Research: Attitudes to flexible benefits

Tax-efficiencies, staff engagement, pension reforms and the recession are all shaping employers’ attitudes to flex, says Debbie Lovewell

Tax and national insurance efficiencies on employer-paid benefits appeal because of the savings on offer. Where employer-paid benefits are not on offer, these efficiencies can be accessed via salary sacrifice. Some 46% of respondents said such advantages encouraged them to consider introducing flex. But some feared tax breaks would be withdrawn. Over one-fifth (21%) said it made them cautious about introducing tax-efficient perks via salary sacrifice within flex, and 5% said such fears made them consider withdrawing their schemes.

Respondents appeared to be seeking ways to make their flexible benefits scheme more cost-effective to help deal with the effects of the recession. More than one-third (36%) said they would be under more pressure to introduce tax-efficient benefits via salary sacrifice, and the same percentage said they were going to review their provider to get a better deal.

Staff who understand their benefits tend to place a higher perceived value on them. One-in-three (34%) respondents said they will have to communicate benefits more to obtain value from flex.

The choices staff make through flex are also expected to change because of the recession. More than one-third (36%) of respondents anticipated more employees would take cash where offered rather than spending the money on benefits.

However, respondents appeared to be divided about how easy it would be for them to justify the cost of flex during the economic downturn.

Over the past 10 years, employers’ perceptions of the top advantages of running a flexible benefits plan have remained unchanged. Back in 1998, 84% of respondents said flex helped to recognise the diverse needs and values of staff, which is fairly close to the 81% of respondents that said the same this year.

Flex’s perceived value in promoting employee understanding and appreciation of benefits has also remained high – cited as a main advantage by 63% of respondents to this year’s survey. This compares with 68% that said the same five years ago. In 1998, two-thirds said flex promoted employee appreciation of benefits, but just 36% of that group felt it promoted staff understanding of benefits.

The value of flex as a recruitment and retention tool has increased over the years, however. Ten years ago, 36% said flex helped to improve retention, while 34% said it helped to improve recruitment. Despite some fluctuations over the years, these figures have now risen to 58% and 55%, respectively.

If benefits myths are to be believed, implementing flex goes hand-in-hand with high costs and fiercely-complex administration. But the experiences of those which have implemented schemes show this is not necessarily the case. While 57% of respondents that offer flex cite the cost of implementation as a barrier to putting in a scheme, this rises to 72% among respondents that have not yet done so.

However, the gaps between the views of those that offer flex and those that do not have closed slightly. Five years ago, just 29% of those that offered flex cited implementation costs as a challenge, compared with 60% of those that did not operate a scheme.

Concerns over the complexity of administration have also fallen in the past five years. In 2004, 80% of respondents without flex felt admin was an issue, while 59% of those that offered a plan said the same. This has now fallen to 53% and 47%, respectively, possibly because of technological developments.

The pension reforms due to come into effect in 2012 (which will see the introduction of auto-enrolment, compulsory employer and employee contributions, and personal accounts) have brought pensions provision to the fore of many employers’ minds.

The NI savings available to employers, and the ability for staff to make contributions via salary sacrifice, may be behind the rise in the respondents that will use flex to ease the pension changes. A quarter (24%) now plan to put pensions into flex, up from 5% last year.

Ensuring employees fully understand and appreciate the benefits they receive can be key to retaining talented staff, particularly in the current economic climate when salary increases may be thin on the ground. Flexible benefits schemes help to put a cash value on perks, so can play a valuable role in aiding staff retention. Just under one-third (60%) of respondents said their flex plan had succeeded in promoting employee understanding or appreciation of benefits, while 50% said it had promoted employee understanding of the cash value of perks, and 45% said it had reinforced the concept of total reward.

On the whole, the success factors of flexible benefits have remained fairly steady over the years. Looking back to how well flex met its objectives 10 years ago, respondents said their scheme had played a key role in increasing employee understanding of their total compensation, as well as meeting the diverse needs of staff. Little change there, then.

Tailoring communications to suit particular employee groups is one approach employers are beginning to take to boost appreciation of perks and optimise the value of their flex plans.

But it is still early days for this practice and 83% of respondents do not do so. Of this group, 18% said they intended to start tailoring communications. Where employers do target messages, they base them mostly on past benefits choices.

Click on the links below for more sections:

Who are the respondents; key findings
Structure of flexible benefits schemes
How flexible benefits schemes are administered
Salary sacrifice in flexible benefits
Alternatives to flex plans
Pensions and flex
Crucial communications
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