Cloud Based PST

Remuneration Consultants South Africa provides market leading remuneration and employee benefit consulting services. Employee reward strategy impacts on the attraction, engagement and retention of employees, which directly contributes to whether the employer will execute its business strategy and achieve its objectives.

Introducing Our Trusted Package Structuring Tool (“PST”) with added cloud-based functionalities.

12 years of providing innovative solutions on remuneration best practice implementation have culminated into the streamlining of our MS Excel-based PST into a fully-fledged web-based application offering all the advantages associated with cloud based computing.

The PST is a versatile application which may be used to roll out many remuneration processes such as annual salary reviews, employment offers and assisting employees to make informative decisions on the benefits offered by the company. The PST promotes internal understanding of the company’s remuneration design, the support for future business decisions and forms the cornerstone for building the remuneration function to move toward achieving an enhanced Total Reward model within the business.

Our PST lends itself to a complex, fast changing and ever evolving employment environment which increasingly requires real-time feedback, up to date statistics & flexibility to accommodate instantaneous policy changes.

Implementation Principles

These principles are of critical importance for successful implementation and will normally be approved at Board Level. Our approach is also different here from other providers and the same deliverables will not be found under their methodologies. These principles are –

  • Cost neutrality for the business. The cost to employer (or employee cost to company) must be exactly neutral before vs. after the implementation. We will build a testing calculator to evidence this and which is also a critical part of the rollout process.
  • No employee is worse-off. There must be sufficient flexibility and correct design of employee benefits, as this remuneration methodology necessarily means that there are changes to the level of take-home pay or benefit entitlement. Where correctly designed, both on take-home pay or benefits, the employee will not be worse off. It is critical to have correct benefit design hereon, to ensure that employees make remuneration choices which are aligned to their personal financial requirements. This is especially complex where you need to harmonise different historical approaches, but we are deeply experienced in delivering hereon.
  • Clear business case. The business case will normally be employee cost control, treating employees fairly, moving towards better internal and external equity, attraction, retention and best possible return on investment on the employer’s remuneration spend.

The Web-based PST Process

The typical flexible benefits process within our web-based PST will work as follows:

  • Packages are loaded electronically in bulk and users are notified.
  • User selects via secure web interface from range of options (limited to their level).
  • Notification of User Submissions are sent to Line Managers.
  • Line Manager reviews and approves the user submission electronically.

Specific Requirements For The Model

  • Employee benefits will be quantified and benefit explanations (key to employer provided benefits) will be included;
  • The employee travel module will include best practice employee travel policy provisions, where applicable. This will allow informed decision making for the future;
  • The look and feel will be the same as our standard best practice model, with all Company branding uploaded and adjustments made to meet your specific branding requirements;
  • The model must be an exact match to your payroll, otherwise it will have significantly less functionality. This requires a close working relationship with your payroll personnel and to ensure that there is complete accuracy;
  • The model will be Microsoft Excel-based. However, as for other clients, the model may be converted to an intranet or Web-based model, when the business requirement develops. Should this be a requirement in the future, the fee structure in this regard will be discussed and agreed by both parties; and
  • Updating on tax and rule changes to ensure continuous accuracy and compliance with all laws and treatments.

PST Composition

  • Selection Page. This allows selections to be made of the various flexible options allowed by employers;
  • Travel Allowance Model. We have a specific employee Travel Allowance model which allows for the computation of a tax break-even travel allowance to employees.
  • Dummy payslip computation. This provides the payroll, remuneration, general human resources and other stakeholders, with an easy-to-use model for making offers, computation of take-home, disclosure of employee benefit costs (to the employer) and the actual benefits (for example, the actual amount of life cover, risk cover and core retirement funding) to the employee;
  • Employees’ tax computation. This provides a detailed line-by-line employees’ tax computational breakdown, which allows immediate internal and external audit on the accuracy of the computation.
  • Allocation Schedule / Employee Agreement. This would contain the employee sign-off on specific remuneration selections made.

Professional Support

We will update the PST with any changes to any package elements such as medical aid scheme changes and consequent annual medical aid rates. Typical updates to TGP elements may include –

  • Tax updates. We will update the PST on an annual basis with the latest tax rates, which will include tax tables, vehicle tax tables, rebates and medical aid credits. We also inform our clients on any tax law amendments which may occur during the course of the tax year and amend the PST calculations and embedded formulae as necessary;
  • Medical aid rate updates. We will update the medical aid rates as they are published in January each year. You will not need to contact us hereon; we will update it automatically which will include a recalculation of the medical aid benefit so that reference to medical aid in the PST is automatically updated;
  • Retirement fund. Changes to Pensionable Salary, Employee and Employer contribution rates and any added flexibility thereon etc.;
  • Risk benefits. Changes such as amended rates and cover, risk benefit provision in terms of inclusively costed or exclusively costed, recalculating death benefit cover from separate to accelerated provisions, etc.; and

 

  • Employee travel benefits. Changes such as travel allowance, company cars and business mileage reimbursements.

