The survey
Attitudes
What’s on offer
Administration
Communication
Salary sacrifice
Sponsor’s comment by Towers Perrin: Give staff ever greater control
The survey
Our survey, which was carried out in January 2008, received 541 responses from Employee Benefits readers and users of www.employeebenefits.co.uk
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Key Findings
81% of respondents believe flex recognises the diverse needs and values of the workforce.
54% of respondents believe flex improves staff retention.
93% of respondents offer childcare vouchers through a flexible benefits scheme, making it the most widespread option.
38% of respondents include between five and 10 benefits in their flex scheme.
63% of respondents have used consultants for help with flexible benefits, with 59% of these using consultants to provide administrative support.
77% of respondents communicate their flex scheme online.
88% of respondents with flex offer tax-efficient salary sacrifice benefits through their scheme.
53% of employers with flex use the savings gained from salary sacrifice to fund their plan.
71% measure the success of their flexible benefits scheme, and 27% use a plan’s impact on recruitment to gauge this.
Definition: Flexible benefits is a formal plan run for a set contract period whereby staff can opt into and out of employer-paid benefits, select employee-paid benefits or take cash. This is not the same as voluntary benefits which are discounted products made available through the employer but the contract is between the employee and the provider.
Offering flexibility can satisfy the needs of a diverse workforce and show staff the value of their perks, but the cost of setting up and running flex can be an issue, says Nick Golding
Using flex to recognise the diverse needs and values of a workforce remains employers’ main reason for providing a flexible benefits scheme. This year, 81% of respondents see this as a main advantage of offering flex, compared with 82% in 2007.
This perhaps comes as no surprise as flexible benefits enable employers to offer their workforce choice around the perks they receive, making it easier for them to cater to the diverse lifestyles and needs of their staff.
It can also make it easier to offer a consistent benefits strategy across different locations and job roles.
Once again, employers are also seeing the value in using flexible benefits plans to improve the image of the company. This was the second most popular advantage of flex identified by respondents this year, as cited by almost two thirds (64%). This figure is largely unchanged from 2006 when 62% said the same.
Using a flexible benefits scheme to help retain employees, which can help employers to save on recruitment and training costs, appears to have risen in importance this year. Over half (54%) of respondents now believe improving retention is a key advantage of flex, compared with 49% in 2007.
An increasing number of employers also appear to have seen the advantages flex can have around communicating the value of the benefits offered by their organisation to employees. Just over half (52%) now believe that this is a key advantage of running flex, compared with 48% who said the same last year. This rise, albeit slight, is perhaps linked to the fact that employees prefer to see the details of, and gain access to, their perks all in one place.
The other main advantages of offering flex cited by employers have remained fairly steady year on year. The percentage of respondents who believe flex is effective at reinforcing the corporate culture of their organisation to employees, for example, has remained relatively static. This year, 34% see this as an advantage of flex compared with a third in 2006 and 32% in 2007.
The percentage of respondents who view improved staff motivation as one of the main advantages of offering a flexible benefits scheme, however, has continued to fall. Back in 2006, 45% thought flex helped improve motivation levels, by 2007, this had fallen to 41% and now the figure stands at 40%.
Employers appear to be increasingly reassured about the cost of setting up and running a flexible benefits scheme. Although more than half (54%) of respondents still cite the cost of implementation as a concern, this is a significant drop from the 73% who perceived this as a problem in 2005. This change may be due, in part, to technological developments, which have led to a growth in off-the-shelf packages, helping to lower the cost of flex. These may also account for the steady decline in the percentage of respondents who believe the complexity of administration is a problem. That figure has fallen from 60% in 2006, to 57% last year, and now to 54%. Worryingly, lack of employee interest is an increasing concern for employers, with 23% citing this as an issue, compared to 20% last year.
There’s nothing like a flexible benefits package to hammer home the perks that are on offer, so it is not surprising that just under two-thirds (62%) of respondents with flex say it has been effective at showing staff the value of their perks. Complementing this statistic is the rise in respondents who believe flex has been effective at increasing the employee perception of the package, which now stands at 55%, compared with 45% last year.
The percentage of employers who perceive flex to be an effective recruitment tool, meanwhile, is also on the increase. More than half (51%) of respondents now believe that flex aids recruitment, which is up from 46% last year. Employers also appear to be recognising the effect flex can have on helping to position organisations as an employer of choice.
