Buyer’s Guide to Flexible Benefits Administration

Flexible benefits administration systems have undergone a dramatic transformation in the past five years. Once just basic tools to help manage flex options, the newest, shiniest packages now come with a dizzying array of extras, such as online payslips and podcasts.

A number of providers of flex administration systems are now pushing themselves as a one-stop shop for everything technology related, says James Bolton, director of Atkinson Bolton Consulting. “Many flex systems offer a much wider range of functionality than in the early days, including online payslips, holiday and absence analysis, and booking systems,” he explains.

Providers are also raising the level of interactivity that systems can provide. A whole host of new media applications are on offer, for example employees can listen to podcasts about the latest benefits news and use modelling tools to see what their pension will be worth when they retire. James Verner, sales director of software firm Vebnet, says: “Systems are using new communication tools within the reward sites, such as webinars, videos and even wikis [online DIY encyclopedias].”

The availability of remote access to systems is another factor that providers are having to consider. This is becoming a must for HR teams who work from home, or employees who want to share details of, and decisions about, perks with their families. Diane Smith, a business development manager for systems supplier Northgate HR, says: “From an employee perspective, the self-service experience is important, as the labour market moves more towards remote working and there is more focus on internet accessibility.

“Remote administration using the latest web technologies is now becoming a key requirement for many clients, particularly if their organisations are dispersed and benefits staff need to get access to information from multiple sites, or even international locations.”

However, with the power of technology, comes responsibility. One of the biggest worries for HR managers is security, and complying with data protection rules. “As with any website, security is key. [Flex admin systems] often hold sensitive information, bank details and personal details, just like HM Revenue & Customs (HMRC) does. The security of the data is of paramount importance,” says Bolton.

Under the Data Protection Act, companies that hold personal information about people have to use “appropriate security” to prevent harm resulting from its loss. So, to combat the threat of hackers, providers should review security regularly and simulate terror attacks.

But is there a gap between the glossy products providers promise and what the systems can actually deliver? Matt Waller, principal consultant at technology supplier Benefex, says many employers are looking to ditch and switch providers. “All of the existing flex schemes we have seen coming back to market have done so primarily because the administration and technology hasn’t quite lived up to employers’ expectations. Providers have been saying that the technology will solve all admin problems, but, while technology makes things easier, it doesn’t make administration disappear. Lots of the organisations we have been meeting have had administrative nightmares,” he explains.

Moreover, research shows administration is one of the biggest drags where flex schemes are concerned. The Employee Benefits/Towers Perrin Flexible benefits research 2007, for example, found the complexity of administration was the number one problem HR managers feared when looking at implementing a scheme, an issue cited by 57% of respondents. Other concerns included administration costs (57%), and integrating existing HR and payroll systems (32%). Smith believes too many British suppliers put style over the effectiveness of IT systems. “Typically, UK flex admin systems have not focused their capabilities on back-end requirements, concentrating instead on adding nice features to the front end.”

Market consolidation

It doesn’t help that, when selecting an administration system, there is a bewildering array to choose from. Employers must decide whether they want a technology-only supplier, such as Staffcare; an IT provider that also dips into consultancy like Vebnet; or a benefits consultancy with its own system, such as Hewitt Associates.

However, this may not be the case for long. Rumours are circulating that some of the major benefits consultancies are set to acquire technology suppliers. Technology is one of the only things that sets flex providers apart in a crowded market and the software provides profitable income from recurring licence fees.

Waller believes the market is ripe for consolidation. “Many of the large employee benefits consultancies have woken up to the fact that they need to control the technology. I think we will see some acquisitions and consolidation in this sector.”

Emma Rose, a consultant at Hewitt Associates, also predicts it will soon be all change for the flex market. “Those outsourcing organisations which partnered with flex technology providers a few years ago are now swapping providers. This is due [in some cases] to current providers not performing so well, or conflicts of interest as these technology providers branch out into other areas of flex consulting.”

The next few years, meanwhile, could also spell the end of expensive admin systems, as more providers prepare to launch a range of budget options. Philip Hollingdale, chief executive officer of software provider Staffcare, explains: “Flex market penetration is very low, believed to be around 10% of large corporates, and single-digit figures among small-to-medium-sized enterprises. But with new low-cost plug-and-play products coming into the market, we forecast a land grab opportunity during the next two-to-three years, and a significant increase in the number of installations.”

Focus on facts

What are flexible benefits administration systems?

These systems aim to automate flexible benefits administration, cutting out time and hassle for HR staff. The technology usually consists of two parts: a website through which staff can select their perks, and an IT system, which manages tasks and produces reports. Most flex administration systems can be integrated with other HR and payroll packages.

What are the origins of flex administration systems?

The technology first originated in the US in the early 1990s. In the UK, flex admin began as an extension of HR, payroll and pensions systems, and was often supplemented by databases and spreadsheets. Nowadays, systems have evolved to take on all kinds of HR and payroll tasks, as well as offering an array of digital extras, such as blogs and podcasts.

Where can employers get more information and advice on flex administration systems?

For help finding an IT supplier, employers could contact one of the industry bodies: Intellect, the trade association for the UK technology industry (telephone: 020 7331 2000), or the British Computer Society (telephone: 0845 300 4417).

Nuts and bolts

What are the costs involved?

While costs vary between providers, Phil Hollingdale, managing director of Staffcare, estimates that the spend on admin systems typically equates to around £10 to £24 per employee per year.

What are the legal implications?

It is essential for employers to review the security of administration systems and processes regularly, to ensure they comply with data protection laws. The website of the Information Commissioner’s Office (, has a range of practical guidance notes.
Under the terms of the Disability Discrimination Act 1995, all websites must be accessible to disabled people.

What are the tax issues?

When designing systems, HR managers must bear in mind the rules around salary sacrifice arrangements. For example, the contractual exchange of salary sacrifice must be in place for a minimum of 12 months, so most systems only allow staff to choose their options once a year.
Flex administration systems can also help meet HM Revenue & Customs’ tax reporting requirements by automatically generating P11D forms, which cover national insurance contributions on taxable benefits provided to employees.

In practice

What is the annual spend on flex administration systems?

Annual spend is difficult to measure exactly because many organisations use in-house systems. But James Verner, sales director at Vebnet, estimates market spend on flex admin systems to be around £15-£20m in the UK.

Which system providers have the biggest market share?

The market leader based on the number of employees using its software is Vebnet with 230 clients. Other major players include: Thomsons Online Benefits, Staffcare
and Mercer.

Which flex administration system providers increased their market share the most over the past year?

While data is not available for all providers, Vebnet added 40 clients over the past year with an average client size of 1,500 employees.