How forward-thinking HR departments are rethinking employee benefits

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HR professionals need to become educators rather than administrators, to help support employees in the correct use of benefits.
Administrative HR functions should be outsourced to enable HR professionals to concentrate on strategy.
Cost reviews will be ongoing, more proactive and more about value-added services than benefit unit price.
Better teamwork will be required between HR and department peers, such as finance, to create more holistic employee benefit packages.

Case study: Alexander Mann challenged advisers for top results

Alexander Mann Solutions took a more commercial approach to its last review of its employee benefits package, which included scenario modelling and much tougher negotiations with its adviser, Thomsons Online Benefits, to achieve a cost-effective result.

This was prompted by the revelation of an eye-watering private medical insurance (PMI) premium for the year ahead. The shock resulted in a review of how the policy was being used.

Ruth Smyth, head of HR at the recruitment firm, says: “We were facing a 25% increase in premium because of a high number of employees making low-level claims for physiotherapy appointments, for example, and there was no excess on our plan.

“The size of the premium and the cost to our business was a significant amount for us to absorb as a business.”

Smyth and her team used scenario modelling to calculate a range of possible solutions which would allow the retention, rather than removal, of the PMI cover. Variables used for the modelling included variations in the level of cover to help cut the premium.

“We made the decision that we should influence premiums by introducing an excess of £100, which kicked in on 1 April,” says Smyth.

She adds that a health cash plan, provided from Health Shield, has also been introduced as a voluntary benefit for employees, which Alexander Mann is subsidising to the tune of £30 a year per employee.

To ensure the right result for the organisation’s 1,500 employees, it hosted a beauty parade of cash plan providers. In October last year, it also launched a six-month review for its group personal pension plan (GPP). This has resulted in a switch in provider from Friends Life to Aviva, which took effect on 1 April.

As part of the move, Alexander Mann has reduced its pensions annual management charge (AMC), which was a key factor driving its review. Smyth says: “This year, more than most, we have been working our advisers hard.”

Employee benefits have suffered cutbacks in recent years. Now different strategies are needed to guide them, and HR departments, into a new era, says Clare Bettelley

The economic downturn has forced employers to rethink their approach to employee benefits, but with most cuts already having been made, what next?

The perceived value of employee benefits means they must be preserved. Employee Benefits/YouGov research 2012, published in February, revealed that 72% of employees receiving three or more benefits felt committed to their organisation, compared with 56% of those receiving no benefits.

So what is the answer? What will the benefits package of the future look like?

According to Martha How, a reward specialist at Aon Hewitt, ‘tractional’ benefits, from which staff can extract tangible value, will be increasingly popular. These include fuel-efficient cars and mobile phones. “If an employer has rebrokered all its benefits, including a redesign of, for example, group income protection [GIP], one of the smartest things is to approach cost-cutting cognisant of what is happening to staff: they are in a noor low-pay-increase environment,” says How. “Phones and green cars are cost-neutral to the employer and valuable to the employee. Previously, employers steered clear of them because they were too much hassle, but now it’s a case of why wouldn’t you do it?”

How says HM Revenue and Customs’ (HMRC) decision to extend the tax exemption available for smartphones used solely for business to all smartphone users makes these more attractive to offer as a benefit.

In February, HMRC announced it would extend the tax and national insurance (NI) exemption available for mobile phones used for business to an employee’s first smartphone. It had previously declined to extend this exemption because of the smartphone’s extra functionality, which extended beyond voice calls, to which the exemption related.

Bring your own device schemes

How says a number of employers are also mooting a benefit, which she believes will revolutionise not only the benefits package as we know it, but also employees’ way of working. Dubbed the ‘bring your own device’ (BYOD) scheme, the salary sacrifice benefit enables staff to buy their own phone and computer for work and personal use.

“Think about IT strategy and the huge investment in technology kit,” says How. “Generally, the specification of machines is standard and dictated by IT, and way behind what you would invest in for personal use.

“Now imagine an IT strategy based on data protocols dictated by Cloud-based computing, not network cables. Why should employees not be able to use their Mac at work and enjoy the discount their employer does? It is a really radical thing and not a trend, but a paradigm shift.”

John Laity, an independent BYOD consultant, cites the successful implementation of a BYOD benefit at a UK employer striving to digitalise its product base as evidence of the benefit’s potential long-term success. The employer ran a trial allowing senior managers to use iPads for work, providing an application for chatting and a secure web browser, plus a note-taking programme, for which it offered to split the cost with its staff.

Laity says: “Within 24 hours, 25% of those polled went in. In benefit terms, the employer said ‘we could never contribute £200 to an iPad’, but then realised it had just saved £299 as [it was] going to buy them anyway.”