The link between benefits and engaged staff is also evident as 24% believe flex can help improve or maintain engagement levels.
The planned introduction of personal accounts in 2012 has inevitably prompted many employers to think about their pensions provision and where this should sit on the benefits menu.
Offering the opportunity to make contributions to a pension scheme through flex, often via a salary sacrifice arrangement, is an option that has been taken up by a number of organisations. Where salary sacrifice is used national insurance (NI) savings for employers and tax and NI savings for staff can be produced. It appears that the planned changes are, so far, doing little to prompt employers to reconsider this. Just under half (45%) say the changes have not affected the way they view flexible benefits, although a further 39% don’t yet know how this will affect their thinking around flex.
However, the planned introduction of personal accounts has prompted 3% of respondents to offer a pension through salary sacrifice as a standalone perk. This course of action has been most prominent among respondents with between 5,001 and 10,000 of staff.
Encouragingly, personal accounts have deterred just 3% of employers from introducing flex, while 5% are considering adding a pension to their scheme.
Employers are generally more cautious about introducing tax-efficient benefits following the government’s decision to remove tax breaks around its home computing initiative back in 2006.
Some employers (8%) have even been deterred from introducing a flex plan because of negative speculation about the future of salary sacrifice arrangements, while others (5%) have reconsidered if they should continue to offer flex.
Although HM Revenue & Customs has not ruled against salary sacrifice arrangements, it appears to be keeping a close eye on the interpretation of tax rules given its recent correspondence with employers about canteen food.
Age discrimination legislation, which was introduced in October 2006, has had some impact on respondents’ flex schemes, as a fifth say they have had to amend the terms of some products offered to accommodate the new regulations.
A further 6% of respondents have had to remove benefits from their flex scheme, while 2% have had to open up their scheme to a wider number of employees. More than two-thirds (68%), however, have not had to make any tweaks to their plans.
The surge in popularity of perks such as childcare vouchers and bicycle loans indicates employers are making the most of tax breaks and helping staff to achieve a work-life balance, says Nick Golding
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Paying out for a range of benefits that employees do not value and so rarely use can be an expensive business. Employers must therefore ensure that the number of perks they include within their flexible benefits scheme accurately reflects the demand from their workforce.
For the 31% of respondents with a flexible benefits scheme, the most popular number of options offered stands at between five and ten perks. This number is provided by more than a third (38%) of employers with flex, a slight fall on the 45% that offered this level of choice in last year’s survey.
A more generous 34% of employers with flex offer a choice of 11 to 15 benefits, which is a rise from the 26% that included this number of perks in their flex scheme last year.
Just 12% of employers offer less than five perks through flex, a drop from the 16% that did so last year. Only 6% include more than 20 benefits in their flex scheme, suggesting employers typically prefer to select relevant perks.
Tax-efficient childcare vouchers remain the most widespread benefit offered by respondents through their flexible benefits schemes. The option’s popularity among employers shows no sign of fading as more continue to offer the perk. Some 93% of respondents now offer the perk through flex, up from 84% last year and 81% in 2006.
Many employers also appear to be recognising the advantages of helping their staff to achieve a better work-life balance and juggle their work with personal responsibilities. The popularity of allowing staff to buy additional days’ holiday or sell some of their annual entitlement, for example, has also continued to rise. This year, 85% of respondents offer this benefit through flex, which is an increase on 73% last year and 66% in 2006.
Bikes-for-work schemes have also undergone a surge in popularity. Just under two-thirds (64%) of respondents now offer the perk, compared with 41% in 2007 and just 16% in 2006.
This move may partly be due to the tax efficiencies associated with the perk, which can be obtained by staff, as well as the national insurance savings that are available for both employees and employers. The benefit could also support organisations’ agendas around environmental issues, as well as employee health and wellbeing.
The current uncertainty around the tax status of health screening, meanwhile, does not appear to have impacted on employers’ decisions to include the perk for staff within flex. The percentage of respondents that do so is now up to 64%, from 59% in 2007 and 48% in 2006.
At the other end of the scale, however, alternatives to traditional company car schemes appear to be falling out of favour. This may be due to employers’ increased focus on health and safety issues ahead of next month when the Corporate Manslaughter and Corporate Homicide Act 2007 comes into effect. Just 15% of respondents now offer alternatives to company cars, which could include options such as cash allowance schemes or leasing arrangements. This figure is a drop from the 24% that did so last year, and the 34% in 2006.
