Protecting your employees from the financial impact of long-term illness or injury is an important aspect of any HR policy. As part of this, UK employers have several insurance options available to them.
Two potential solutions are Group Income Protection (GIP) and Executive Income Protection (EIP). Whilst both are employer-funded policies designed to support employees who cannot work, they differ in how they work and their suitability for different business needs.
Understanding Group Income Protection Insurance
Group Income Protection insurance is an employer-paid policy that provides financial support to employees who are unable to work due to illness or injury. The main advantage of this approach is that it can help protect the entire workforce under a single policy arrangement, making long-term sickness absences more manageable for both employer and employee.
Under a GIP scheme, the benefits are processed through the PAYE system, with the employer responsible for ensuring payments reach the relevant employee or director. This approach keeps everything within the company's existing payroll framework.
Cover can extend up to 75 - 80% of an employee's gross earnings. One particularly attractive feature for employers is that there will be a level of cover that doesn't require medical underwriting, simplifying the setup process. These thresholds vary between insurers, making it worthwhile to compare options. Employers can also choose to cover the pension and National Insurance contributions.
Employers retain control over the policy structure, including the deferred period before payments begin and the duration of benefit payments. This flexibility allows businesses to align the insurance with their existing sick pay arrangements.
Not just about the money
Many insurers now offer additional services alongside benefit payments, including vocational rehabilitation programmes. By helping employees recover and return to work, rehabilitation services could save money on replacement costs while maintaining the employee's workplace skills.
Understanding Executive Income Protection
Executive Income Protection is also an employer-held and employer-paid policy, but unlike GIP, which can cover everyone under one plan, EIP is designed for individual employees, including directors. This more bespoke arrangement recognises that senior employees may have benefits packages that extend beyond basic salary.
EIP policies protect regular income if an employee becomes unable to work due to accident, illness or injury, and can also cover the annual employer pension contribution and both employer and employee National Insurance contributions.
Group Income Protection vs. Executive Income Protection: Which is Right for Your Business?
The choice between these two options comes down to the size and structure of your business, as well as your strategic priorities.
Group Income Protection works well when seeking to cover the wider workforce, though it will require a minimum number of employees to be covered. There's an economy of scale benefit here, as for larger groups, the cost per head is lower due to the spread of the risk.
GIP is typically used as part of a broader employee benefits package that might include life insurance and health insurance, making it an attractive option for businesses building a comprehensive benefits offering.
Executive Income Protection may be more suitable for businesses wanting to decide where benefits are directed.
Making the right decision between GIP and EIP
Group Income Protection could represent the most practical solution, offering comprehensive coverage at a reasonable cost while serving as a valuable employee benefit that aids recruitment and retention. However, businesses with a smaller number of highly paid executives or directors might find that Executive Income Protection offers better value and more appropriate coverage for their specific needs.
The differences between GIP and EIP, around benefit structuring, means that working with an experienced financial adviser can help ensure you secure the most appropriate cover at competitive premiums, whilst navigating the legal and contractual requirements.
Both GIP and EIP serve the same overall purpose: to protect your business and your people from the financial consequences of long-term illness. The right choice depends on the makeup of your workforce, your budget, and your business priorities.
Wiltshire Friendly have a wealth of experience in the area of income protection and if it is something you are thinking about, please do not hesitate to get in touch. We look forward to hearing from you.