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Sick notes

I run a small information technology company with a permanent staff of 30.

I have recently set up a stakeholder pension and some death-in-service

benefits with a provider which contacted me direct. Following feedback from

my employees, I am keen to provide a better benefits package, perhaps

including medical insurance. I have an annual budget of around £5,000

and would welcome your suggestions. All the team are under 36 years of age

and seem to be in good health.

Here are my initial thoughts on your problem although I would need to go

into detail to take the process any further.

As you have already put death-in-service and pension provisions in place,

the next level of benefits I would recommend would be income protection,

with the possibility of adding medical insurance at a later date.

Income protection would provide a replacement income for your employees if

they were unable to work through illness or injury for an extended period

of time.

The reasons I suggest you opt to consider income protection in preference

to medical insurance are twofold. First, it is of genuine benefit to your

employees and to you. Not only does it give your employees peace of mind

over the effects of long-term sickness but it also protects you from the

open-ended financial commitment of paying an employee who has been unable

to work for some considerable period of time.

The effect on staff retention can be severe if you are seen to be uncaring

and fire an employee if they are becoming a cost to the company through no

fault of their own. You may also be contravening the requirements of the

Disability Discrimination Act.

Second, state provision of long-term incapacity benefits is minimal and

notoriously difficult to obtain. As an employer, you are obliged to pay

statutory sick pay for up to 28 weeks at £62.20 a week. The state will

provide long-term incapacity benefit at a basic £69.75 a week but only

if your employee cannot do “any job”. This payment is taxable. It is,

therefore, highly probable that one of your highly skilled employees will

receive no money after 28 weeks of sickness unless you are willing to pick

up the tab indefinitely.

Private medical insurance cannot solve this problem. It can pay for

treatment but will not pay the electricity bill when it arrives. The

greatest value to your employees is the long-term benefit, not the

short-term cure.

A factor you will have to consider is which employees you wish to make

eligible to join the scheme. It might be more sensible initially to allow

access to the scheme after six or 12 months&#39 employment or after promotion

to a certain level to prevent admin problems caused by high staff turnover.

You would then need to decide on a deferred period. This is the period of

time for which an employee must be away from work before benefit payments

begin. The shorter this is, the shorter the time you as an employer pick up

the bill for the long-term sickness benefits. However, shorter periods can

impact substantially against cost. A deferred period of four weeks – the

minimum – will cost you significantly more than a deferred period of a year.

I would suggest you set up the benefit payments to finish at the

retirement date used by your pension scheme and fix an annual increase in

benefits at around 3 per cent to compensate for inflation.

Your company is white collar for all intents and purposes. From an

insurer&#39s perspective, this lessens the risk of long-term sickness and,

more important, reduces the cost to you. This makes the choice of provider

more straightforward as it is not a case of whether they will cover your

workforce but what sort of cover they will provide.

There are a number of providers of group income protection to choose from.

From your perspective, I would recommend a bigger player because of their

ability to ride changes in the market. They would also have a bigger

support system for handling claims and to offer discounts.

Out of the big three – Unum, Royal & Sun Alliance and Swiss Life – I would

currently recommend the Unum group income protection plan because it is

competitively priced and the company has a large team of trained medical

staff to handle claims management. It also has a rehabilitation team to

help employees get back to work, which provides good added value.

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