Debunking benefits myths

With a large number of benefits myths in circulation, Stephanie Spicer separates the facts from the fiction

Case Study: Ashridge

Article in full

There are many myths circulating around the employee benefits world. These tend to arise because employers fail to understand what their employees want or because staff misinterpret what is being offered to them.

The result is that employers can end up paying for a benefit staff do not value, require or understand. Employees can also end up disappointed if they misunderstand the extent of the benefits that are available or their cost.

Good communication is a must. The whole issue of benefits myths stems from a lack of proper communication.

Whatever the benefits options are and however excellent they may be, without them being explained properly misunderstandings will continue. Wendy Fleet, employee benefits manager at provider firm You At Work, warns: "We have a lot of employee groups on the voluntary benefits side, that don’t believe employees are getting something for nothing, but [think] that the employer is gaining financially from the employee by getting a kick back from whoever is coming in to sell the product or service."

Myth 1

Defined benefit schemes are better than defined contribution plans

Many employees make no distinction between whether a pension scheme pays them a proportion of their salary when they retire (defined benefit or final salary scheme) or an income from a pot of investment (defined contribution). An employee on a final salary scheme should, assuming the solvency of their employer, be more confident about their retirement, than if they were relying on the investment variables that can dictate the income from a pooled investment pot built up over the years.

Gurmukh Hayre, partner in pensions at KPMG, says: "It is quite clear from the employee benefits point of view that the defined benefit scheme is a good thing to have. There is more certainty of benefit and employees can plan ahead more."

However, the myth comes unstuck when the employer is unable to pick up the tab. "The myth could be that defined benefit schemes offer a guarantee but the reality is this is no longer the case, as it depends on the funding of the scheme and the extent of any pension scheme deficit," he adds.

Myth 2

Flexible working hours are just for parents

It is parents that tend to utilise flexible working hours, arriving late having dropped children off at school or nursery, or leaving early to pick them up again. But many other employees need or would like a similar flexibility. For instance, some employees have to look after dependent parents, while others want to squeeze in a trip to the gym.

Some employees are even prepared to consider taking a lower salary to work for an employer that offers flexible working hours, rather than one with a more rigid working structure and higher pay.

Jane Robson, consultant at recruitment company Courtenay HR, cites the case of one client, placed with a charity, who required three months off each year to paint. "This employee was prepared to work for less money and actually worked harder in the nine months she did work for the organisation [than someone else might have over the year]." She adds that the organisation ended up with a higher quality of employee, than it might otherwise have.

So if employers want to foster a healthy work-life balance then they might want to adopt flexible working hours.

Myth 3

Flexible benefits are for everyone

Flexible benefit options are increasingly common, whether they cover private medical or dental care, discounted travel, home or car insurance. But are they for everyone?

"Flexible benefits should be about attracting and keeping people and making them feel like individuals. Just saying ‘here is £200 worth of benefits each month’, will wear off as an incentive after two weeks," says Robson. She highlights the case of one hi-tech organisation, where staff had just one demand – to keep working on different projects to increase their skills and interests. "For them, that was a flexible benefit and it doesn’t cost anything. The employer is just changing the way they are operating and structuring their team," says Robson.

Myth 4

Pay is more important to employees than anything else

The fact that some employees are prepared to forsake salary for benefits or flexible working hours, effectively debunks the myth that pay is more important to staff than anything else.

But, for some people, pay alone is the driving force. For these, unless they are on piecework or commission, it is unlikely that their pay will influence their performance. Ian Luck, director at professional and financial services consultants Smith & Williamson, says salary can often be a major factor, but adds that it is not the only thing that employees look for. "For older employees the pension is the major thing that they look for, but in younger years [they look for] more flexible benefits and gym memberships.

"When it comes to retention, employees have to enjoy what they are doing day in and day out. Employers that address whether the role is stimulating, the training correct and whether staff can progress, have usually got it right," he explains.

Myth 5

Employer-paid fuel for private use is free

For some employees this is true, but it is worth the individual checking – in the light of recent fuel price hikes – if this holds.

Case Study: Ashridge

The myth that home computing schemes give staff the best deal can sometimes be true, subject to the sophistication of the equipment.

Ashridge delivers executive education and development to individuals and organisations. The company was keen to provide its 400 employees with better IT access, to improve skills and encourage personal development. It, therefore, introduced a home computing scheme in May 2003.

Ashridge leases its computer equipment and offers packages ranging in value from £1,200 to £1,500, starting with a simple desktop, and rising to an advanced home computer with a flat screen monitor, speakers and multimedia capability. A laptop is also available, along with optional extras such as a printer. Each computer is delivered with full technical support from Ashridge’s IT provider.

The computers are paid for on a salary sacrifice arrangement run over three years to offset the cost. In return for the loan of the computers, employees accept a reduction in their gross salary and are entitled to tax relief. The employer also gets tax relief on its national insurance contributions, so the scheme is effectively cost-neutral to Ashridge. Andy Plumbly, finance director at Ashridge, says: "Almost 15% of our total workforce is now making the most of the initiative."