Secure the best deals for voluntary benefits

Voluntary%20BenefitsWhether a voluntary benefits plan is run in-house or outsourced, there are a number of tips employers can use to secure the best deals, says Peta Hodge

By its very nature, a voluntary benefits scheme that is set up and managed by an employer in-house, rather than by a third-party provider, will be unique to that organisation. When it comes to negotiating deals on products, however, there is no handy all-purpose formula, although employers that have been through the process will be able to offer some useful strategic pointers.

Fashion retailer Arcadia Group has just set up such a scheme. Melanie Hall, reward manager, says that when negotiating deals, employers should be clear about their objectives. “It should not be about cost savings, you’ve got to be realistic about the increase in in-house time and resources it will take.”

Some providers say that Arcadia is bucking a trend as more and more employers are increasingly turning to them to run schemes and to take advantage of the potential increased buying power that their scale offers.

Employers that do go down the DIY route tend to be quite clear about what they want to achieve. It may be they want to tailor their scheme to a particular HR priority, such as staff health, or they may have decided to go it alone having worked with a provider that has failed to live up to their expectations.

Whitbread, for example, decided to manage its own scheme several years ago, having previously been part of the now-disbanded Benefits Alliance (a coalition of major employers that used its bulk-buying powers to negotiate benefits). Jo Rackham, group reward manager at Whitbread, says: “It only had a handful of suppliers and many of them were not known by our employees so it didn’t really work. [Moving voluntary benefits in-house] wasn’t anything to do with cost, it was about getting the suppliers right and tailored to the workforce.”

Desired perks

Once employers have established what they want to achieve, the next step is to find out what staff would like to see included in the scheme as it is pointless negotiating discounts on products that nobody wants. But while employers should consult with staff, they must be careful to ensure they don’t overpromise what they can offer.

“We did a lot of surveys to find out what staff wanted. One thing we discovered is that people find confidence in brand names,” explains Rackham.

Before including a supplier in a scheme, employers need to establish that the organisation is reputable, financially sound and can deliver on service. Third-party providers may have the edge here, as they will have lots of past experience of dealing with suppliers. Dorian Hannington, head of client implementation at You at Work, says providers have much greater corporate checking facilities. “There is nothing like a testimonial [to find out what a supplier is like. We] can draw on the collective experience of 200 clients [so] our view is not skewed by one very good or one very bad experience.”

Once employers have got a clear idea of the benefits they want to offer and the suppliers they want to use, it’s time to get on the phone or arrange a face-to-face meeting. Whitbread’s Rackham says: “I always start by explaining our strategy, what we are looking for, and why we are targeting that particular supplier.”

The better a supplier understands an employer’s objectives at the outset, the better a long-term relationship is likely to be.

Any employer negotiating voluntary benefits should also be looking for an exclusive deal, “otherwise what’s the point?” says Rackham. But suppliers are not always prepared to offer discounts. Fortunately, there are other ways to secure an exclusive deal. “We used to use an experience day supplier that couldn’t provide a discount so used to throw in a bottle of champagne,” says Rackham.

Negotiating these kind of extra frills as part of the deal is a good idea even where employers are able to secure exclusive discounts as in today’s tough market conditions, bargain-hungry online shoppers are almost certain to find a cheaper deal eventually. So non-financial add-ons count.

It is also a good idea to consider including some smaller, particularly local, suppliers in the package. These organisations may not provide discounts for any other employers, so may be prepared to be more generous and creative in the deals they offer.

Even employers that buy their voluntary benefits scheme off-the-peg, or from a third-party provider may like the idea of including a few local benefits in their plan. Some providers, such as Lealta Benefits, can supply an organisation with a voluntary scheme comprising local discounts for staff. Others are able to incorporate employers’ existing local discounts into the schemes they manage. You at Work’s Hannington says a number of employers have disparate arrangements they have almost forgotten about. “It’s good to get them all into one place within a cohesive benefits message,” he says.

Recognising this, voluntary benefits provider Vectis said last year that it would negotiate local benefits, and incorporate employers’ existing perks, into its standard voluntary benefits package at no extra cost.

Dave Baker, managing director, says: “Adding existing offers is quick and easy. We usually work with an agreed list of eight-to-12 nominated local offers. The only cost is time spent putting together content on the web and printed media.”

When negotiating voluntary benefits, however, it is important for employers to remember this is a two-way transaction. Particularly if no money is changing hands, suppliers may well expect something in return for the benefits they are providing.

This essentially means communication. “When we are talking to a supplier we will list the ways we will communicate for them, [whether] we can do enough [in this area] and prove it. That’s essential to us getting the deal,” says Rackham.

Establishing how to monitor take-up of individual benefits should also be dealt with at the negotiating stage, says Hall. “You need to liaise with the organisations that are doing the discounts about how they will monitor take-up. This may mean having some kind of code so whenever one of your employees buy a benefit, it is recorded.”

Monitoring take-up is one area where some plans fall down, but it is essential to the efficient running of a scheme. Employers need to know if take-up is low as it could be signalling that more communication around the scheme is needed, for example. It could also help to identify the more unpopular options so these can be weeded out. On the other hand, good take-up will strengthen an employer’s hand the next time they come to the negotiating table.

Negotiating with third-party providers

Employers that decide to purchase a voluntary benefits plan from a third-party provider should shop around and be prepared to negotiate on price.

PricewaterhouseCoopers (PwC), for example, has negotiated special terms with its provider. Carolyn Wilkinson, senior employee benefits manager, says: “You need to know what the costs [of the scheme] are going to be. Then you need to look at how they are going to recover their costs. [In our case,] with some of the benefits they will recover their costs from the supplier but there will be other things they do for us, like setting up a portal site, where there will be some cost for them.”†

PwC’s current provider is on a three-year contract for which it receives a fixed annual fee. Towards the end of each term, PwC conducts a review, looking at what other providers offer to determine if its current arrangement is still competitive. If it is not, it is back to the negotiating table.

However, Dorian Hannington, head of client implementation at You at Work, says employers shouldn’t select a package on price alone. “Many [employers] are often not comparing like for like,” he says.

Dave Baker, managing director of Vectis, which typically charges between 75p and £1.99 per employee per annum, says smaller private sector employers tend not to negotiate because the price is already competitive.

Case study: Hertfordshire Council cuts unique supplier deals

Hertfordshire County Council negotiates its voluntary benefits direct with suppliers for strategic reasons.

Its voluntary benefits are integrated into its work-life balance initiative rather than standing alone and benefits are only included if they add value to the council’s three work-life policy strands of care, health and life.

Emily Austin, senior HR officer, says: “The advantage of our approach is it is very targeted and very specific. We don’t want to do holiday discounts and discounts [on days out]. Those types of benefit would not be appropriate for us.” For perks like discounted gym membership, the council wanted to offer choice. “It is very important we have a good spread of gyms across the county,” says Austin.

To build up the portfolio of 20 gyms the council currently offers its staff, it had to negotiate deals with single-site providers as well as national chains. “It would be hard for an external provider to match this.”†

But Austin concedes there are disadvantages to the direct approach when it comes to resources, particularly since a major restructuring of the HR function last year means the council is currently without a dedicated member of staff to deal with voluntary benefits. She feels options are not reviewed as regularly as they might be, and that it is easy for communication and monitoring of take-up to be sidelined in a busy HR department.

Austin adds she wouldn’t rule out using a third-party provider in the future, but is still to be convinced that an external provider could meet the council’s very specific requirements at a price it would be willing to pay.