Why Cost-To-Company (CTC) With Flexible Benefits?

Total cost-to-company (often also referred to as total guaranteed package (TGP)) has become a prevalent remuneration structure approach in the South African market. The conversion to a cost-to-company approach will however only provide optimum value where flexible benefits are included in the approach. Where flexible benefits are offered, employees enjoy maximum flexibility in the CTC approach allowing own package structuring based on personal financial and lifestyle choices. Following a CTC remuneration approach is usually based on the company’s remuneration philosophy, forms part of the remuneration strategy and is underpinned by the Human Resources and the overall company strategy.

The business case for moving towards a CTC approach with flexible benefits may be summarised by highlighting the following:

  • Employment costs are better controlled, simplified and managed
    All guaranteed remuneration elements (cash and benefits) are included in the cost-to-company package and therefore all guaranteed employment costs are fixed and known with no hidden extras. The employer is therefore better able to manage the remuneration costs in a simplified manner.
  • Optimal remuneration of employees within budgetary constraints
    The employer is better positioned to attract and retain high quality staff within budgetary limitations and allows for cost saving when employee offers are made during the recruitment process. Therefore, CTC allows a more structured and streamlined approach to remuneration and is the first, critical step, towards a Total Reward Model.
  • No wasted spend on unnecessary employee benefits
    Where flexible benefits form part of the CTC offering, it provides a structure where employees are able to make personal selections to align remuneration to personal financial requirements that suit their personal life stage. Employees are therefore not provided with benefits that do not suit their particular life stage or personal financial requirements and therefore the employer is not spending on unnecessary or unwanted benefits. Thus, the employee remuneration mix is personal to the employee and a remuneration environment is created where “every cent counts” and where the employee is empowered with making their own personal decisions based on personal preferences.
  • Continued social responsibility through minimum benefit provision
    Providing employees a remuneration approach with maximum flexibility on benefits does not mean employees may opt out of participation of critical items. The employer ensures social responsibility by setting certain minimum benefits that the employee is obliged to participate in.
  • King III and good governance
    The CTC remuneration approach is fully compliant with King III on employee remuneration and good governance principles.
  • Retirement Fund reform
    Aligns with new pension fund reform rules, which has commenced already on employee insurances and expected to be fully operational on 01 March 2015, when employer contributions to pension and provident funds become fully taxable and employee gets corresponding tax deduction up to 27.5%.
  • Leading South African remuneration practice
    Aligns with 75% of prominent South African employers, for employees at levels where attraction and retention are business critical.
  • Ease of administration
    The majority of the South African employers has transitioned to a CTC approach (at least at certain levels within the organisation) providing a very high level of comfort that most (if not all) the payroll systems used in South Africa can accommodate a CTC remuneration approach.
  • Fully tax compliant and tax optimal
    In the event of a tax audit both the employee (taxpayer) and the employer have peace of mind that all taxable elements of remuneration have been accurately taxed and recorded, resulting in no unforeseen surprises.
  • Accurate market benchmarking
    The CTC approach enables simplified and accurate market comparisons and benchmarking. The TGP, a term commonly used by salary survey providers, provides an all-encompassing guaranteed package which includes guaranteed cash and the value of guaranteed benefits. This will include all cash allowances received on a regular basis as well as non-cash benefits such as group life assurance, funeral benefit schemes, medical aid schemes etc. The CTC (or TGP) is an accurate benchmark as it provides a common value across organisations and industries against which to benchmark, as appose to the basic cash component which will fluctuate in a CTC environment due to employee personal selections.
  • Internal equity achievement
    Where a CTC approach is followed the employer is better equipped to ensure internal equity around guaranteed remuneration. Effective January 2014, there has been a number of significant amendments to the Employment Equity Amendment Act (EEA) 55 of 1998, with the promulgation of the Employment Equity Amendment Act, 2013. The amendment to Section 6 of the EEA of 1998 now includes a sub section 4, stipulating the principle of “equal pay for work of equal value”. The purpose of the amendments to the Act is to ensure that there is no unfair discrimination in employment terms and conditions which includes remuneration. Where a CTC approach is applied, internal equity measurement of all the guaranteed remuneration elements and the future management and legal reporting thereof becomes a streamlined and straightforward process. Furthermore, the approach enables the harmonisation between employee remuneration, ensuring compliance to the Act.

The CTC approach not only gains the employer, but the advantages of CTC similarly extends to the employees:

  • Greater flexibility
    Within the CTC structure the employee has greater flexibility. The employee can easily structure their remuneration package according to personal financial planning needs that are aligned to and suit their personal life stage. The employee may select a mixture of more cash or more benefits which suits the employee’s personal profile but within legal parameters and meeting the employer’s set minimum benefits and good governance requirements. Furthermore, the employee is not forced to participate in benefits that they may not value or require, giving them authority over their own remuneration structuring choices contributing to the retention of employees.
  • Employee value proposition
    CTC provides employees the complete picture of guaranteed remuneration (cash and benefits) so that they know and understand their true worth, enabling a better appreciation of the employee value proposition.

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