Originally published in Forward Thinking, August 2007
Providing employees with the right benefits package is vital for staff recruitment and retention, but there’s a lot for employers to consider.
Setting up an effective range of benefits for employees is not just about installing a series of schemes and policies. It’s also about making sure that they are attractive to staff, understood by them, and comply with the law. Only then can the benefits be fully appreciated by staff.
As one Scandinavian employer recently discovered, there’s no point gifting bicycles to employees as part of their package only to find hundreds of bikes posted for sale on eBay!
Above all, the benefits must be affordable to the company and offer value for money. But the question of cost has been clouded by the advent of age discrimination legislation, which is having far-reaching effects on employers.
Here we provide a brief overview of some of the most common benefits available to staff.
Pensions
Despite adverse publicity, a good pension scheme continues to be important to employees and is fundamental to an employee benefits package. A wide range of schemes can be offered, from defined benefit schemes through to defined contribution arrangements that include occupational money purchase schemes. There are also many hybrid arrangements. However, currently the most popular arrangement is the Group Personal Pension Plan (GPPP).
To employers, a GPPP offers a number of advantages because it focuses on cost control while keeping administration to a minimum. The company decides on the level of contribution it can afford and this is its liability limit under the scheme. Ultimately, benefits payable from the GPPP depend upon future investment growth rather than a promised amount of income that the company is required to fund.
Life assurance
Group life assurance is perhaps the most fundamental of benefits and provides a lump sum to an employee’s dependants in the event of his/her death while an employee. The amount payable is usually a multiple of the employee’s salary. Historically, the provision of a dependant’s pension can also be insured, paying out a benefit of, for example, 50% of the employee’s basic annual salary to dependants each year. With the spiralling cost of annuities, companies can control costs by using an extra multiple of salary from which a lump sum is provided to purchase a dependant’s pension.
Disability insurance
Disability insurance provides for an income to be paid to any employee who is unable to work for a prolonged period because of incapacity. Payment is made to the company and the maximum benefit is 75% of the employee’s pre-disability income, less the amount paid by the state as incapacity benefit.
The scheme member must remain employed by the company during any claim period. For this reason, cover is usually extended to include payment of the company’s pension contributions and National Insurance Contributions, to ensure the company incurs no additional cost during this time.
As with life assurance, selecting a provider for this cover is largely rate-driven. However, care needs to be taken to choose a provider that will remain competitive in the long term, rather than quoting a cheap premium to win market share.
Private medical insurance
Private medical insurance is becoming an ever-more popular and valued benefit. Schemes can provide differing levels of cover to different grades of employee. While premium cost is an issue when selecting a provider, quality of administration is key. There is no point saving 5% on premium cost if you spend an extra 10% of your time administering the scheme. Private medical insurance is a valuable benefit to staff and can also benefit the employer by securing prompt medical treatment for conditions that may have otherwise kept an employee out of work.
Notes on flexible benefits
Flexible benefit schemes that include tax and National Insurance (NI) efficient benefits can produce significant cost savings for employers. These can be offset against implementation costs or shared with employees. Care must be taken when introducing a flexible benefit scheme to ensure that the rewards offered are attractive, fit with the company’s overall reward strategy, and are understood by employees. Tax and NI implications also need to be fully addressed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
