Taking a comprehensive deep-dive into the current state of employee tax benefits among the SMEs across India- ‘Zeta Employee Benefits Study’ is a first of its kind study to understand employee benefits from the taxation perspective. Since, SME sector is the backbone of the Indian economy, contributing ~45% of India’s GDP and employing the second largest workforce in the country this is very crucial for us to understand the criticality of employee benefits. In an exclusive interaction with Faiz Askari of SMEStreet, Ramki Gaddipti, co-founder and CTO, Zeta explained some key findings of their research and also highlighted trends that are influencing the employee retention among SMEs.
Faiz Askari: Can you explain about ‘Zeta Employee Benefits Study’
Ramki Gaddipti: This study is focused on the employee benefits in the SME sector. Most employees prefer larger companies over SMEs, because of the varied benefits and packages a large corporate can give is very different from what an SME can offer. The business owners feel it’s a difficult process to administer and don’t want to get into complexities and eventual take home is much lesser than other companies. The cost of attracting talent and retaining talent for SME is higher than that of a large company. We wanted to see how we can enable SME so that they can compete for talent and retention of the same. Employee benefits are one sector that Zeta is focused on, without increasing the cost to the corporate how can they give higher benefits to the employees. What we realized after approaching the market, penetration of SME sectors with this product is a challenge. 58% of SMEs feel the cost of running the benefits programme is so high that they need not run it. Since they don’t offer these benefits, employees then prefer other places of work. SMEs have a dedicated in-house team to handle payroll and benefits that’s a sizeable investment to make and hence they feel it’s an expensive affair. 91% still use complex and tedious paper-based process. 37% of the companies take more than 15 days to process reimbursements; this means an employee has to forego his salary for 15-20 days if he were to enroll for a benefits programme and most of the employees struggle in the administration like bill verification, storage of bills has to be for 8 years according to IT audit.
All these are challenges and costs faced by the employees and SMEs availing tax benefits which are otherwise available as per the statute. We also realized that 57% of employees opt out of reimbursements because of the hassles it presents. One in every four employees do not understand tax benefits
Faiz Askari: From employee benefits and HR management’s perspective among SMEs, what are the key priorities for SMEs?
Ramki Gaddipti: What I believe here is that finance is a critical element for most SMEs; every avenue is important for them in terms of cost reduction perspective and depending on the type of company, employee salary largest expense that they incur and the cost inflation on an employee salary is 15-18%. So from a principal perspective, we are effectively saving them money on the most important category of spend. Employee salary related issues come in the top 3 priority list of an SME is an estimate.
Faiz Askari: Please share some additional information on how you work on SMEs- as we know there are online app-based platforms that are focused on individual needs. What does Zeta’s offering to SMEs be different from others?
Ramki Gaddipti: Our services are for the business owner, the process implication can result in a higher take-home salary for employees. We are utilizing the provisions in the income tax and providing additional take home to the employees without companies incurring additional cost. Zeta makes sure the expenses that are exempt from income tax, we classify them accordingly and help the employees save the taxes on that. This is bridging two systems- transaction and payment system and company HRMS system so that both employees and corporates are benefiting from it. We have pioneered this system in the country and today we have over 10,000 companies using Zeta.
Faiz Askari: Is there is any specific size of the company that is your criteria?
Ramki Gaddipti: We have customers who only have six employees and some have 1.5L employees, we work with everybody.
Faiz Askari: What is the customer base of Zeta?
Ramki Gaddipti: We have total 13,000 enterprise customers of which approximately 10,000 of them are in the SME category
Faiz Askari: What is the growth trajectory for the coming years?
Ramki Gaddipti: We expect a 25% YoY growth in the next 3 years