Johan Botha | Head | Employee Benefits | Business Development | Aon South Africa | mail me |

Employee benefits such as a retirement fund, healthcare insurance, medical scheme membership, group life and disability benefits are pre-negotiated and agreed upon as part of the employment process and contracting. Typically, these benefits remain in place until the employee-employer relationship concludes through resignation, dismissal, retrenchment, retirement or death.

But what happens if an employee becomes seriously ill or disabled whilst in employment, and lodges a successful disability claim? What is the impact of such a claim on their employment contract, and the rest of their employer-sponsored benefits?

Employee disability claims could generate much uncertainty around the responsibility and liability of the employer in terms of ongoing contributions towards remaining benefits such as retirement, group risk and medical aid. It’s important to understand what the responsibilities of the employer are depending on the type of disability – and this comes down to whether the disability claim is paid as a lump sum disability benefit or an income replacement disability benefit.

Lump sum disability benefit

If an employee’s disability claim is approved as a lump sum benefit, their employment would normally be terminated on the date the disability claim is approved because the employee would be deemed to be totally and permanently incapable of generating any form of income in future, typically with a severe and permanent disability.

This would then also mean that any commitment by the employer towards providing ongoing benefits would also be halted (as they are no longer contractually employed), and the claimant’s pension fund benefits or investments would also be paid out to them subject to the applicable tax obligations.

Income replacement disability benefit

If an employee’s disability claim is approved as an income replacement disability benefit, this means that the claim would be linked to the individual’s ability to perform the duties specifically defined within their employment contract. It could be a condition that prevents your employee from performing their duties for a limited period or it could be as severe as mentioned under lump sum disability.

Such an employee is considered by the employer as an inactive/active employee: inactive due to the individual’s inability to perform their duties under their employment contract, but active in that the individual still participates in all the other benefits provided such as their retirement fund, group risk benefits and medical aid. In this instance, the employer remains liable for its part in contributing towards benefits that are in place and this would include the full spectrum of benefits.

Circling back to the employer’s responsibility then in continuing with supporting and contributing towards the benefits for the claimant, it is appreciated and understood that in the case of an income replacement disability claimant, the employer remains liable for its part in contributing towards benefits that are in place. Here, the underlying remuneration structure has a direct impact on what the employer’s liability is.

If the employment contract is structured on a cost-to-company basis where remuneration is defined on an all-inclusive basis and salary and benefits are sub-parts of the whole, then the change in status of an employee from being active to a disability claimant would not change the employer’s liability.

The disability benefit received monthly would now represent the all-inclusive value and salary plus benefits would be funded from this. However, if remuneration is provided on a salary plus benefits basis, then it would mean that the employer’s commitment to retirement fund contributions, group risk and medical aid premiums towards the employee must still be honoured.

The solution for employer groups in the ongoing provision of such retirement fund contributions and group risk premiums lies in the introduction of an employer waiver benefit as an extension to an income replacement disability benefit policy. This benefit provides for the insurer to take over the responsibility of making contributions or paying premiums on behalf of the employer.

The commitment by the insurer remains in place until the employee either recovers, retires, resigns or passes away, whichever comes first. In essence, the employer insures its commitment to provide these benefits through an extension to the disability policy.

What happens to medical aid premium contributions?

Similarly to the commitments regarding retirement and group risk, a disability policy may include a medical aid premium waiver benefit that is included as an extension to an income replacement disability benefit policy. However, the insurer’s obligation is typically capped at a maximum period of 24 months and may be further restricted to covering only premiums for a medical scheme associated with that insurer. Once this designated period elapses, the responsibility for paying or subsidising the medical premium reverts back to the employer. This obligation persists until the employee either recovers, retires, resigns, or passes away, whichever occurs first.

Another circumstance that could relieve the employer of their ongoing commitment to a claimant’s medical scheme benefit, is if the employer lawfully terminates the employee’s employment due to their inability to fulfil the duties outlined in their employment contract. Such termination of employment does not affect the claimant’s participation in, or the insurer’s commitment to, the other benefits.

Employers must discuss the matter with a labour law specialist to gain clarity and to advise employees so that they have a clear understanding of what would happen in the event of a disability claim. These stipulations need to be defined in the employment contract to avoid any uncertainties should a claim arise.

Related FAQs: Employer responsibility for employee disability claims

Q: What are the employer’s responsibilities regarding disability insurance?

A: Employers are responsible for informing employees about their rights and options related to disability insurance, including providing access to employer-sponsored disability plans and ensuring compliance with the Labour Relations Act.

Q: What is employer-sponsored disability and how does it work?

A: Employer-sponsored disability refers to disability insurance plans that employers provide to their employees. These plans typically offer short-term and long-term disability coverage to replace a portion of the employee’s income if they become unable to work due to illness or injury.

Q: How does short-term disability insurance differ from long-term disability insurance?

A: Short-Term Disability (STD) insurance provides benefits for a limited period, usually up to six months, for temporary incapacity. Long-Term Disability (LTD) insurance, on the other hand, provides income protection for extended periods, often until the employee reaches retirement age or becomes permanently disabled.

Q: What should an employer do if an employee is unable to perform their job due to disability?

A: The employer may need to accommodate the employee by exploring options such as offering modified duties, adjusting work hours or providing access to disability insurance benefits. They should also review company policies on sick leave and ensure compliance with relevant laws.

Q: Can an employer require employees to use their paid sick leave before accessing disability benefits?

A: Yes, employers may require employees to exhaust their paid sick leave before applying for disability benefits, depending on their policies and the specific terms of the employer-sponsored disability plan.

Q: What is the waiting period for disability benefits?

A: The waiting period, also known as the elimination period, is the time an employee must wait after becoming disabled before they can start receiving disability income benefits. This period varies by plan but typically ranges from a few days to several weeks.

Q: Are employees who become permanently disabled eligible for long-term disability benefits?

A: Yes, employees who become permanently disabled may be eligible for long-term disability (LTD) benefits, which provide monthly disability income until the employee reaches retirement age or recovers, depending on the policy terms.

Q: How can an employer support employees with work-related disabilities?

A: Employers can support employees with work-related disabilities by offering employer-sponsored disability options, ensuring access to workers’ compensation and creating a workplace environment that accommodates the needs of disabled employees.

Q: What is the role of the Labour Relations Act in employer-sponsored disability claims?

A: The Labour Relations Act outlines the legal framework that governs employer responsibilities and employee rights regarding disability claims, ensuring that employees are treated fairly and that their claims for disability insurance are processed in accordance with the law.

Q: What income protection options are available for employees with disabilities?

A: Employees can access various income protection options, including employer-sponsored short-term and long-term disability insurance, which provide financial support during periods of incapacity due to illness or injury.