Implementing truly flexible benefits
Many firms say they give benefits to their staff. They shout from the roof tops that they are the best company for perks. In many cases these ‘benefits’ are actually no more than statutory requirements. Other firms do give very valuable benefits like 12% employer pension contribution and healthcare for all the family.
The argument in favour of granting employees 'benefits' over and above salary is sound. We discuss below, and in other blogs, that benefits are benefits to the firm too, in enhancing employee commitment. But we also note that employee attitudes to benefits change with age - with life stages. As a result what's really needed is flexibility in granting those benefits. But traditionally, management overheads have determined that flexible benefits has been the preserve of the large firm.
In fact, designing a flexible benefits systems is simply done by all.
When is a benefit not a benefit?
The examples above are real. Employers in these cases truly believe they are providing benefits. But what does this say to the employee or to the job candidate? Perhaps they’ll get a message that says, “I’m only going to provide what I’m forced to provide”. And when the employee in turn only works to the letter of their contract, what then? That’s the employee only providing what they in turn are forced to provide! If that were to happen, the employer would think that the employees not committed to the firm. The manager would feel aggrieved that the employee ‘won’t go the extra mile’.
Clearly, some clarity is needed!
Why provide benefits?
A benefit is something that is considered advantageous. It’s… well… a benefit, but to whom? Employee benefits should be seen as helpful and advantageous to both employer and employee. Benefits benefit everyone. Providing benefits should never be seen as a cost. Benefits should be seen as a way of securing and sustaining commitment from employees.
Commitment is fundamental to management. If employees are committed, other management and leadership interventions become possible.
Commitment is won by trusting employees. It’s won when the employee declares privately or openly that he or she really wants to work in the firm. And in winning commitment, it’s for the manager to make the first move.
The benefit of benefits
Engagement follows commitment. All managers want engaged staff. Engagement occurs when the person and the job are ‘meshed’ together. Engagement yields heightened motivation. Motivation leads to higher performance.
This is where benefits come in - benefits lead to heightened performance through heightened commitment.
But, as people progress through their working life, what’s important to them changes. Those early in their career with no family ties will value things like additional holiday, free standby flights and flexible hours. Free standby flights are not much use to families who need to holiday in peak season, but family health care is. And the older worker is more likely to value increased pension contributions rather than gym membership, ‘beer Friday’ and a ping-pong table in the office.
The point is that benefits are considered differently by each employee and their attitude to specific benefits changes over time.
Employee’s changing needs can be met by the introduction of a flexible benefits scheme. Allowing employees to choose the benefits relevant to them at different life stages.
Offering flexible benefits
Any scheme will have to be developed with a basic set of benefits that can’t be changed by employees. For example, everyone must have the statutory minimum holiday allocation. Employees can’t trade these days for other benefits. Likewise, employees can’t trade the minimum employer pension contribution for other benefits. But, with this in mind, a benefits scheme can be developed to meet the unique needs of the employees and the business.
If you search online for ‘flexible employee benefits’ you’ll find a wide range of providers offering a service to manage the process for you. These firms charge significant sums to manage your flexible benefits scheme, providing online access to benefit trading. Typically, there’s a size point where the cost of managing flexible benefits becomes viable and it’s typically over 100 employees. So, that’s fine if you’re at the upper end of the SME range. But what about small firms? How can they develop and manage a flexible benefit package?
Setting up flexible benefits in an SME
The starting point in any firm (of any size) must be to determine the required outcome. Like any manager intervention, what are you hoping introduction of flexible benefits will achieve?
Here are some questions to consider:
• What do I want to achieve for the business with the benefits package?
• How much am I prepared to spend to get the benefit I seek?
• How will the benefit scheme in its entirety impact the business?
• What benefits will the employee get?
• Do I know what benefits my employees would value?
• How will I introduce the benefits?
• How will I ensure that the benefits I seek for the firm are realised?
Answering these questions will help to determine what benefits might be offered to employees.
Here’s a list of some popular benefits you might consider:
• Additional annual leave;
• Additional pensions contribution from the employer;
• Private medical cover for each employee;
• Private medical cover for the employee’s family;
• Health care cash plans (including dental and eye care);
• Subsidised gym membership;
• Life assurance;
• Critical illness and long-term disability assurance;
• Health screening;
• Cycle to work scheme;
• Company car; and
• Car allowance.
The aim of a flexible benefits scheme is for employees to be able to exchange one benefit for another (e.g. the ability to trade holiday for pension) or to be able to buy a benefit from the firm for less than the employee would pay from an external provider (e.g. the ability to buy healthcare for family members at much reduced rates).
There are some constraints when offering benefits trading but schemes can be simply designed and implemented.
So, let’s assume that you’re not just going to pay the fee and get someone else to manage the scheme. Let’s assume that you’re going to design and implement it yourself.
The next step is to talk to benefits providers about what they can offer. This means approaching your current providers (if relevant) to explain that you would like to have some flexibility on how employees access the benefit. For example, can employees change their access to private health care annually? Can your car fleet provider extend its range to smaller saloons? And since the cost of providing private health care increases as employee get older, how will the provider account for this in the scheme?
It’s worth mentioning here that providers are likely to have a minimum volume for a given price. For example, health care providers will be able to offer lower monthly contributions where the take up of the scheme is high, but if only one employee takes the benefit, it may not be financially viable. For insurance products, the actuarial risk is distributed across a wider population of employees. Be sure to discuss volumes and minimum take with potential providers for all the benefits you are considering.
Once the data is gathered for each benefit, it’s then time to put a scheme together on paper. It’s easily done with a spreadsheet. The cost of each benefit can be calculated. And you can use modelling to simulate employees being allocated the cash or points of a benefits allowance to the various benefits.
Once the benefit system has been developed, with the input from some of your employees, it then needs to be documented and communicated to staff before it is implemented.
We recommend keeping administration as simple as possible. Provide each employee with their current benefit package and the information they need to decide about their benefits for the following benefit period (e.g. one year or two years). Then give them a cut-off date for advising on the changes, and stick to it.
Then every year, have a conversation with each benefit provider about how well the scheme is working and get quotes from them for benefit provision for the coming period.
It’s important to also consider the tax implications. Many benefits will be classed as benefits-in-kind and as such the employee will be liable for tax payments on the taxable value of the benefit. As an employer you will be responsible for advising HMRC about the benefit-in-kind payments by completing P11D forms annually for your employees.
Research show us that committed employees are more likely to be engaged and productive. Benefits enhance commitment. The benefits offered must serve a purpose – be it recruitment, retention or well-being. In search of commitment and other benefits to the firm, managers can provide benefits schemes which allow employees to design their own package – within reason. The benefits provided can truly be flexible and they can truly benefit both employee and employer.