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What Any Good Boss Should Know About Employee Benefits

What Any Good Boss Should Know About Employee Benefits

If you intend to employ other people for your firm, you will need to know about employee benefits, what they can do, and what you’re legally obliged to provide in the way of them. This isn’t just for the workers on your team, but should be considered for the good of your business as a whole.

We’ve created a guide to help you below, so read on to find out more about the benefits and rewards you should be providing for your whole team.

What are Employee Benefits?

Employee benefits are non-cash provisions within a worker’s reward package, although some types of benefits often come at the cost of an employer’s actual finances. They’re usually offered to employees for business reasons, for example as a motivation to achieve particular organisational objectives, but can also be offered for “moral” reasons that have a focus on caring for the person’s wellbeing. The latter of these may also help to enhance employee engagement, which becomes a benefit in and of itself for the business as workers become more productive.

Research has shown that the most common business-based reason employers look to provide company benefits is that it helps to attract, recruit, and retain workers that help support their current needs. The most common external drivers (the factors that influence employers most outside of their business) are legal and employment obligations.

How Employee Benefits Got Started

The idea of employee benefits and benefit provision in the UK started with the concept of paternalism. This was put into practice in the very late 1800s by employers who believed that they had a duty of care to their employees, and was supposedly designed to cover worker safety and welfare. However, in the modern era this concept is widely considered to be outdated, and may even cross over boundaries into the realms of intruding on personal freedoms and autonomy.

The idea of general benefits for the public continued at the turn of the 20th century, when the state introduced benefits for the general population, and after the Second World War the welfare state was officially established. This was set up to provide UK citizens with benefits such as unemployment insurance, sick pay, and state pensions, as well as the National Health Service (NHS).

More changes were made to the idea of benefits in the workplace during the 1970s, when attempts to control the growth of pay, combined with high marginal tax rates, drove employers to develop better benefits provisions. This was especially true for senior staff members and was done to circumvent difficulties in using fixed pay.

Ever since the 1980s, the tax regime that had previously been established for employee benefits has tightened. This has limited the attraction of providing certain benefits over cash rewards and incentives. It’s also since proved difficult to remove or downgrade any of these, now that they’re firmly in place and part of the employee benefits package.

Employee Benefits in the Modern Day

In the modern era, some employers have shifted their focus and chosen to offer rewards on an individualistic level. This has transferred more of the risk (and more of the reward) and cost of the provision to their employees. Benefit provision as a whole has also seen a widespread shift in recent times, from defined benefit pension schemes to defined contribution plans (especially in the private sector). There has also been a movement from fixed benefits to flexible and voluntary benefits.

Employee benefits are also no longer just an incentive used to retain staff. Experts have found that what makes a modern company’s offer of employment so attractive to a member of staff all depends on that person’s individual circumstances. This has led to the creation of the “total reward” concept, in which employers will take on a range of mutually supporting financial and non-financial rewards that align with the needs of both the business and its employees. An example of this might be the notion of flexible working hours. As a result, many now think of employee benefits as a tool to help attract, retain, and motivate their team in order to support their business and still optimise its performance.

With these changes to the way employee benefits work within a business, it’s also more of a concern to employers whether or not their team can adjust and take on more of the risk alongside their reward. Some employers feel they have a moral duty towards their staff and helping to educate them about the possible consequences of benefit choices, and there’s also a justification to be found in the commercial benefits of having a financially secure, happy, and comfortable workforce.

There has been more pressure on employers in the time of Covid-19 to review the fairness and sufficiency of their healthcare and risk benefits, such as occupational sick pay, as well as the overall financial and mental support that’s available for their staff. This has especially been the case for those with team members who have had to shield at home, but it’s also been suggested that the response given by many employers will only be temporary.

Types of Employee Benefits in the UK

The types of benefits offered to employees by businesses in the UK can be split into two main categories: those that are required by law, and those that are considered supplementary. There are even some supplementary benefits that are noted down as “perks” for staff to enjoy when working for an organisation.

