performing the same role within the company? It is acceptable to offer employees a standard level medical cover – and any expense over and above that level would be for the cost of the employee. (The additional cost would run in the payroll as a deduction from earnings.) The standard medical aid could be set as a specific plan or a nominated rand value. The employer
could have an added criterion that only the main member on the medical aid would be covered on the standard plan which the employer has nominated. Retirement funding could be implemented on a similar basis, with any additional options an employee chooses, to be administered as a deduction from gross earnings, and the employer only assuming responsibility for a set contribution for the main member. When making offers of employment to employees who have become accustomed to the CTC methodology it is important to clearly list the costs for which the employer will take responsibility. As employees have under the CTC approach been given one figure (the entire ‘cake’) in the offer letter, they often cannot relate this to a ‘cost-plus’ approach and would reject the offer on the basis that it was less than what they were currently on. Therefore, clearly communicating what costs the employer is taking responsibility for it critical. n Clearly payroll professionals have an important role to play when employers undertake expansion operations overseas. The way in which the letter of appointment is made to prospective employees is one of the first areas that would need to be addressed. Having an understanding of the expectations of local employees and addressing these is therefore necessary. There are many other aspects which would need to be addressed when moving into new regions and CTC is just the beginning.
33
Issue 23 | September 2016
| Professional in Payroll, Pensions and Reward |
Made with FlippingBook - Online magazine maker