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Can Your Business Afford Medical Cover?

The balance between low-cost healthcare and quality health services is achievable, even for smaller businesses.




The “new generation” of medical aid systems provides a solution for smaller businesses to manage their own healthcare. These flexible schemes combine comprehensive hospital cover, a fund for day-to-day medical expenses and an optional health savings account to top-up cover.

Only one in five South Africans can actually afford comprehensive medical aid cover, the rest of the population rely on the state for medical care. At the beginning of this year South Africa had 119 registered medical schemes. Not all medical schemes are open. In fact, of the 119 medical schemes, only 37 are open to the public.

“In South Africa at the moment there are fewer medical schemes but membership to existing medical aids is increasing rapidly,” says Alexandra Serwa, Communications Manager for the Council for Medical Schemes.

To understand how medical schemes (medical aids) operate isn’t difficult. Medical schemes use the income they receive through members’ contributions to pay claims as well as other non-health costs that are necessary to enable the effective administration of the scheme. By law, it is required that all schemes need to have a 25% solvency level. Should a scheme not manage to maintain its reserves at this level, the Registrar of Medical Schemes may put the fund under review, invoke changes to benefits and contributions and, in extreme cases, even put the fund under curatorship.

Taking care of employees

Finding a medical scheme that meets the needs of all your staff at an affordable cost is daunting. But it can be done, usually with the help of a broker, or directly with medical aid providers and through local or national business associations, who often offer group health insurance plans that you can join.

Another option for small business owners is that they can form a group with other similarly situated small businesses and pool resources. Medical insurance companies provide discounts to people or businesses that are engaged in similar types of activities.

Because there are certain known factors about a particular group of people, medical schemes have a better idea of what the risks are and can therefore price their products more competitively. Business owners also have to consider the financial implications carefully if the company elects to subsidise monthly contributions.

Some smaller companies use the “cost to company model” where the employee receives a salary package, which includes a monetary provision for healthcare, and they must source their own healthcare scheme. This can make a company more attractive as an employer.

Promoting wellness

“Employee benefits such as medical aid, increase staff motivation and encourage workplace commitment as employees see these benefits as ‘giving them something’,” says Melissa Appel, GM of customer retention and quality assurance at Spectramed.

These are the pros, according to Appel:

  • Medical cover reduces liability for the small business in cases where employees require a loan for medical expenses

  • It provides the security of knowing that staff have access to quality primary healthcare so they don’t come to work ill, which results in better productivity

  • Access to disease management programmes (such as HIV/Aids) encourages employee wellness and compliance with treatment regimes

  • Compulsory medical aid membership for all employees, including new staff members, means that they can join, regardless of age or other factors, without a waiting period before they can make a claim

  • It’s easier to manage staff as medical aid membership means employees don’t spend long periods of time queueing at public hospitals.

“Dependent on the option, your staff members have access to preventative healthcare, such as blood pressure tests and access to GPs so that ailments can be treated before they need sick days off,” adds Appel. “It therefore improves workforce productivity. The peace of mind that comes with knowing you have healthcare cover can lead to improved health due to reduced stress,” she says.

The downside

Appel says there are some cons to medical cover:

  • Medical aid membership can be expensive for small businesses

  • Only higher-earning salaried employees, as opposed to wage earners, can afford medical cover

  • There are no lower rates for small groups. For larger groups of over 60 members, there is the advantage of group underwriting.

  • The cost in this economic climate is an inhibitor; employees may choose the wrong option for their needs and thus run out of benefits

“An increase in medical inflation coupled with an above average increase in contributions across the industry affects affordability for both employer and employees,” Appel says. “Once a small business is committed, it is difficult to ‘buy-out’ of that commitment.”

Choosing a medical scheme

Small businesses should look at options available in the industry and select a medical scheme with a range of product options to suit all employees’ needs. Consult with staff to get an understanding of their thoughts, needs and requirements as well.

“Small businesses must take into account the solvency of the medical scheme they are considering, or at least review the business plan approved by the Council for Medical Schemes, to ensure that the scheme is in the black,” says Appel.

There are some important points to think about. Once you have worked out which medical scheme may fit your profile, the research process will continue. You will need to consider service levels offered by the medical scheme and whether or not the medical scheme has a service level agreement (SLA) with various service providers.

