Small company benefits – They’re not out of reach
For Ivy and Brent, running their own business has been a personally satisfying experience, but not without its challenges.
Even as she sits in her home office winding down after a long week, Ivy’s mind is busy planning her family’s weekend activities and next week’s business commitments. Soccer practice is at eight o’clock tomorrow morning for Chad, swimming lessons are at four in the afternoon for Amanda, and then there’s Emma’s high school graduation party. Now, where will she find the time to write up that proposal for the Peterson presentation on Monday?
As a 46-year-old mother of three, Ivy never figured her life would be this hectic when she and her husband decided to go out on their own 10 years ago. Today, their business is going strong and they have been able to hire five full-time staff members, purchase a state-of-the-art computer system, move into high-rent office space and enjoy the fact that new clients are knocking on the door every day. With business going so well, they are starting to think about hiring another full-time person to give themselves some breathing room so they can focus on building their client base.
A supportive boss
Although she’s happy about how the business is flourishing, Ivy is concerned about attracting the talent the company needs, as experienced people are hard to find and entice away from bigger companies. Ivy knows she’ll need to find a way to meet their high expectations.
She also worries about her current employees. Jim and Donna have been there right from the start and both of them have young families to support. Ivy remembers the days when she and Brent were just starting out and she wants to be able to provide the peace of mind her employees are looking for.
…and on a personal note
Ivy is also thinking about her own expenses. Brent’s diabetes is under control, but their prescription drug bills continue to be costly. She’s concerned about how the family would manage if she became ill and was unable to work. Could they make ends meet? And with Emma going off to university in another province, Ivy knows she’ll need to think about health insurance for her daughter.
Fortunately, when Ivy and Brent met with their financial advisor, Jay, for their annual portfolio review, Jay picked up on an off-hand remark made by Ivy. He led the conversation into a more serious discussion about the viability of group benefits plans for smaller organizations.
A tailored fit for small business
Jay explained how insurance companies have come a long way towards meeting the unique needs of small business owners like Ivy and Brent. Group insurance is one of those solutions. From basic, off-the-shelf life and health insurance plans, to comprehensive packages that take advantage of all the available options, small business owners have a lot of options when it comes to choosing the group benefits package that’s right for them.
Jay pointed out that in Ivy and Brent’s case, a group benefits plan could boost the value of their company’s compensation package so they can compete better with the big players. And with some of the additional options that are available, such as employee assistance counselling and out-of-country/travel coverage, Ivy and Brent will be better positioned to attract the top talent they’re looking for.
But can they afford it? Like most small business owners, Ivy and Brent are worried about breaking the bank to offer this type of coverage. The good news is that most small business benefits packages can be designed to be cost conscious and are available on a tax-effective basis. In fact, benefits in most provinces can be provided on a tax-free basis to employees, and any employer-paid premiums are considered a tax-deductible business expense.
What does this mean for their family?
Ivy can rest easy knowing that her husband’s medical bills will be taken care of with an affordable package that includes health care insurance and drug coverage. With disability insurance added on, she knows her family will be able to cope if an extended illness prevents her from working. Travelling out of the province or country no longer needs to be a concern either, since most packages include comprehensive coverage for any medical emergencies that occur while travelling for business or pleasure.
And what about Emma? Since she will be attending university full time, Ivy and Brent, like all parents, will worry about their daughter. But at least they know Emma will be covered as one of their dependants if she incurs any medical expenses covered by their plan while she’s away at school.1
Small business entrepreneurs like Ivy and Brent face unique challenges, but today’s flexible, affordable group insurance options can help make their lives a little simpler. In this case, a casual remark to their financial advisor opened the way to building a program that’s right for Ivy, Brent and their employees. Jay, as their long-term advisor, was in an ideal position to consider the couple’s personal financial program to fill in the gaps.
Unfortunately, as important as the group benefits plan is, it’s not going to help Ivy with her current challenge: Ten teenage girls are about to descend on her house for a high school grad party. Congratulations on your graduation, Emma! And good luck, Ivy and Brent!
1. Coverage is dependent on the plan features offered by the plan sponsor (employer) to the plan members (employees). Payment of claims is dependent on eligibility.
A rewarding experience
Donna is one of Ivy and Brent’s longstanding employees. The couple is considering offering her a raise – she’s been working some long hours and really comes through when they need her the most. Ivy was thinking that a $1,000 salary increase would show Donna how much her extra efforts are appreciated. But how does that raise compare to offering a group benefits plan?
Let’s assume Donna earns $38,000 and lives in Ontario. Ivy and Brent have the choice of paying her an additional $1,000 in salary, or putting the $1,000 towards a group health and dental plan for Donna and her co-workers.
If Ivy and Brent paid Donna $1,000 in salary:
Ivy and Brent pay the $1,000 salary plus $113 for Canada Pension Plan (CPP), Employment Insurance (EI), Workers’ Compensation and the Employer Health Tax.
Donna gets $1,000, less deductions for CPP, EI and federal and provincial tax. (Based on 2005 rates.)
If Ivy and Brent put $1,000 in a health plan:
Ivy and Brent pay the $1,000 premium plus eight per cent Ontario Retail Sales Tax and two per cent premium tax.
Donna gets $1,000 in health coverage, tax free.
Points to consider:
* In provinces where there is no sales tax, the employer cost in this example would be even less – just the premium tax portion
* This example is for a health and dental plan; employer contributions to a life plan are a taxable benefit to the employee, and the benefits from a long term disability plan are only tax free if fully funded by the employee
* Individual tax rates vary by income and province
* Applicable payroll taxes vary by province and some, such as Canada Pension Plan (CPP) and Employment Insurance (EI), have maximum contribution levels
* In Quebec, tax savings from a benefit plan would be on the federal tax portion, since health plans are taxable benefits for Quebec provincial income tax
* Depending on your situation, you may choose to consult with your tax advisor for additional information
Protecting your retirement
A group benefits plan allows Ivy and Brent to protect their business and personal finances from health-care costs; and a retirement investment portfolio, offered by an insurance company, allows them to protect their retirement savings. Ivy and Brent’s financial advisor, Jay, has diversified and protected their RRSP portfolio by including a combination of segregated funds (market-based investments) and GICs (Guaranteed Interest Contracts) offered by an insurance company. These insurancebased investments offer several important protection advantages.
* Market protection: Guaranteed rates help to protect a portfolio from fluctuation in the markets and provide valuable diversification benefits
* Deposit protection: Deposit insurance protects the investment for all term lengths up to prescribed dollar limits
Both GICs and segregated funds offer:
* Estate protection: Naming beneficiaries ensures that, upon death, the investment proceeds pass quickly and privately2 to heirs, saving time and money
* Creditor protection: Under certain circumstances the investment may be protected against creditors
In addition, a segregated fund investment offers growth potential and guarantees a portion of the principal upon maturity and death.
Ivy and Brent have peace of mind knowing their segregated fund and GIC investments, issued by an insurance company, will be there for them in retirement.
2 In Saskatchewan, jointly held property and insurance policies with a named beneficiary are identified on the application for probate despite the fact that these assets do not flow through the estate and are not subject to probate fees.
Content provided courtesy of Manulife Investments
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Manulife Investments is the brand name identifying the personal wealth management lines of business offered by Manulife Financial and its subsidiaries in Canada. As one of Canada’s largest integrated financial services providers, Manulife Investments offers a variety of products and services including segregated funds, mutual funds, principal protected notes, annuities and guaranteed interest contracts.
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