Maternity leave, burnout, an accident or serious illness are among the many potential causes of an extended absence from work. But what are the financial implications of such an extended absence? And what role do employers play? Vlerick Business School, in association with AG Insurance, conducted a survey* on the way employees assess the risk of losing their capacity to work. Professor Xavier Baeten surveyed more than a thousand respondents about their experiences, personal expectations and the role they feel employers should play.
2 OUT OF 3 OVERESTIMATE SOCIAL SECURITY INCAPACITY BENEFITS
People who have previously faced an inability to work can recognize the problem that a drop in their income can cause. During the first month, employers generally still pay employees their full salary. From month two onwards, however, the amount of benefits paid by the social security system already falls down to 60% of gross pay (except following a workplace accident).
To get a better idea of how much employees expect to collect while being on incapacity leave, they were shown a projection of their replacement income based on their gross salary. Most of them were quite alarmed when they saw the results. Two out of three overestimated their benefits after the first month of incapacity leave.
|Length||Average estimate||Actual social security benefits|
|2-12 months of incapicity leave||63% of gross salray||60% of gross salary, capped at €3,633 per month|
The average estimate of 63% is quite close to what the National Institute for Illness-Disability Insurance (INAMI/RIZIV) actually pays - 60% of the gross salary - from the second to the twelfth month of incapacity leave. For those who earn less than the applicable maximum cap of €3,633 per month**, this is an accurate estimate. Higher earners, however, will experience a greater loss of income due to this maximum cap.
In particular, it seems there is little knowledge of the cap on incapacity benefits: in order to calculate the amount of benefit paid, the gross monthly salary is capped at approximately €3,633. Any salary paid above this limit is disregarded. This means that the loss of income increases gradually for claimants earning more than €3,633 per month.
50% less social security benefits than expected
Those who earn more than the maximum cap estimated their incapacity benefits at 61% of their gross salary. In reality, they only stand to receive 43%, or nearly 50% less than expected.
|2-12 months of incapacity leave||Average estimate||Average in reality|
|Gross salary below the cap||65% of gross salary||60% of gross salary|
|Gross salary above the cap||61% of gross salary||43% of gross salary|
Calculate your income in case of incapacity to work
When you are faced with a situation leaving you incapable to work, will the social security benefits be enough? You can run the numbers yourself with the AG Insurance’s simulation tool.
Want to know more about how Belgian employees perceive the financial implications of an extended absence from work? Is it a threat to their current living standards? Or even causing major financial problems? Stay tuned for the second article on this topic coming up September.
Professor Baeten consolidated all the findings in a research paper. Want a copy for yourself?
* Online survey of 1,071 respondents conducted from 7–26 September 2018 on behalf of Vlerick Business School and AG Insurance. Media partners: La Libre Belgique and De Standaard
**Figure applicable during the research period in 2018
About the authors
Xavier Baeten, Professor in Reward & Sustainability, Vlerick Business School
Xavier is an expert in how rewarding can help organizations achieve their strategy and give them a competitive advantage. He is also an independent member of various remuneration committees and teaches the course on Corporate Sustainability and Responsibility in the MBA programs.
Bram Smolenaers, Head of Market & Product Development Health Care, AG Employee Benefits & Health Care
Within AG, Bram focuses on strategic development and growth of the AG EB Health Care products, thereby stimulating internal and external cross-pollination and prototyping innovation initiatives. He also represents AG Employee Benefits & Health Care in the broader marketplace, including AmCham Belgium’s Innovative Healthcare Committee.