  • Small businesses must look at the non-health expenditure of the medical scheme in question

  • Consider the company budget and decide whether or not you will subsidise employees or build “cost of employee benefit” into the salary package as cost to company

  • Choose the top three schemes to present to the company – their products, contributions, benefits

  • Finally, make sure that the scheme you have selected has a good relationship with hospitals and service providers

Business owners need to make a principle decision based on several factors: Eligibility for membership (will you subsidise the employee only or the entire family?); is membership compulsory or voluntary (if there is a subsidy then it’s usually compulsory); what options will the company subsidise and what will you offer employees?

Once this has been agreed, an employer application form must be signed. Next, each employee must complete a membership application form.

The employer will pay the contributions to the scheme as monthly payments and then recover the funds back from employees through salary deductions.

Do-it-yourself vs advisors

If you don’t have any idea where to start, an advisor or medical aid broker could be the answer. Make sure the person you choose is FAIS (Financial Advisory and Intermediary Services) accredited so that you can be sure they are offering sound advice.

“If you know what you are looking for then going direct to the medical scheme is advisable as this minimises the scheme’s exposure by not having to pay unnecessary broker commission,” explains Appel.

With or without a broker’s help, look carefully at your specific needs. If you’re still unsure, talk to another objective independent healthcare broker who will be able to help you choose the right scheme and product option.

Once your business offers medical aid to its staff, make sure that the scheme is evaluated regularly so that you can adapt it to your needs as the business expands.

Can staff switch medical aids?

It is very easy for someone who already has a medical aid to switch to a company package. All they have to do is give notice and request a transfer to the company medical aid. “The larger the risk pool offered by the small business, the better the underwriting terms and conditions can be,” says Appel.

Most small businesses have a policy in place whereby employees don’t have to belong to the company’s scheme if they belong to a spouse’s or partner’s medical scheme.

Do employers get a discount of any sort?

The Medical Schemes Act 131 of 1998 does not permit discounts in a community rated environment.

The only negotiable is a reduction or waiver on terms and conditions applicable to underwriting. This means that big companies can underwrite a better rate and scheme for a company if there are enough members.

Are medical aid contributions tax deductible?

From 1 March 2009, the monthly monetary caps for tax deductible contributions to medical schemes increased from R570 to R625 for each of the first two beneficiaries, and from R345 to R380 for each additional beneficiary. Replacement of the medical aid contribution deductions with a non-refundable tax credit is currently under discussion and could be implemented within the next two years. The tax credit would be set at about 30% of the prevailing deduction.

All contributions made by employers to the medical aid fund on behalf of employees would then be taxable in full, and the employee would therefore be able to claim a tax deduction for the contributions up to the cap.


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Get Your Small Business VAT-Ready Without The Headache

On 1 April 2018, Value-Added Tax (VAT) will increase for the first time in 25 years, from 14% to 15%. Viresh Harduth, Vice President: New Customer Acquisition (Start up and Small Business) at Sage Africa & Middle East, guides this transition.





If you’re a small business owner, it’s likely that you’ve never had to deal with a change in the VAT rate before and don’t know where to start to get your systems and processes VAT-ready, without impacting your cash flow and operations.

Here are a few tips to get your small business VAT-ready, come 1 April:

Test your operation

If you are a small business that still uses manual processes like spreadsheets to calculate and record VAT, consider creating dummy sheets and invoices to ensure you are processing the additional VAT correctly and that you can process transactions at 14% on 31 March and 15% on 1 April.

Related: Sage Reports On How Payroll Compliance Is To Come Under Scrutiny

Also consider that, if a customer returns a product on 1 April that they bought on 31 March, it will need to be refunded at the old VAT rate.

NOTE: From 1 April, all receipts, invoices, quotes, adverts, credit and debit notes must reflect the new rate, so test your systems beforehand to make sure there aren’t any errors.

Understand time of supply

The transaction date, or time of supply, is probably the biggest consideration for businesses when applying VAT to sales. The VAT Act stipulates that the time of supply will be either when an invoice is issued or when payment is received – whichever happens first.

For example, if you invoice for a sale on 31 March but are only paid on 2 April, the VAT rate of 14% will apply. If you receive payment on 1 April but have not yet invoiced for the sale, then VAT should be charged at 15%.

NOTE: Consult the VAT Act for rate-specific rules applicable to contracts and supplies starting before and ending on or after 1 April.