We’ve detailed the key employee benefits below, as well as given some examples of supplementary benefits, so you can consider what you’re obliged to provide for your staff and what you can choose to reward them with.

Pension Plans

This is a mandatory benefit in the UK, subject to legislation. If you own a company and you have a team, you must comply with that legislation and auto-enroll everyone who is eligible into an appropriate pension. When a staff member is automatically enrolled into a pension scheme, you will also be required to provide a minimum level of their pension provision, meaning you’ll have to contribute to their pension pot. The minimum contribution rate is currently 8% of “qualifying earnings”, and at least 3% of this must be paid by you as the employer.

As pension packages are considered a key benefit in this country, many employers will contribute far more than what they have to provide as a minimum. However, there are also some maximum annual allowances that have to be taken into account:

  • Contributions: what level of contributions will attract talent and remain competitive?
  • Contribution method: the most tax-efficient method of deducting contributions is known as Salary Exchange (also known as Salary Sacrifice), as it gives maximum reliefs in terms of tax and National Insurance, to both the employee and the employer
  • Carrier selection: what will be the best supplier, based on proposition delivery, terms, employee engagement support and financial strength?
  • Default fund: pension providers will offer a specific, default fund for enrollment that’s run under strict governance criteria. It’s also possible for employers to decide on an alternative default fund for enrollment, based on their own considerations and requirements relating to performance, environmental and social governance
  • Employee support: how is the scheme communicated to your team and what specialist support are they provided with?

Healthcare and Risk Benefits

In the UK, most of our healthcare is overseen by the NHS, and can be used by everyone living here without them then being asked to pay the full cost of the service. This includes:

  • Visiting your doctor for medical advice, diagnoses, or treatment
  • Getting treated at a hospital if you are unwell or injured
  • Getting emergency help and treatment from healthcare professionals working in the ambulance services if you have serious or life-threatening injuries or health problems, including safe transport to a hospital

The NHS is publicly funded, with most of the money collected through residents paying tax.

With recent events, pressure on the NHS has grown significantly, and that has left many employers considering alternative options to ensure their employees have access to fast healthcare when they need it.

As well as offering sick pay to workers, many companies will now also provide a number of other benefits for workers based on factors such as grade, occupation, or location. Examples of these include:

  • Income Protection or Group Income Protection (GIP), in which a percentage of an employee’s salary each month (usually around 60-80%) will be paid to them as regular income in the event that they can’t work due to illness or injury. Getting GIP often means that most medical conditions an employee could have prior to the policy are also covered.
  • Optical and Dental Insurance
  • Private Medical Insurance
  • Critical Illness Insurance, in which an employee will receive a tax-free lump sum if they’re diagnosed with one of a number of specific medical conditions and survive for a minimum period of time once they’re diagnosed (this is usually between 14 and 28 days). Different policies will list exactly which conditions are eligible, but typically include medical issues such as cancer, heart attacks, strokes, MS, dementia, and Parkinson’s disease as standard.
  • Health Cash Plans, which covers the costs involved with minor healthcare needs, such as physiotherapy, getting advice or treatment from a specialist, or other non-extensive medical expenses.
  • Health Screening, in which a regular health check is offered to employees. This normally covers a physical examination to diagnose any issues that the worker may not currently be aware of, but may also cover questions that help identify diseases they may be at risk of, alongside medical advice on lifestyle changes as necessary.

Many companies will also choose to include life insurance (also referred to as Death in Service) as part of their employee benefits. This is a tax-free lump sum that’s paid in the event of an employee’s death, in order to provide support for the people who would otherwise depend on them financially (such as a spouse or children).

How much each recipient will get from a life insurance payout depends on the policy chosen, but it’s often calculated as a certain number of times the employee’s salary. For example, if the person earned £25,000 a year and had a “4 times salary” policy in place, their dependents would receive £100,000.