When it comes to the benefits that employers intend to add to their flex scheme, those that could support a corporate social responsibility strategy appear to be high on their list of priorities. Perks such as carbon credits or offsetting and payroll-giving schemes, for example, are two of the most popular planned additions.
The adverse impact that organisations and staff can have on the environment has been well documented in the media, and many employers are now keen to be seen as being environmentally friendly.
This may explain why bicycle loans are a popular planned addition to respondents’ flexible benefits schemes, as increasing numbers of employers look to provide their staff with greener alternatives to travelling to work by car. Some 12% of respondents are currently aiming to add the perk to their flex schemes.
This benefit can also be used to support an organisation’s health and wellbeing strategy.
Tax-efficient donations to charities through a payroll-giving scheme and discounts on food in on-site restaurants, meanwhile, are tempting 7% of employers with flex schemes.
Administration
When employers decide to implement a flexible benefits scheme they accept they will be taking on a huge administrative task. However, improvements in technology over the years have made administration simpler and less of a burden. Yet, the proportion of employers administering their scheme without external help appears to be on the decline. Back in 2006, almost three-fifths (58%) of employers administered their scheme in-house, while now only 44% go it alone. But of the remainder, 38% do not relinquish the administrative task entirely, as they partly outsource their scheme. This is a significant increase on 2006 when 21% of employers took this route.
The proportion of employers that have off-loaded administration completely has fluctuated around the 20% mark over the last two years.
Whether employers manage their flex scheme in-house or not, many find the input of consultants invaluable. Almost two-thirds (63%) of employers use consultants to help them manage their flex scheme in one way or another. This is an increase on the 54% of employers who said they had used them back in 2006.
Increasing numbers of employers are turning to consultants for help in designing their scheme, with more doing so than for guidance on provider selection. Two years ago the reverse was true. Then, 64% of respondents used consultants to help with scheme design, while 77% of employers do so now. And back in 2006, 67% turned to consultants to help select providers, compared to the two-thirds (65%) that do so now.
It is no surprise that the vast majority of employers use intranets and online systems to administer flexible benefits schemes in the workplace.
The increasing use of technology has meant that this figure has increased significantly in the last two years, from 74% in 2006 to 92% today. As the use of IT and online systems has increased, the use of paper-based and call centre administration has declined.
Paper-based administration was used by 24% of employers back in 2006, compared to 19% of employers that use this method today. Similarly, 39% of employers used call centres two years ago, three times as many that have recourse to them now (13%).
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There seems little point in employers going to the trouble of implementing and administering a flexible benefits scheme unless they are going to measure its success. Almost three-quarters (71%) of employers with flex schemes do so, however, that leaves just over a quarter (29%) that do not know what degree of return they are getting from their investment in this perk.
The main factor that employers monitor is the tax and national insurance savings (61%) that the scheme delivers.
A large proportion of employers (58%) measure the impact of their scheme on employee engagement, presumably through staff surveys. A harder task is measuring the impact of a flexible benefits scheme on staff recruitment and retention, yet 27% and 35% do so respectively.
For a flexible benefits scheme to be fully appreciated by staff they must understand how it works and the degree of choice that it offers them. So effective communication about a flex plan is key.
More than three-quarters (77%) of employers put the details of their scheme on the intranet or on a special website that staff can access outside the office at home. But, unless staff know the information is there then it is useless. So, 65% of employers use emails to communicate regularly with staff. However, the power of email as a method of communicating flex is perhaps not what it once was as this is significantly less than the 92% who used it to communicate with staff in last year’s study. Nevertheless, email can be useful to remind staff of key dates and to flag up new benefits options.
Despite the extensive use of the internet and emails to communicate flex, some employers are reluctant to give up paper altogether. Almost three-quarters (73%) of respondents still issue a booklet or brochure giving employees information on flexible benefits.
Induction meetings are also a crucial way of communicating flexible benefits, with 57% of employers using them for this purpose. Posters (56%), total reward statements (48%) and leaflets (44%) are also widely used.
Newer methods of communicating, such as webinars (2%), text messaging (4%) and podcasts (0%) have yet to take off. But online benefits modelling tools are proving popular, with 38% of employers providing them.
