Employers have to adapt to a constant stream of new research, laws and trends, but they also need to innovate in order to gain any competitive advantage, says Jenny Keefe
Working in employee benefits is like painting the Sydney Harbour Bridge: no sooner have you mastered one new scheme or idea, than it is time to go right back to the beginning and start all over again.
Employers constantly have to react to a stream of new legislation, research and trends. But it is not enough to simply adapt to these milestones if they want to stay ahead of the competition. They must also learn to innovate.
Flexible working is one area where some forward-thinking employers are responding to the changing needs of their workforce. They have moved on the concept, born in the late 1980’s in the form of part-time roles mainly for women, to one which offers a variety of solutions for all sexes. According to the Department for Employment and Learning’s Flexible working employers survey,published in December last year, 90% of employers provide at least one type of flexible working arrangement for employees.
So what’s behind this shift? Christina Evans, senior lecturer at Roehampton University’s School of Business and Social Sciences, says: “There is a combination of lifestyle choices, as well as shifting demographics. Young people now need to fund their own education, older workers want to continue to contribute, and working parents want a balance between work and family life.”
[Also], changes in technology have facilitated new ways of working in various different business sectors,” she says.
This flexibility was formalised to some degree in 2003, when the government gave all parents with children under the age of six years or disabled children under 18 years the right to request flexible working arrangements. This right is now being extended to more workers, under the Work and Families Act 2006.
Evans adds that flexible working has come a long way from its humble beginnings. “When I first started researching flexible working in the UK in the mid-1990s the focus was very much on part-time work, especially in the retail sector. The roles where part-time working was available were often in low-pay or low-status jobs. Other forms of flexible working had to be negotiated, so there was much variation on its use and take up.”
Employees can now work from home, take career breaks, or job share. However, Jonathan Swan, head of policy and research at the charity Working Families, says that senior management is putting pressure on HR to prove that these schemes add to the bottom line.
“The business case for flexible working used to revolve around recruitment and retention, and developed from there to include motivation and commitment. It’s now growing to include things like absenteeism and productivity. More organisations have been looking at tangible, measurable advantages from flexible working,” he explains.
The same is true of all benefits from work-life balance to pensions. Employers increasingly want to know what they are gaining in terms of a hard-cash return on investment (ROI). Mike Cannell, an independent consultant, says: “Increasingly, organisations are using more sophisticated measuring techniques such as balanced scorecards or ROI [to measure results].”
Other trends to emerge among employers, include a shift towards health and wellbeing benefits, such as employee assistance programmes (EAPs). This can be traced back to the 2002 Court of Appeal decision Hatton v Sutherland, which ruled that employers providing counselling services for employees were “unlikely” to be found in breach of their duty of care regarding work-related stress. Sales of EAPs have since soared. The Chartered Institute of Personnel and Development’s (CIPD) 2006 Absence management survey found that 40% of employers now use an EAP to manage short-term absence, compared with just 21% in 2003.
However, Jane Neal, director of EAP provider Care First, believes employers should do more than simply putting in a scheme just so they can tick the box. “It is the organisations that not only tick the box but really understand why they are providing confidential counselling that win,” she says.
The courts have taken a similar view. In the 2004 case of Barber v Somerset County Council, the House of Lords extended the employer’s level of responsibility to exceed the Court of Appeal’s 2002 ruling. This meant it was no longer enough to simply offer a counselling service, but employers must be proactive in encouraging staff to use it.
The rise of flexible benefits
The last decade has also seen the inexorable rise of flexible benefits schemes. While flex was already common in the US, the UK’s first schemes were launched back in the early 1990s. These were basic, paper-based affairs, with fewer choices for employees; a far cry from the all-singing, all-dancing flex schemes of today.
Caroline O’Keeffe, marketing manager at Thomsons Online Benefits, says new technology is feeding the trend. “The first flex schemes in the UK were launched in the early 1990s and were restricted to large organisations with budgets to fund bespoke computer systems to support flex. However it was from 2000 that we saw their gradual spread with a marked acceleration from 2003.”
This growth was down to new web technology making it much faster and cheaper to implement flex. As the market has expanded, a wider range of benefits that can be offered flexibly has emerged so that schemes are no longer limited to the traditional risk-based products. Employers have also realised that good branding and communication are key to boosting demand.
As the number of benefits on the market has increased so has the degree of choice employers can offer to staff. Government-supported salary sacrifice perks such as childcare vouchers and bike loans, which have tax and national insurance advantages, have been of particular interest.
Richard Stewart, director of flex provider Redbourne, says: “Flex is about engaging with employees and leveraging maximum value from a benefit investment but this is harder to measure, although [it is] possible as part of a wider HR strategy.”
The popularity of flex is part of a move towards recognising employees as individuals and offering them more choice. When asked about the main advantages of running a flex plan, a massive 82% of employers said such schemes recognise the diverse needs and values of the workforce, according to the Employee Benefits/Towers Perrin Flexible benefits research 2007.
The trend is for organisations to go one step further and segment their workforce into different groups, for example, by age and role, and promote benefits in different ways to each. Jo Hennessy, director of open programmes at management institute Roffey Park, says: “Understand your people in as much depth as you now understand your customers. This includes differentiating different groups of employees and finding out what is important to them for them to feel engaged. This will vary across the different areas of your organisation and a one-size-fits-all approach will not work.”