Automate where possible

Cloud-based, automated accounting solutions, like Sage One, will be VAT ready, come 1 April. Businesses using these solutions don’t have to worry about staying on top of the different VAT rates because the system will automatically generate the correct VAT invoice, quote and debit or credit note.

NOTE: All transactions are stored and readily accessible in the cloud, from anywhere, ensuring businesses are compliant with SARS and VAT laws.

Educate your colleagues

It’s crucial that your team members know how to raise invoices and credit notes that are processed before and after 1 April, and how to process refunds for sales that occurred before this date, as these will attract different VAT rates.

Adjust your pricing

The VAT Act states that displayed pricing and adverts must include VAT (unless the product is zero-rated). Some small businesses might want to close shop for the day to adjust their shelf and online pricing to reflect the new rate in time for the new business week on Monday.

Related: How To Get The Most From Your Payroll Solution With The Sage Academy

However, those that are unable to do this can display a notice at the till point, stating that prices do not include VAT at the new rate and will be adjusted at the tills.

NOTE: This grace period is only in place until 31 May, after which all pricing must include the new rate.

Check your own quotes and invoices

Any quote or invoice you receive for stock purchased after 1 April should reflect the new VAT rate. You’ll need to submit this documentation when claiming input tax. If your supplier does not calculate VAT correctly, you will be liable for the shortfall, which could impact your cash flow.

NOTE: You will also incur penalties if you under- or over-declare VAT on your VAT201 return – another reason why automating the accounting process is a good idea.

Get reporting ready

The next VAT201 return you submit to SARS will be more complicated because you will need to calculate input and output tax at different rates, not to mention the apportionment rate that will need to be calculated for contracts and services taking place before and after 1 April.

Related: President Of Sage International Ivan Epstein Shares His Valuable Lessons

NOTE: Again, automated solutions can take care of this for you but, if you’re using manual processes, you might need to consult an accountant to make sure you’re not over or under reporting VAT on your reconciliations.

Complying with the new VAT rate is a massive administrative task for businesses of all sizes – and they don’t have much time to prepare. To find out how Sage can help your business with compliance, click here.

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Ensure that your payroll is fully compliant with the laws and regulations around collection of PAYE, as government looks to plug revenue holes.

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Tax compliance ruled with a firmer hand


Accounting for more than a third of tax revenue, personal income tax is the single largest contributor to fiscal revenue. SARS has done a good job over the years of bringing employers into the tax net and catching those that don’t comply with the tax regulations and legislation.

Those few companies that are not in full compliance can expect to see the tax authority take an even more robust approach to enforcing compliance.

Timely and accurate submissions keep you in the clear

To remain compliant, businesses must ensure that they register all employees for tax, declare the correct earnings for all employees and include correct calculations of other earnings, deductions (such as PAYE and UIF), and contributions (such as retirement funding or UIF contributions) in their payroll. They must also make sure that annual returns are filed and submitted promptly and accurately.

The risks of getting it wrong include:

  • Censure
  • Interest or fines by authorities (SARS, department of labour, a labour court etc.)
  • Imprisonment in cases of fraud or extreme negligence.

What’s more, compliance is complicated by annual changes in payroll legislative requirements.

Automation solves compliance challenges

Because compliance is complex and the risks of non-compliance are high, even smaller South African businesses can no longer rely on spreadsheets and other manual methods to do their payroll calculations and file returns.

Automated solutions are becoming more essential for keeping reliable records and performing accurate payroll calculations.

Payroll automation software — with solutions available for businesses from start-ups to medium-sized companies and larger enterprises — takes care of calculating the complex formulas for the various deductions, generating compliance reports, and keeping accurate records.

Related: What Should I Know About Dealing With Tax When It Comes To My Business?

That makes it easier to perform accurate calculations, file submissions on time and generate reports and electronic payslips.

Eliminate manual paperwork

Payroll software takes the pain out of compliance, allowing you to focus your energy on strategy, customers, and employee engagement rather than on red-tape.

While mistakes in record keeping and compliance can result in punitive penalties and hurt the company’s brand, an efficient payroll system enhances staff morale, helps to reduce the risks of fraud, and boosts an organisation’s reputation.

It is a worthwhile investment in the business and a foundational element of good governance and sound financial control.

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