Many employers have yet to embrace the finer points of communication such as targeting messages to suit particular employee groups, otherwise known as segmentation.
Although three-quarters say they have not adopted this technique, 10% say that they want to start doing so.
Encouragingly, 15% of employers already use segmentation to help communicate their flexible benefits schemes.
The way that they split employees into groups, however, varies, with 6% using the benefits choices employees have made in the past and 2% the age of their employees. Some 7% use other methods of segmenting their staff. They may, for example, have polled their employees about the benefits that interest them or their lifestyle interests in order to provide suitable data that can be used to divide staff into groups.
No employer splits their employees into groups according to family status. However, if they do not take such circumstances into account employers could, for example, end up extolling the virtues of childcare vouchers to staff who do not have children.
Salary sacrifice
Although a large number of employers offer tax-efficient perks through salary sacrifice via their flexible benefits scheme, the figure of 88% has grown little from last year when 84% of employers did the same. Of those employers that do offer tax-efficient benefits through flexible benefits schemes, almost all offer childcare vouchers (97%). This is an increase on last year when 81% offered the perk. However, there has been a significant increase in the percentage of employers offering pensions and bikes-for-work schemes, which are up from 16% and 3% respectively to 65% and 66%. Mobile phones are also more popular, with 23% of employers now offering these as a tax-efficient salary sacrifice benefit through flex compared with none in last year’s survey.
This is the first year we have asked respondents about bus travel, and food bought in on-site canteens. Despite the crackdown by HM Revenue & Customs on salary sacrifice on food bought through staff canteens, 9% of employers, which provide tax-efficient salary sacrifice benefits, offer this as an option.
Where employers have made savings on national insurance by offering tax-efficient benefits through salary sacrifice, more than half (53%) use these to help fund their flex scheme, a similar figure to last year’s survey, while 31% of respondent employers do not.
Sponsor’s Comment: Give Staff ever greater control
This article is brought to you by Towers Perrin.
It was pleasing from this research to see that so many who offer a flexible benefits plan felt the were effective in improving retention (45%), aiding recruitment (51%), showing employees the value of benefits (62%) and increasing the employee perception of the package (55%).
However, many flex plans in place have been round for a number of years and employers are looking at ways to improve and enhance what they offer. Also, where new flex plans are being introduced, employers want to make sure they are leading the pack in terms of new developments and introducing something that is fresh.
Flex has now been part of the UK benefits scene for a long time and I am often being asked ‘where to next with flex?’. A key theme I keep hearing is: how can we make our offering truly flexible and integrated into our total reward package? This, in particular, relates to the company-paid element of the benefits package, where many plans only offer very limited flexibility, requiring a minimum level of risk benefits such as life assurance and private medical insurance, and do not permit employees to “flex out” of key benefits such as a pension. Some of this lack of flexibility is driven by the insurance market and the likely impact on benefit costs, but there is still a large element of paternalism that holds organisations back from allowing employees a free rein.
However, we are starting to see some employers who are prepared to tackle this issue. This includes some large employers that give employees the ability to vary the majority of their flex fund including the most significant element, the pension contribution. This allows employees to own their package and decide how they want it delivered. While some of this flexibility around pension contributions will be impacted with the introduction of personal accounts, there is likely to continue to be scope for many employers to offer this flexibility.
The benefits of giving employees such ownership of their reward package are significant. Research has shown that substantial improvements in employee appreciation of the same benefit spend can result when employees have a real opportunity to shape their package to one they value.
Doing away with some of the enduring paternalism and allowing employees to take ownership of their reward raises another very relevant theme, that of financial education. Giving employees greater flexibility and choice comes with an increased need for information and education. How much this responsibility falls to employers is debatable, but I believe that investments in this aspect will always reap rewards in terms of increased employee satisfaction.
So, whether you have an existing flexible benefits plan or are thinking about introducing one, think about the opportunities available from embracing a more modern deal on flexibility. If you, like many organisations, are investing in flex and are looking for the return on that investment by measuring the impact on the bottom line, this approach could provide a firm foundation for delivering results.
Jacqueline Otten, principal at Towers Perrin
The views and opinions in this article are those of our sponsor, Towers Perrin HR Services, and do not necessarily reflect those of www.employeebenefits.co.uk.