Another way of engaging staff more with the organisation is through share schemes. The government made this easier for employers when in 1980, it introduced sharesave schemes to encourage more people to own shares. Yet, the real milestone for employee share schemes came in 2000, according to Colin Paterson, director of share scheme consultants RM2. “Share schemes have been in use in quoted companies for many years. However the widespread use among private companies really took off with the introduction of the enterprise management incentive scheme in the Finance Act 2000.
“One of the few things that all sides of industry agree about – management, government and trade unions – is that employee share schemes help to align the interests of employees with those of their employing companies.”
The beginning of this decade saw another landmark for employers: the introduction of stakeholder pension schemes. As changes go, this was significant as, for the first time, all UK employers with five or more employees had to offer a pension scheme.
Professor Ian Tonks of Exeter University’s Centre for Finance and Investment, explains: “Personal pensions were notoriously expensive and inflexible. This ensured that relatively cheap and flexible defined contribution (DC) pension [schemes] were made available to the workforce.”
The rules stated that costs should remain low and there should be no charges for stopping and restarting contributions, or transferring from another scheme. Also significant was that this was the first time employees could hold a stakeholder pension alongside another scheme. Previously, they were limited to contributing to one pension scheme at a time.
But, Ros Altmann, former Downing Street pensions adviser, believes that the impact was less dramatic than expected. “Employers did not actually have to contribute to these stakeholder schemes, only offer access to them, so in many organisations this was merely represented by little more than a poster on the company notice board. Employers were also not allowed to market or promote their stakeholder scheme offering. In reality, I am not sure that stakeholder schemes really made that much difference.”
Stakeholder plans did, however, play some part in encouraging employers to ditch their defined benefit (DB) schemes. “It allowed some employers to move from in-house schemes to offering externally-provided, normally less generous, stakeholder schemes, which might also take less governance time,” Altmann adds.
No article about milestones in employee benefits would be complete without mention of the grand-daddy of them all: pensions simplification. A-day, 6 April 2006, was the biggest shake-up in pensions for over a century, with the government rolling eight sets of tax rules into one new regime.
“The A-day reforms may well fundamentally change employer-based pensions by removing top directors from pensions altogether, leaving them less interested in providing pensions for their workforce too,” says Altmann.
But the rules are in danger of becoming less of a milestone and more of a millstone for employers. “There is still uncertainty surrounding the real rules of A-day which is just leading to problems for employers.”
Change does not end there, however. Government proposals for a national pensions savings scheme may prompt employers to review their pensions strategy again.
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CASE STUDY – Equals One and Encore Recruitment
Recruitment consultancy Equals One and Encore Recruitment has a bulging trophy cabinet full of awards for innovation, particularly in the flexible working field. Director Vivienne Duke says: “Without doubt, flexible working [arrangements] improve staff turnover and [reduce] staff absenteeism, and promote a healthy, happy workplace.”
The company has offered flexible working since it was founded six years ago, and prides itself on offering creative solutions to employees’ requests. “One such job share arrangement is between a lady who has young school children and a lady whose children have grown up.
“They job share on an annualised basis as one requires school hours and term time only, while the other positively avoids school holidays when taking her annual leave. This works well for all parties and also provides us with additional cover during busy periods when both work together. Most job shares operate on a weekly basis,” explains Duke.
Based in Leeds, the company won the Working Families Innovation Award 2005 for its work around job sharing. Its flexible working policies are available to all employees and not just those who are eligible under existing legislation.
“I think UK workplaces which have adopted flexible working are seeing all the benefits that we have. It enables them to tap into a whole new recruitment pool of high-calibre candidates and provides flexibility internally,” says Duke.
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Time Line
1980
Sharesave (also known as save as you earn) introduced in the Finance Act 1980. According to IfsProshare, it currently has around 2.6m participants.
Late 1980s
Flexible working. First part-time working schemes emerge.
Early 1990s
The birth of flex. First flexible benefits schemes were launched in the UK.
1998
Statutory leave. The Working Time Regulations 1998 gave workers the statutory right to 20 days’ annual leave.
2000
The government introduced share incentive plans and enterprise management incentive schemes.
2001
After much fanfare, the government launched stakeholder pensions.
2002
CO2-based company car tax introduced. Company cars are taxed on emissions rather than the number of miles driven.
2002
The case of Hatton v Sutherland. The Court of Appeal ruled that employers providing counselling services for employees are “unlikely” to breach their duty of care.
2003
All parents with children under the age of six years or disabled children under 18 years were given the right to request flexible working.
2004
The case of Barber v Somerset County Council. The House of Lords extended the employer’s level of responsibility to exceed the 2002 Court of Appeal ruling around counselling.
2004
Pension Protection Fund announced. New legislation means workers will get compensation if their employer goes bust.
2006
Pensions simplification came into effect. The government rolled eight pension tax rulebooks into one.
2006
Age discrimination legislation came into effect on 1 October.
2007
The Work and Families Act 2006 will extend the right to request to work flexibly and leave and pay for parents of babies due after 1 April 2007.