Feature – Focus on flexible benefits: Defining true flex

Amid confusion over just what constitutes a real flex plan, Peter White finds employers opting for flex to smooth business mergers and a raft of trendy new flex benefits

If you read nothing else, read this …

  • Flexible benefits are fighting against voluntary tax-efficient arrangements for popularity.
  • Employers are typically introducing flex for business reasons, rather than cost savings.
  • Benefits on show in this year’s flex schemes, include eco-friendly car schemes, iPods and tax return services.

Article summary

Flexible benefits are having a personality crisis. The surge in one-off salary sacrifice schemes and a rash of vague and opportunistic sales-speak are combining to confuse employers and cost employees.

To clarify, a flexible benefits arrangement is one that is paid for by the employer, with the employee choosing perks from a pre-selected menu. Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development, admits there’s been some blurring of the lines: "It’s the difference between organisations that offer flexible benefits and those that offer benefits that are flexible."

The number of organisations introducing such a cafeteria style system has been slowing down over the last twelve months, with dramatic numbers of employers instead offering tax-efficient benefits such as home computing schemes, childcare vouchers and bike loans. And while these perks are being described as flexible, they are also being paid for by the employee.

Mike Ashton, a principal at Deloitte, says: "Introducing flex in the past may have been to see cost reductions from tax and National Insurance (NI) savings. [But] now you can implement tax and NI savings without doing flex. Therefore flex has to have a business case outside of pure cost savings."

Organisations are still using flex to help smooth business changes such as mergers and acquisitions. For instance, when record companies Sony and BMG merged last year, flex was seen as the answer to bring together two culturally different benefits structures.

Flex is also booming in the legal profession. Paul Watson, chief executive of flex provider 4th Contact, says that because there are a finite number of lawyers available in the UK, once one firm introduced a flex plan, others needed to follow suit.

But many mid-sized employers are ignoring flex to concentrate purely on lifestyle-based voluntary salary sacrifice perks, or a poor man’s flex. "They profess to have a road map that says flex at once is too much to handle, so let’s start with the voluntary stuff and work towards flexible benefits. Some of that is a cop out and some is a well thought out strategy," adds Watson.

But are staff losing out because employers are no longer providing a benefits pot for them to spend? Ashton doesn’t think so: "It’s a bit like if you go to one restaurant rather than another. Are you losing out? No, you’re just going for a different taste."

Salary sacrifice pension arrangements are sweetening this taste. Employees and employers are saving significant sums through such plans, with many firms using savings to fund pension deficits, pay for other salary sacrifice perks or set up bright new flex systems.

And organisations that are still fitting flex are going out of their way to include exciting developments, either out of a sense of rivalry or in a renewed effort to meet the needs of their business. Plans in 2005 have so far included eco-friendly company car schemes, tax return services and MP3 players.

So as a result of salary sacrifice competition, flex may finally get rid of its hype tag and become one lasting benefits option. "This is not the death knell for flexible benefits. What it will do is crystallise in peoples’ minds whether flex is the right thing for the business and may well be [even more successful]," adds Ashton.