Laity says HR involvement is key to ensuring the success of BYOD benefits, not least because employers will need a pool of resources for employees who cannot afford them, or who do not want to take them up.†

How says: “If it saves buckets of money for the employer and increases employee engagement, why wouldn’t you consider it?”

Employee empowerment should be core to HR professionals’ remit as well as to employee benefits, says Ellie Gamble, an associate director at accountancy firm Grant Thornton. But this requires employers to consider work as an activity rather than a location, as the boundaries between work and home life become increasingly blurred. “I hate the term work-life balance,” she says. “It implies you don’t have a life in work, which just isn’t true.”

Mike DiClaudio, practice leader, HR service delivery and technology at Towers Watson, believes an overhaul of the HR function, repositioning HR professionals as educators rather than administrators, is required to enable them to cope with a more fluid workforce. “Differentiation in the benefits package isn’t about whizz-bang administration, but about how HR can best educate staff about their benefits and design, and about benefits that best meet employees’ needs,” he says.

“In the last four years, HR functions have been helping manage employers through the financial turmoil, but have taken little care of themselves, and have started to lose track. They are coming through this period and, with organisations stabilised, are turning a critical eye on themselves. Re-engineering the HR process is the number one initiative.”

HR re-engineering process

Andrew Erhardt-Lewis, a senior manager in total reward and benefits at Deloitte, believes pensions auto-enrolment will help reposition HR professionals as part of this re-engineering process.

He says the process will produce HR professionals with a much more commercial edge, which they can use to optimise benefit value and their overall return on investment with providers. “There used to be loads of data issues with [employer] clients that caused issues with benefit providers, such as an incorrect contract termination on the system, or as a result of a failure to re-enter an employee returning after maternity or paternity leave on the system,” says Erhardt-Lewis. “HR systems have vastly moved on, and data is becoming much better, which is having a positive impact on benefit providers, enabling HR to go back and say ‘we no longer have data issues, so what’s your best price?’”

Towers Watson’s DiClaudio adds: “There is still a cost hurdle to jump over, but it’s not the same hurdle. The same for less is no longer good enough; it’s about more for the same.”

This should be a relatively easy task, given the increase in value-added services offered by providers, says Chris Rofe, senior benefit consultant, health and productivity, at Buck Consultants. He says employers should consider demanding fitness tests from gym providers, body mass index tests from health screening providers and financial masterclasses from independent financial advisers.

Tobin Murphy-Coles, commercial director at Lorica Employee Benefits, says claiming ownership of their organisation’s benefits will be a task for future HR professionals. “It’s about taking ownership and delivering them in a consumer-savvy way,” he adds.

Murphy-Coles says the professionalisation of HR functions should include a revamp of the way benefits are presented to employees. “Employers need to stop calling products, for example, ‘Unum GIP plans’, because if they are changing their benefits provider, the employee emotion tends to be that something is being diluted.”

Instead, Murphy-Coles suggests employers should ‘white label’ their benefits under a bespoke brand. For one of his employer clients, this has resulted in a Select-branded product range, offering, for example, Select medical and Select childcare. He adds: “It’s about moving away from employee benefit speak and towards modern marketing.”

This approach is essential for global organisations with staff in multiple locations, says Erhardt-Lewis. “You could have a medical plan in the US, private medical insurance in the UK, a half-way house in Switzerland and an annual health screen in Germany, but under the same brand,” he says. “It’s a powerful message to give to employees who work across different countries.”

DiClaudio believes cost will remain a key focus for HR professionals for the rest of this year, particularly with auto-enrolment approaching. According to Towers Watson’s research HR trends in 2012, due to be published in June, it has never been more critical for HR to be highly effective at supporting business changes while reducing its cost base.

Importance of cost control

The research found cost control is the second most important issue for HR professionals across the world this year, whereas last year it was not even in the top five.

DiClaudio says: “A lot of economic indicators were that [we faced] a fairly steady economic recovery, which has, arguably, come to pass. At the very least, there has not been a massive retrenchment. Organisations responded with a ‘sod it, we’re focusing on growth’ approach.”

Cost is now being factored into this approach but in terms of ongoing cost control rather than blind cost-cutting. “You don’t want to burn the furniture to heat the home,” he says.

Lesley Fidler, tax director, employer consulting at accountancy firm Baker Tilly, says some of her publicly-quoted employer clients are still cutting costs because of pressure from their finance peers. “Perhaps where people are being let go, there is a sense that everybody has got to justify their existence, and HR is no different,” she says.

Teamwork between finance and HR should underpin this dialogue, says Fidler. “Maybe it’s time for HR to say to finance, ‘you can squeeze all the costs you like out of the business this year, but that won’t necessarily be the case every year after that’.”

So, while advisers may differ in their visions of the future HR remit, there is one thing they all agree on: there is a rocky road ahead to the new-look HR function and employee benefits, but it is one that should be relatively manageable after the initial legwork.

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