Holidays and Time Off

Everyone who works a 5-day work week in the UK is entitled to at least 28 days of paid time off. This is the equivalent of 5.6 weeks of holiday, which can also be called “statutory leave entitlement”, or “annual leave”. Employers can choose to include public holidays as part of their company’s scheme for statutory annual leave.

It’s common for employers across the UK to provide greater paid holiday benefits than the minimum, however, and many will offer their employees the option to increase their holiday entitlement. This is usually achieved by allowing the employee to “buy” extra days as part of a flexible benefits arrangement.

Maternity and Paternity Leave

When your employees have worked for you for over 26 weeks, they will be entitled to 52 weeks of maternity leave (if they identify as female) and up to two weeks paternity leave (if they identify as male).

Statutory Maternity Pay (SMP) should be paid in the same way as the employee’s salary or wages, with tax and National Insurance deducted, for up to 39 weeks. This should be:

  • 90% of the person’s average weekly earnings before tax, for the first six weeks
  • £151.97 or 90% of the person’s average weekly earnings (whichever is lower) for the next 33 weeks

The statutory weekly rate of Paternity Pay is also £151.97, or 90% of the person’s average weekly earnings (whichever is lower). This is also paid out in the same manner as wages and salaries, with tax and National Insurance deducted.

It’s also possible for couples to apply for Shared Parental Leave, which they must confirm with you in writing at least 8 weeks beforehand, giving clear notice of their leave dates.

Other Employee Benefits and Perks

There are many other diverse employee benefits and perks that aren’t required by law, but that employers might choose to include in their employment packages to attract, reward, and motivate their team, as well as to build and cultivate a great company culture. We’ve included some examples of these below:

  • “Bike to Work” schemes (these allow employees to purchase bikes tax-free, up to a limit)
  • Childcare vouchers
  • Concierge services
  • Company cars
  • Flexible hours
  • Gym memberships, or onsite exercise facilities
  • Interest-free travel loans, or season ticket loans for commuters
  • ISAs and share schemes
  • Nap rooms or relaxation spaces
  • Staff canteens or catering services
  • Unlimited holiday time
  • Working from home
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Taxation and Salary Sacrifice Provisions in the UK

Certain employee benefits attract preferential tax treatment in the UK. This is often in line with government policy to support or encourage particular choices, such as decisions made about pensions, or cycle-to-work schemes that have become more popular in light of the pandemic.

If you make Salary Sacrifice arrangements with your employees, this means that they’ll give up part of their pre-tax salary in exchange for a benefit you’ve agreed to. For example, under a pension salary sacrifice arrangement, your staff would give up part of their gross pay and, in return, you’d make an equivalent contribution to their pensions. This allows you to save on income tax, and means that both you and your employee will save on National Insurance contributions. You might also use the NICs savings to help run the scheme as a whole, or to top up employees’ pension funds.

It’s important for organisations to consider the implications of Salary Sacrifice arrangements for employees in terms of provisions such as working tax credits, universal credit, or the National Minimum Wage.

It’s also possible that the tax position on employee benefits and Salary Sacrifice as a practice may change. To ensure you’re staying up-to-date with the latest information, please refer to the HMRC website.

Choices in Benefit Provision

The first question to ask when deciding your method for rewarding your employees will normally be “cash or benefits?”. It’s often the case that employers prefer to provide cash, as this enables employees to purchase benefits that best suit their own needs. This is called “clean pay”, and is easily communicated from an employer to an employee, and can be understood and administered with little trouble.

However, there are some disadvantages to this system, which may prevent some employers from using it:

  • Staff may spend more money buying their own benefits than it would’ve cost the organisation to provide those benefits on their behalf
  • Staff may spend work hours searching for the best deals for them
  • Staff may make poor choices with the cash benefit provided

Flexible and Voluntary Benefits

Flexible and voluntary benefits schemes are available as an alternative to you. They offer choice by providing you with flexibility over individual benefits packages, though it’s important to be able to distinguish between them if you’re planning on using them.

