Running a small or medium-sized enterprise (SME) in Pakistan has its fair share of challenges. From managing cash flow and scaling operations to competing with larger players, business owners are always juggling multiple priorities. In the middle of all this, employee benefits like group life insurance and provident funds may seem like an additional burden rather than a necessity.
But the truth is that these benefits are no longer optional. Today’s workforce needs more than just a monthly paycheck. They want security, stability, and a sense that their employer is looking after their future. For SMEs, offering group life and provident fund benefits can be the difference between retaining skilled employees and constantly losing them to bigger organizations.
Still, many SME owners and HR managers hesitate to adopt these benefits. Let’s dive into the challenges they face and why overcoming these hurdles is worth the effort.
1. Cost Constraints
One of the most common concerns for SMEs is affordability. Many small business owners believe that offering benefits like group life insurance or provident funds will strain their limited budgets. Unlike larger corporations that have economies of scale, SMEs often operate on tight margins, where even small additional costs can feel overwhelming.
However, the perception that these benefits are unaffordable is not always accurate. Group life insurance, for instance, can be surprisingly cost-effective since it spreads the risk across a pool of employees. Read more about how it works in our blog What is Group Term Life Insurance and How Does It Work?)
The real challenge is in the business’s mindset, SMEs often see benefits as expenses instead of investments. Offering financial security reduces turnover, attracts better talent, and boosts productivity, ultimately saving money in the long run.
2. Limited Awareness and Understanding
Another barrier is a lack of awareness. Many SME owners and HR managers don’t fully understand how group life insurance and provident fund’s function. Some think these benefits are only for large enterprises, while others assume they’re too complex to manage.
This lack of knowledge creates hesitation. Business owners worry about legal compliance, administrative burden, and whether they can sustain the costs of these benefits over time. Without proper guidance, they avoid the topic altogether.
What SMEs need is education. By working with insurance brokers, benefit consultants, or using digital HR platforms, they can gain clarity and simplify the process.
3. Administrative Burden
A core concern for many SMEs, handling payroll, taxes, and compliance is already a big ask as they are short of resources and time. Adding provident fund contributions and group life insurance administration feels like piling on more paperwork. Small HR teams, or usually the owners themselves, worry they won’t be able to manage the additional workload.
The good news is that technology is changing the game. Digital apps and tools can automate much of the administration, from premium payments to employee enrollments. This means SMEs can provide benefits without increasing HR complexity.
4. Compliance and Regulatory Concerns
Pakistan’s labor laws are evolving, and compliance is a growing concern for businesses of all sizes. SMEs often fear making mistakes in calculating provident fund contributions or managing insurance policies. Since many don’t have legal or compliance departments, they worry about potential penalties.
This challenge is valid, but it shouldn’t be a dealbreaker. Partnering with professional advisors and adopting transparent processes can make compliance much easier. In fact, offering benefits can help SMEs stay ahead of regulatory requirements and avoid reputational risks.
To ensure regulatory compliance when managing provident funds, SMEs can refer to the SECP’s Employee’s Contributory Funds (Investment in Listed Securities) Regulations, 2018, which outline permissible investment channels and reporting obligations. This not only safeguards fund performance but also builds trust among employees and authorities.
5. Short-Term vs. Long-Term Thinking
SMEs often operate in a need-to-do mode, focused on daily cash flow, immediate sales, and short-term profits. Employee benefits, on the other hand, are a long-term investment. Business owners might think, “Why should I spend on benefits when I can barely manage salaries?”
The problem with this mindset is that it overlooks the hidden costs of not offering benefits. High turnover, recruitment expenses, loss of productivity, and low morale can drain far more resources than a well-structured benefits plan.
Providing a provident fund, for example, builds employee loyalty by showing commitment to their future. Visit our blog Understanding the Benefits of a Provident Fund: A Guide for Pakistani Employees)
6. Employee Misunderstanding and Low Uptake
At times, even when SMEs offer group life or provident fund benefits, employees don’t value them. Younger workers, for example, may prefer a slightly higher salary over long-term savings or insurance coverage. This lack of appreciation can make business owners feel like the effort isn’t worth it.
The solution lies in communication. Employers need to educate their teams about the real value of benefits, how a provident fund supports retirement planning, or how group life insurance protects families in times of crisis.
When employees understand the impact, they’re more likely to stay engaged and loyal.
7. Competing with Larger Corporations
SMEs also face the challenge of competing with bigger companies that offer comprehensive benefits packages. This creates a talent gap, skilled professionals are often lured away by better compensation and perks.
While SMEs may not be able to match large corporations’ benefit-for-benefit, they can stand out by offering smart, flexible plans. Even modest benefits can make a big difference when paired with a supportive work culture, career growth opportunities, and personalized attention that larger firms may lack.
Why Overcoming These Challenges Matters
It’s easy to focus on the barriers, but the benefits of adopting group life and provident fund schemes far outweigh the challenges. For SMEs, these programs are more than just employee perks, they are tools for building trust, loyalty, and long-term stability.
By offering financial protection and future savings, SMEs can:
- Reduce turnover and retain skilled employees
- Attract better talent compared to competitors without benefits
- Boost employee morale and productivity
- Improve compliance and reputation in the market
For business owners and HR managers, the question is not whether you can afford to provide these benefits, but whether you can afford not to.
Final Thoughts
Adopting group life insurance and provident funds can be challenging for SMEs. Cost concerns, administrative burden, and lack of awareness are real barriers. But with the right approach, digital solutions, and proper guidance, these challenges can be overcome.
To succeed, SMEs cannot afford to ignore employee benefits. By investing in financial security for their teams, they not only improve retention but also strengthen their business foundation.
At the end of the day, people are a company’s biggest asset. Protecting their future means protecting the future of the business itself.
Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.
