Flexible benefits: a benefits package where the employer pays for all the benefits, but the employee can choose from a menu of benefits. The employee will have a set budget to use and, depending on the scheme’s rules, may be able to switch into or out of benefits, or trade up or down the value of particular benefits.
Commentary on flexible benefits data
Flexible benefits plans are becoming more widespread with providers now supplying off-the-shelf flex schemes as well as tailor-made technology. As a consequence, the price of implementing such schemes has fallen. Historically, flexible benefits schemes have been the preserve of large employers. However, off-the-shelf packages are now making it easier for smaller organisations with tighter budgets to implement such schemes.
Although flexible benefits plans have been in the UK for over 20 years and their popularity is increasing among employers, only 19% of respondents offer one to all staff, while 8% offer a scheme to some staff. This is an increase on the 15% that offered flexible benefits three years ago when Employee Benefits last conducted research into UK employers’ benefits strategies.
Flexible benefits schemes for all staff are most prevalent among organisations employing more than 5,001 employees (25%) followed, surprisingly, by those employers with fewer than 100 staff (20%). This indicates that small companies are also embracing flexible benefits and offering choice to their staff. Publicly-listed companies are the most likely type of organisation to offer flexible benefits to all employees (26%) and the voluntary sector the least (6%). A surprisingly large proportion of public sector employers (14%) claim to offer flexible benefits.
Given that one of the key issues shaping benefits strategies is a desire for flexibility (57% of employers say this, see page 11), it is likely that more organisations will, in time, implement flexible benefits schemes. It will certainly be interesting to see whether those organisations that offer flexible benefits to some of their staff will eventually roll out the scheme to everyone in the organisation.
The most popular four benefits to be offered through a flexible benefits scheme remain the same as when Employee Benefits last conducted research into the benefit strategies of UK employers in 2004. Buying and selling holiday came out top once again, but is now sharing that position with dental insurance. It has perhaps become a more popular option for employers to offer staff dental insurance, as low-cost dental treatment on the NHS is becoming scarcer.
Similarly, fears over waiting times for medical treatment on the NHS may have prompted more employers to offer private medical insurance and health screening, both of which have become more widespread over the last three years, overtaking healthcare and hospital cash plans. This may be partly connected to some employers deciding to offer private medical insurance (PMI) through a flexible benefits scheme as a way of controlling rising premiums. Furthermore, providers are adapting their PMI products so that they can be offered through flexible benefits schemes, allowing employees to opt for different levels of cover.
As for tax-efficient benefits, childcare vouchers remain a popular option, offered by 38% of employers. Computers are still offered by 16% of employers, despite Gordon Brown’s decision to axe the Home Computing Initiative (HCI) in April last year. It may be that some of these employer schemes managed to sneak under the net before the Chancellor pulled the plug, and the figure is expected to fall once they have come to an end. However, there are still some providers in the market offering employers various deals on computers for their staff. Many employers used the national insurance savings produced by HCI to help fund their flexible benefits schemes, and they are now having to find other funding methods. Although the government’s bikes-for-work initiative has proven popular, with 20% of employers offering this option, it is unlikely to generate the same savings that HCI did, as take up is generally lower and the loans smaller. Instead, employers are, we are told, turning to pensions and encouraging staff to salary sacrifice their contributions.