Balancing budget and employee choice in flexible benefits schemes

Flexibility and autonomy are increasingly important to employees when it comes to when, where and how they work. It makes sense, then, that flexible benefits schemes are on the rise as employers look for fresh ways to offer employees choice and keep them engaged. According to the Chartered Institute of Personnel and Development’s (CIPD) Reward management survey, published in April 2022, the proportion of employers offering flexible benefits has risen since 2018, with 45% of respondents that offer choice around benefits doing so via a flexible benefits scheme.

There has been a trend for employers to offer more flexibility, says Terry Gostelow, principal strategy consultant, UK health and benefits at Aon. “It is now typical in some sectors to see 20-30 benefits offered; a significant increase from 10 years ago,” he says.

Employee appreciation

This flexibility brings many benefits, says Adam Maher, lead for flexible benefits consulting, GB at Willis Towers Watson (WTW). “Expanded choice within the benefits deal is linked to much greater employee appreciation,” he says.

WTW’s research has found a direct correlation between the level of choice and flexibility an employer offers and levels of employee satisfaction and appreciation around benefits. “Employees who appreciate the benefits provided are far less likely to be actively seeking a new job and more likely to intend to remain,” Maher adds.

However, given most employers continue to face tough and uncertain economic conditions, benefits and HR leaders find themselves having to strike the right balance between offering increased flexibility to a workforce with a diverse range of needs and expectations with the requirement to stay within constrained budgets.

Workforce analysis

The first step to getting this balance right must be to ensure an employer understands what its workforce actually wants. This could be via demographic analysis, external benchmarking data, keeping an eye on what the competition is offering, surveys, focus groups and consultations. Katie Goodwin, chief customer officer at Benifex, says: “More employers are starting to use dynamic and in-the-moment feedback. For example, enabling employees to rate their favourite benefits within their platform provides leaders with insights on how benefits have been received, beyond just looking at views and selection.

“Forward-thinking organisations are increasingly looking to understand the full lifecycle of their workforce, recognising that employees at different life stages will have different needs. Employers can segment data by demographics, creating a richer understanding.”

For example, younger employees may be interested in financial wellbeing support that could help them get on the housing ladder, while parents might be more focused on health and risk benefits. Employers should take a strategic approach, aligning the benefits on offer with their overall employee value proposition and talent strategy.

Employee choice

When it comes to the most popular flexible benefits, Benifex is seeing a growing preference for benefits supporting financial wellbeing, sustainability and mental health. Gostelow has seen salary sacrifice schemes for electric cars increasing in popularity, as employees seek out environmentally conscious choices. 

“Many employers are introducing more self-funded flexible benefits that employees can select via salary sacrifice,” Goodwin says.

This keeps cost down for employers while also delivering choice for employees and enabling them to access tax-efficient arrangements. “While many organisations like the idea of offering a benefits allowance of a flex fund, it’s important to consider how that is going to be funded,” Goodwin adds. “Employers might need to amend levels of existing or core benefits to be able to provide that if there’s no additional budget.”

Employers also need to maximise their investment by ensuring employees know about and use the benefits on offer. Communication is key, and employers should work with their benefits providers to ensure they are making best use of the marketing collateral, value-add services and data insights available.

While staying within budget is non-negotiable, the business case for flexible benefits is broader than cost-control. “The business case is the wider value the employer will gain from improved levels of employee appreciation, engagement and ultimately retention,” Maher explains. “Employers already make a considerable investment in benefits, and a flexible benefits approach can increase the return on this investment by providing more engaging and relevant benefits which employees will appreciate and value more highly.”