In recent years, employee wellbeing has risen to the top of the corporate agenda. Group income protection (GIP) benefits are now seen as an essential pillar in supporting employees who find themselves unable to work due to sickness or injury. As the landscape of employment shifts and the needs of both employers and employees grow increasingly complex, it’s time to challenge the conventions around how these benefits are delivered.
Traditionally, income protection payments are made directly to the employee. At first glance, this seems logical — offering support without delay, empowering the individual, and letting the process take care of itself. However, this approach has hidden pitfalls that can undermine both employee financial wellbeing and the operational interests of the employer.
The most immediate concern is taxation. When an employee receives the benefit directly, they are responsible for managing their own tax liability. This is a significant burden: the payment, already reduced to 75% of their income, becomes further eroded if tax is not properly accounted for and set aside. For someone dealing with illness or injury, managing complex tax responsibilities is an added stress at the worst possible time.
But the repercussions do not end with financial matters. Once an employee is off the payroll and payments bypass the employer, something less tangible but equally vital is lost — the connection between employer and employee. When someone is vulnerable and disengaged from daily work, this is precisely when they need the support of their community and employer the most. Over time, especially if HR personnel change or the absence is prolonged, the relationship risks dissolving completely. This disconnection makes an eventual return to work — always the shared goal — much harder to achieve.
A better approach is simple: have the group income protection benefit paid to the employer, who then distributes it to the employee through the regular payroll system. As policyholder, the employer is ideally positioned to manage the entire process, resulting in the following advantages for all parties involved:
01
Processing the payment through payroll ensures all tax obligations are automatically handled. This spares employees the anxiety of unexpected liabilities and provides a predictable, secure net benefit.
02
The payroll connection keeps the employee integrated within the company. KiwiSaver or pension contributions can continue uninterrupted, sustaining long-term financial goals and reinforcing the employee’s sense of belonging.
03
By remaining as the intermediary, employers are privy to regular medical updates and can coordinate proactive rehabilitation plans. This engagement boosts the likelihood of a successful and timely return to work, or, if necessary, enables a transparent and compassionate transition out of the company.
04
Maintaining oversight ensures employers can make informed decisions about workforce needs, minimising disruption and allowing for timely replacement if a return is not feasible.
