What is flexible benefits technology?
It is the software that enables the delivery of flexible benefits plans. It allows staff to select their benefits, interfacing with human resources, payroll and benefit providers to ensure compliance. It has extended its remit to provide communication and information tools.
What are the origins of flexible benefits technology?
The first systems were put together about 25 years ago, but these were largely based on simple spreadsheets and in-house IT.
Where can employers get more information and advice on flexible benefits technology?
One of the best sources of information is word of mouth.
What are the costs involved?
An annual charge of £50 a head was common five years ago, but this has fallen to £15 or less. How much employers pay depends on staff numbers and how complex their requirements are. Although it is common to pay a set-up fee, averaging about £50,000, then an annual charge, says Vebnet, some products for the SME market have only one fee. According to Lorica, these are lower cost, with a set-up fee of about £5,000, then no annual fee. Alternatively, there may be no set-up fee but an annual fee.
What are the legal implications?
Data protection is the main legal issue for flexible benefits technology, but this is rarely a problem with high levels of security in place to ensure data remains secure.
What are the tax issues?
Employers need to be mindful of rules around salary sacrifice arrangements and should obtain HM Revenue and Customs approval if they offer these through their flexible benefits platform.
What is the annual spend on flexible benefits technology?
Without a central body to collect this data, it is impossible to evaluate the market.
Which flex technology providers have the biggest market share?
Determining which providers are largest is tricky because measurements can be made in terms of their number of clients, partner organisations or employees covered. Among the larger players are Aon Hewitt, Benefex, Bluefin, Edenred, JLT Online Benefits, Lorica, Mercer, NorthgateArinso, Redbourne, Staffcare, Towers Watson, Thomsons Online Benefits and Vebnet.
Which flexible benefits technology providers increased their share the most over the past year?
Again, this is difficult to pin down, but several commentators point to Staffcare, which picked up a number of partnership deals, including Towergate and Origen, in 2010.
The scope and capabilities of flexible benefits technology have been increasing in recent years, while the costs of implementing a system have been coming down, says Sam Barrett
Everything is getting bigger in the world of flexible benefits technology. Systems are taking on a broader remit; employers are looking at global benefits platforms; and developers are thinking about new forms of technology to target employees.
Martha How, reward principal at Aon Hewitt, says: “The last two years have seen something of a revolution in the flexible benefits technology arena. If you think of how mobile phone technology has leapt ahead recently you will have a good idea of how this market has moved.”
Driving this change is a refocusing of what flexible benefits technology is about. Originally developed to facilitate employees’ benefit selections and look after the administration behind the scenes, it has now expanded into other areas. As well as sweeping up other benefits such as voluntary benefits, share schemes and company pensions, systems have become much more about employee engagement, says Adrian Ash, senior consultant at Towers Watson.
“In the last 12 to 18 months there has been a real pulling together of employee communication onto these systems,” he explains. “Employers want to get away from the short annual enrolment window and use these platforms to engage employees, whether through other benefits such as salary sacrifice and voluntary benefits or through communications and benefits tools.”
One-stop portal
This move towards a one-stop portal for employees means other common additions include total reward statements, electronic payslips and self-service elements such as booking holiday or recording sickness absence. Bringing everything together has benefits for the employer too. Alistair Denton, managing director for employee benefits at Edenred, explains: “It is a great marketing tool for the employer. The employee can see exactly how much their reward and benefits package is worth. It is very powerful.”
It can also enable benefits to be delivered more intelligently. Jonathan Underwood, global managing consultant at Thomsons Online Benefits, says the technology enables employers to target benefits. “If [an employer] knows an employee has kids it might want to promote benefits that are appropriate, for instance family holidays and childcare vouchers,” he says. “This can improve take-up.”
Alongside this savvier marketing, there is also a demand for more management information. Matt Waller, chief executive of Benefex, says: “Employers want more control. They want to know how it is performing and what it’s costing them.”
In response to this, many of the technology providers have added management information suites and dashboard facilities, and introduced benchmarking facilities.
On top of expanding the services provided, flexible benefits technology providers are also looking at extending their reach with international platforms. Richard Morgan, director of consultancy services at Vebnet, says: “We are seeing a rapidly increasing desire from employers to be able to manage reward programmes on a global basis. Our technology enables this and has multi-currency and multilingual capabilities to facilitate it.”
This has meant the company has been able to put systems in place across Europe, Asia, Singapore and North and South America. “Strategies do vary,” he adds. “Some [organisations] deal with each country in isolation but it is moving towards a global approach.”
But Terry Gostelow, consultant for corporate services at Heath Lambert, is not convinced an international system is achievable. “Language is the least of your problems,” he explains. “Taxation and local laws are the big obstacles.
You can create a single platform where there are obvious similarities but I do not think you can create a truly global system.”
As well as taking on the world, the systems providers are also embracing the latest technology. “Technology is moving fast,” says Waller. “Fourth-generation technology is simple to use, intuitive and interactive. It can present challenges integrating it but it is the best way to engage with employees.”
Technology providers are also looking at how employees access the systems. While being able to log on from home and receiving SMS reminders are fairly standard nowadays, providers are turning their attention to smart phone applications and mobile internet.
But there are issues around usability. For instance, George Farrow, client services director at Asperity Employee Benefits believes, in its current format, flex will not translate well to mobile internet. “Employees will not tolerate all the security questions required to access the service. They want immediacy,” he says.
Others shy away from it for other reasons. Paul Bartlett, head of reward and benefits at GrassRoots, says: “It can be gimmicky. We have put together systems that can be viewed on a smart phone but an app is a step too far. Not everyone has a smart phone and I am not sure they will deliver enough employee engagement to cover the cost.”
Not everything has moved to a larger scale though. Although the technology is delivering more, costs have fallen over the last few years. The average annual fee is now around £15 per employee compared with £50 in 2005.
Likewise the minimum size for a scheme has dropped. While 400 employees used to be regarded as the minimum group size to make this cost-effective, this has fallen to 200 in the last couple of years.
In addition, several providers are actively targeting the small and medium-sized (SME) sector. For example, Benefex launched its Instant Flex product for this market in September 2010 and Lorica launched its Cube Uno in early 2011. Matt Duffy, partnership manager at Lorica, explains: “Costs of flexible benefits technology have been restrictive for this market but this is a ready-made package so it is low cost and easy to set up.
Although it has a streamlined selection of benefits, with just seven available, it can be up and running in just 48 hours.
Further developments in the benefits technology arena are also expected. Gostelow says some of this will be down to changes to some benefits, using child benefit as an example. “Higher-rate tax payers will not be entitled to child benefit but by managing income through salary sacrifice [arrangements] it will be possible to get below the threshold, which will be worth an extra £2,500 a year in child benefit. It is going to be about education and empowering the employee to secure a benefits package that suits them and their financial situation.”
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