Baby on the way? Prepare for possible pay pain
Taking time off after having a baby can place strain on your finances as you may be receiving a lower salary over the period, or worse, earning no income at all.
In SA, mothers are entitled by law to up to four months’ maternity leave, but employers are not obliged to pay them their salary during maternity leave, only to keep their job for them.
Some are generous and pay in full for three or four months, others pay nothing at all, while others remunerate something in between, such as 75% of your salary, Muhammed Goolab, executive committee member of the SA Reward Association, explains.
Knowing this is the first step in your planning to spend valuable time with your baby rather than stressing about how to fill the possible income gaps to ensure you are still able to pay all your expenses, insurance policies and debt.
If your employer will not pay in full while you are on maternity leave and you have been contributing to the Unemployment Insurance Fund, you may also be eligible to receive a benefit from the fund. But this may not replace all your income shortfall.
Goolab says if you are employed you must ask your human resources department about how much time off you qualify for and the portion of your salary that will be paid over the period.
You may be able to use paid leave to extend the term you take off on full or partial pay.
If your employer does not pay or does not pay in full while you are on maternity leave, you need to check how your benefits such as medical scheme membership, group life and disability cover and retirement contributions will be covered. If your employer will not cover these, you need to know what you will have to pay and to make a plan to pay these yourself.
If your employer is not offering full pay, you must determine how much you will receive from the UIF and whether that payment will cover your income gap.
According to the UIF’s online portal, www.ufiling.gov.za, you can expect to receive a benefit of between 38% and 60% of your salary, depending on your income level. However, you cannot receive more than 100% of your salary from the department and your employer combined.
The department of labour uses the last four years worked to calculate how many credit days you have available. For every six months worked you will receive a month’s benefit, to the maximum of four months.
Bev van Nijkerk, segment specialist for Sanlam Young Professional Markets, says you must think about how you will continue to pay your premiums on life, disability or retirement annuity policies.
Check whether you qualify for waivers on premiums or reduced premiums while you are on maternity leave, she says.
Some insurers such as Liberty offer a maternity pause option under their income protection policy, providing mothers with some financial relief from paying their premiums for up to four months. The maternity pause option is free if you have at least two Liberty products.
The benefit is available nine months after you take out the policy and applies for a maximum of two maternities.
Not keeping up with premiums on policies such as your retirement annuity can lead to penalties and significant loss of the compound interest you could earn.
If you have an income protection policy you may be able to claim on it during your maternity leave.
According to Old Mutual, a policy with temporary income protection is best suited to providing cover for maternity leave as the waiting period can be as short as two weeks.
Working for yourself
Women who own their own businesses also need a personal financial strategy when they go on maternity leave, Van Nijkerk says.
You should check whether or not you will be taking home a salary. If you have business partners, will they be happy if you take home your full month salary while you’re not working, she asks.
To find out whether or not you qualify for unemployment insurance, ask your accountant whether the way your business has been set up allows you to claim from the UIF.
Van Nijkerk says the bottom line is that you need to plan well, and determine how much time you can actually afford off.