In the fast-moving world of benefits, misconceptions have arisen around the definition of some perks, which require clarification, says David Woods
When people communicate, it is not just about the words that they use that helps others to understand their meaning. More than half (55%) of what an individual means to say in a conversation is conveyed by their facial expressions and gestures, according to research carried out by Albert Mehrabian, emeritus professor at the University of California Los Angeles (UCLA), in 1971.
This can pose a problem for benefits professionals. In the digital age, employers find out about reward and benefits through a variety of sources including text books, emails, websites and telephone conversations, and not simply through face-to-face meetings with providers and consultants.
In turn, employers must also ensure they then communicate the finer points of the benefits they offer clearly to staff. Helena Peacock, head of HR at Penguin, explains: “At Penguin, we are totally open and try to be as transparent as we can. There is no reason why we cannot explain benefits clearly. I wouldn’t want to mislead people into thinking that [a benefit] is better or different from what it is. I like plain words.”
But it may come as no surprise that, in the ever-evolving field of employee benefits, complex details can easily be misunderstood or lost when terminology and jargon are thrown around. This can result in some benefits professionals potentially using certain terms to describe an idea when they actually mean something completely different.
Flexible benefits
Dorian Hannington, head of client implementation at benefits provider You at Work, explains: “As an industry, we don’t have standard definitions of what things could be.”
This lack of standard definitions for products and services is evident in a variety of cases and can lead to confusion about what is meant by certain terms.
One area in which this commonly occurs is around flexible benefits plans. One of the most common definitions of flex is a scheme through which staff can trade benefits options. They may be able to do this using a pot of money provided by their employer or be told the overall value of their compensation package in a total reward statement, the value of which they can use to purchase perks.
Even within this definition, however, the idea of flex can be open to ambiguity. An organisation that offers a raft of voluntary benefits, allowing employees to choose as many or as few of them as they want, for example, might claim that since they offer a benefits package that can be tailored to suit employees’ needs, this is, in fact, a flexible benefits scheme.
Darren Laverty, benefits consultant at advisers Secondsight, says: “Whenever we come across an organisation that says [it has] flex, I think four-out-of-five are a half-hearted attempt.”
It is unclear, however, if the discrepancies around flex definitions have arisen because some employers have misunderstood the message that has come from their benefits provider. It seems there is a degree of disagreement in the industry, for example, around whether or not an employer has to provide a flex allowance for staff in order to operate a true flexible benefits scheme.
Philip Smith, director at Buck Consultants, says: “True flex is something that would allow an employer to give staff the opportunity to spend a pre-defined pot of money in a flex account on their benefits.”
However, You at Work’s Hannington argues: “I don’t believe there has to be a flex allowance in order to have flex.”
Often going alongside the variations around flex, are discrepancies regarding the interpretation of salary sacrifice arrangements and how these operate. This term is commonly used to refer to tax-efficient options, such as cycle-to-work schemes, childcare vouchers, or pension contributions, which employees purchase from their gross pay, thereby enjoying tax and national insurance contribution (NIC) exemptions. The employer will also save up to 12.8% NICs.
“There are different terminologies for salary sacrifice. Some employers don’t like this term because it sounds too emotive,” says Smith.
Some of these definitions, however, may become confused with other benefits arrangements, such as salary deduction which is when an employee purchases perks from their net pay.
In these instances, employers must be very clear about what they mean by each definition and ensure they convey this to staff. Claire Williams, group reward manager at building supplies firm Travis Perkins Group, says: “We refer to tax-efficient schemes as salary exchange and non-tax efficient schemes as take-home pay.”
Although salary sacrifice arrangements can be offered through a flexible or voluntary scheme as well as standalone perks, Smith believes they should be classed as voluntary benefits because, even with the available tax savings, staff still pay for these out of their own salary.
However, Hannington argues that because salary sacrifice arrangements go through a company payroll system, they do not fit within the definition of voluntary benefits. He explains that “old school” voluntary benefits are discounted arrangements, such as shopping vouchers and government-backed initiatives like cycle-to-work schemes, do not fit in with this definition.
Another area that can be the source of some confusion for employers is around what constitutes financial education as opposed to financial advice. Laverty believes this is a problem because some larger pension providers operate implementation teams, which run workplace seminars and give staff information about pensions on a one-to-one basis. These teams, however, are often only in a position to give information about their own organisation’s products. “They can’t comment on previous pensions or do any forecasting. They can’t answer questions about how much people should save,” says Laverty.
Employers may be led to believe that such information is sufficient to guide staff and ensure they are saving appropriately for their retirement when, in reality, this is more akin to worksite marketing, by educating staff about a specific product.
Another misconception regards healthcare benefits such as private medical insurance (PMI), says You at Work’s Hannington. “I [once] had a hideous conversation with a client [which was] going to drop PMI because they thought a cash plan was the same thing,” he adds.
PMI and healthcare cash plans can be similar. The latter is a form of insurance scheme whereby if staff need dentistry, eye care or such like, they can claim a cash payout to cover this. PMI, meanwhile, enables staff to obtain and fund private medical treatment.
