Flexible benefits: Sponsor’s comment: Flexible benefits come of age

Flexible benefits have evolved to fulfil a vital and varied role for employers and employees, says Paul Brown, senior consultant at Towers Watson

Flexible benefits are increasingly being used to solve reward problems driven by changes in legislation as well as the business desire to manage cost and risk during uncertain economic times. Flex has matured to become a useful tool for an employer to demonstrate the employee value proposition (EVP), to enhance the employee benefits package, to adapt benefits in response to legislative changes, and to streamline processes.

Flex has always given employees choice and helped keep a focus on total reward. More importantly, the benefits offered by an employer and the way the whole package is communicated is a tangible way to live and breathe an organisation’s EVP. This focus is critical in times of capped pay and benefit spending. A clearly understood EVP leads to greater staff engagement, which translates into more motivated employees.

Equally important are the financial savings that flexible benefits can deliver. The recent government assault on tax-incentivised benefits, such as childcare vouchers and bikes for work, has eaten away at the tax and national insurance contribution savings on some of the most popular benefits to have in a plan. This makes it all the more important to maximise salary sacrifice opportunities with other tax-efficient benefits and to offer employer-negotiated terms and discounts that really target employees’ needs.

Cost savings and the employee choice mechanism that flex affords are frequently used to support HR change programmes. At Towers Watson, we see flex used to facilitate large-scale change, such as benefit harmonisation after a merger and, more often, to support tactical change such as introducing a defined contribution pension scheme or to enable cost sharing with employees when a benefit becomes too expensive for an employer to sustain.

Now more than ever, one of the fundamental advantages of flexible benefits that they recognise the diverse needs of employees at different lifestages is really being exploited. For example, some employers have begun to offer a choice of financial priorities, such as paying off student debt, saving for a dependant’s education, accumulating a deposit for a house purchase, or retirement savings. Towers Watson’s Future of workplace savings survey 2011 to be published later this year showed it was not until employees reached the age of 55 that they prioritised retirement saving over repaying debt. This suggests staff under 55 would think favourably of employer-sponsored alternatives to retirement savings.

Faced with the choices flex provides, employers have a responsibility to support their employees’ financial education to help them make informed decisions. The technology available to administer flexible benefits is helping to deliver that support through modelling tools, online information and faster, more efficient processing. Also, with next year’s pension reforms, flexible benefits technology will help to meet requirements to auto-enrol employees and provide for the minimum contribution levels.

The opportunity to simplify communication and automate processes has led multinational companies to extend UK flexible benefits systems to staff in other countries in Europe and beyond. The ‘flavour’ of flex may be different in other countries and the benefits may not involve flexibility at all, but the opportunity to communicate employee benefits efficiently, enrol online and automate payroll processes is reason enough for the additional incremental investment.

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So flex has matured and is now used to support many HR challenges. The choice it provides is valuable to employees and it delivers a framework for reward professionals to continue to evolve their benefit packages as change occurs.

Read more articles from the flexible benefits supplement