The Difference Between Flexible and Voluntary Benefits

Flexible benefits arrangements, which you might also see called “cafeteria benefits” or “flex plans”, will allow your team to vary their packages to meet their own needs. There is also a less fixed dividing line between pay and benefits than in a standard reward package. In most cases, employees will either be able to retain their existing salary while changing the mix of various benefits they receive, or they will be able to move their salary up or down by taking more or fewer benefits.

On the other hand, voluntary benefits, which might also be called “affinity benefits,” allow employees to buy products and services, at a discount, through their employer out of their own taxable income or through a Salary Sacrifice arrangement. This is different from flexible benefits in that the employee pays for the cost of the benefits. Under a voluntary benefit scheme, you may not pay for the benefits provided even though you are the employer, but the scheme itself may incur research, administration, communication, and launch costs.

What Can Flexible and Voluntary Benefits Do?

Flexible and voluntary benefit schemes can:

  • Align with an increased focus towards reward individualisation
  • Help to address inclusion and diversity in the workplace
  • Be cost-effective for your company budget
  • Assist in the harmonisation of reward practices (especially during a company merger or acquisition)

You will not be limited to choosing one over the other, either. Both flexible and voluntary benefit schemes can be used by the same company, to their advantage and in a way that aids a growing organisational culture.

If you are planning to introduce a “flex” scheme, you may find it beneficial to start by offering benefits on a voluntary basis. The idea behind this is to allow companies to test the popularity of certain benefits, and to fine-tune their subsequent plans for the scheme before they’re put into practice.

You must also be certain that the choices, and any results or consequences from them, are made clear to your employees. If the options you suggest seem to be too complicated, or the choice-making method comes across as too difficult, then your team might just decide to keep to the benefits package that they already have. This may result in any resources you’ve spent on introducing a new scheme going to waste.

In some cases, it may be more appropriate to offer your team a meaningful (if limited) choice of options for their benefits.

Strategising and Implementing the Benefits

Before introducing, revising, or completely removing a benefit from a package, there are also a number of questions you should ask yourself:

  • Why does your organisation want to offer the benefit? How does it support your business goals? How does it reward the values or behaviours you need to see in your employees?
  • How does the benefit fit into the HR and reward strategies you have in place? Does it support the people management and development practices your company needs?
  • Will the change be valued by current and future employees? Have you spoken to them about their views?
  • How will the benefit be launched for your employees? Who are the key stakeholders and how will they be involved in your plans? Does the launch team have the required skills, knowledge, and support to go ahead?
  • How will you explain what’s being introduced, and why, to your line managers? How will it be explained to staff, including what they have to do? How will the benefit be communicated on an ongoing basis to everyone involved?
  • How will the changes be explained to external stakeholders, such as customers, clients, or investors? Do their views need to be considered on the matter, and how so if they do?
  • How flexible are the implementation and communication plans to changes in the business context?
  • Do your employees have the knowledge, skill, and the attitudes needed to make informed decisions on the matter? Do you think that maybe you need to invest in education around financial awareness?
  • What factors are you going to use to assess whether the benefit successfully supports your organisation’s goals?

Does Your Team Need a More Beneficial Office Space?

If you are in the process of searching for a new, luxurious space for an expanding team and would like a place that can easily be made over to fit your company culture, contact Halkin today. By signing on for membership with us, you’ll be granted access to a portfolio of stunning offices for rent in London, each of which comes with its own benefits and perks that your employees can use from the moment you move in.

As we offer flexible tenancies on a permanent and semi-permanent basis, along with immediate move-in options, you’ll even get the chance to set up shop and stay for as long as you like. All of our rates are fully transparent, too, so you won’t be surprised by any hidden costs or extras once you’ve settled into your ideal address, which may come with showers, bike racks or parking, generous and comfortable breakout spaces, or even its own catering service.

Get in touch with us today to book a viewing of the office that will benefit your employees as much as it will benefit your business.