Steve Clements, principal at Mercer, however, believes this misconception is not a serious problem for employers. “In recent years, the visibility of cash plans has been raised as employers have struggled to manage the cost of PMI. Although the two can be mistaken, the extent of the difference in cost should show employers they are getting something quite different,” he explains.
Company car schemes can also be a source of confusion for employers. One of the more recent points of misunderstanding has arisen around the term ‘grey fleet’. Robert Kingdom, head of marketing and business development at fleet provider Masterlease, explains: “Grey fleet is the term used to describe business mileage done in a private car. There is a lot of risk for a corporate in that they still have the same duty of care for employees and the wider public.”
In other words, if an employee uses their own vehicle for work purposes and has an accident, their employer can be held legally responsible. This term is distinctly different from a structured employee car ownership plan or a traditional company car scheme, where an employer gives staff an allowance to purchase their own choice of company car, or simply provides them with a car from a company-approved selection.
It is also a common misconception that staff operating within a grey fleet will be liable for any incidents they are involved in. “Employees should not be allowed to do business mileage in their own car. They should be provided with a company car, hire car or pool car,” explains Kingdom.
But while examples of some of the most significant misunderstandings around benefits are relatively easy to gather, it is much more difficult to identify why disagreements have arisen over the precise meaning of certain terms and to find a solution so that, for simplicity’s sake, everyone can end up singing from the same hymn sheet.
Technical hurdles
There are some areas in the benefits industry, which can be difficult to understand so employers often depend on consultants, advisers and providers to give them honest and thorough information about more technical issues. Hannington explains that, while fellow benefits providers do not deliberately set out to mislead their clients, there are instances when some are not technically competent enough to talk through more complex issues, particularly if these are outside the realm of their personal experience. This can be a major factor in creating confusion among employers.
In a perfect world, the ideal solution to this problem would be for all providers and consultants operating in the benefits arena to agree on a set of universal terminology for benefits options and strategies, but this is both improbable and impractical.
One way to work around the issue would be to have a higher level of transparency throughout the industry. Regardless of the terminology used to describe schemes and platforms, providers, consultants and employers should know exactly what is being communicated if clear explanations are given. Hannington says: “It doesn’t do our industry any favours when, in the desire to sign up a client, [some providers] are not being frank with [customers] about what they are buying, what they are not buying and how involved they will have to be [in managing a scheme].”
At the same time, employers must maintain a focus on what they want their benefits scheme to do, and what they want to get out of it. They should worry less about the terminology used to describe a benefits scheme but instead choose a structure that will best suit their business.
“I think benefits such as salary sacrifice can be sold aggressively by advisers. Employers must go in [to a tendering process] with their eyes open. They must question how effective [a scheme] will be in the long term,” explains Buck Consultants’ Smith.
Roger Fairhead, head of international compensation and benefits at Sony Pictures Entertainment, meanwhile, believes it is more important for employers to understand exactly what perks they offer and communicate these adequately than become too concerned with terminology. “It doesn’t matter what staff call their benefits as long as they take the time and effort to fully understand their benefits package,” he concludes.
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Setting the record straight†
Definitions of benefits terminology around which misconceptions arise
Flexible benefits
Known as cafeteria benefits in the US, flexible benefits are generally funded by an employer and allow staff to select benefits options for a set contract period, usually a year.
Voluntary benefits
Discounted products or services offered to employees. The contract here is between the employee and the benefits provider.
Salary sacrifice
When employees pay for a benefit from their gross pay, they save on tax and national insurance contributions (NICs). Employers also save up to 12.8% NICs.
Salary deduction
When employees purchase benefits from net pay without attaining a tax break. This may still go through an organisation’s payroll system.
Private medical insurance
An insurance that allows employees to obtain and fund private medical treatment.
Healthcare cash plan
An insurance scheme which allows staff to seek treatment and claim the cost back. It can be used for everyday treatments such as dental and optical care.
Financial education
When factual information is provided in a workplace to help employees understand benefits such as an occupational pension.
Financial advice
This can be offered in addition to financial education. Employees can be provided with advice on topics such as pensions, investments and mortgages. Financial advice may only be provided by someone who is authorised by the Financial Services Authority (FSA).
Grey fleet
A private vehicle that is used by an employee on business.
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Case study: Travis Perkins Group enables staff to build perks
The Travis Perkins Group enables staff to take up childcare vouchers, payroll giving and a cycle-to-work scheme through a salary sacrifice arrangement.
However, the firm decided to adopt its own term, ‘salary exchange’, to describe tax-efficient benefits. Claire Williams, group reward manager, explains: “We didn’t like the term salary sacrifice because it conjures up the wrong images.” Last year, the company also introduced a savings club and discounted shopping vouchers, which staff can purchase from their net pay.
But Travis Perkins’ benefits provider, Jardine Lloyd Thompson, advised the company that it should not use salary exchange to describe both sets of perks because the term was becoming synonymous with salary sacrifice and was distinct from salary deduction. As a result, the firm called all perks that go through payroll ‘Building your Benefits’. The differences between the tax-efficient perks and those that staff can purchase from their take home pay are also clearly communicated to employees.
“Building your Benefits incorporates salary exchange and salary deduction. We have given the scheme its own name for our own purposes. We wanted to avoid confusion or prevent us from becoming misleading [to staff],” says Williams.
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