If you read nothing else, read this….
- The cost of flexible benefits plans varies according to many factors, such as the size of the organisation, existing benefits structure and the complexity of the plan.
- Consultancy fees can cost from about £8,000 to £15,000 for a fixed period.
- Implementation of the system is a one-off cost and can vary greatly, costing anything between £10,000 and £150,000.
- The annual licence fee for using the system for an employer with 1,000 staff can vary from £15,000 to £20,000, or about £20 per employee.
A flexible benefits plan might seem expensive, but the costs can be kept to a minimum, says Tynan Barton
Major changes in benefits can be scary, particularly if the instigator is under pressure to justify the cost to those holding the purse strings. But such fears can prove unfounded if savings are accounted for alongside expenditure.
For example, when it comes to flexible benefits, the costs of perks can be cushioned to get better value. This is because employers can structure the scheme to let staff take the hit if prices go up. Often staff get a set allowance or trade between perks so need to weigh up if it is worth taking a benefit that has become more expensive. The other saving is tax-efficient benefits offered through flex, which save employers national insurance. Alistair Denton, managing director of Edenred (Employee Benefits), says: “As benefits change or go up in cost, employers know what they are going to be spending.”
According to the Employee Benefits/ Towers Watson Flexible Benefits Research 2010, there is a sharp difference of opinion on cost between those that do and do not offer flex. Among respondents, 76% that do not offer flex cited implementation costs as a barrier, compared with 56% of those with a plan.
The cost of implementing flex can vary widely. An organisation’s size, its current benefits offering, complexity of the flex plan design and the number of benefits to be included will all affect the overall cost. The time, effort and support required from a provider will also need to be factored into the price employers can expect to pay.
Consultancy and implementation costs
Employers will have to pay one-off costs covering consultancy and implementation of the system and service, as well as ongoing annual fees for the technology licence.
The consultancy fee, which covers how the plan works, its design, communication and project management, is usually paid on a daily rate basis. For example, 10 days’ consultancy could cost £8,000 to £15,000.
By contrast, the building and implementation of the flex system will cost the same no matter how many employees an organisation has. This process typically takes about three months and can cost anything from £10,000 to £150,000. Employers need to ensure they allow enough time to implement the system. Richard Morgan, director of consultancy services at Vebnet, explains: “If employers rush the implementation, it means that they are rushing the communications. If they do that, employees are not going to understand and value what they have done.”
Employers must also be sure what they are buying and agree a fixed price with their provider upfront. Matt Waller, chief executive at Benefex, says: “Hidden costs often come in the form of interfaces and data work, customisation of the system, and misunderstandings around the scope of service. The key thing is for the employer to go out as an informed buyer, so they know exactly what they want and how they want it to work.”
Manipulation of employee data
The manipulation of employee data is an important aspect of implementing a flex plan, but it can be costly to get right. Andrew Morris, business development director at NorthgateArinso, says: “We are illustrating and communicating data to staff, so the link between the HR database, payroll database and employee benefits communication portal is absolutely vital.”
After implementing a scheme, employers will have to pay an ongoing licence fee for the technology. For an organisation with 1,000 staff, this can vary from £15,000 to £20,000 a year. The average is £20 per employee per year. The licence fee will decrease the more employees are in the plan, so for 5,000 staff, the cost could be about £9 per person, but for 10,000 it could fall to £6 per person.
The cost of a flexible benefits plan can often be offset by including tax-efficient benefits offered via a salary sacrifice arrangement within it. Here, employers will pay less national insurance (NI) because of the reduction in gross employee salary to pay for benefits such as childcare vouchers, cycle-to-work schemes and mobile phones, and staff do not pay tax and NI on the salary sacrificed. Martha How, reward principal at Hewitt Associates, says:
“The average costs are covered by the NI savings. There is either a cost saving or it is cost-neutral, but it does depend on the scheme design and how the employer configures the plan.”
Careful planning and attention to budget, data management and communication will help ensure the flex plan is executed successfully but, as with most things, problems can arise along the way. “Expect the unexpected,” says Vebnet’s Morgan. “Allow extra time and probably some extra budget, too. It is hard work, but a lot of fun.”
- 76% of employers that do not offer flex cited implementation costs as a barrier to it, compared with 56% of those that do operate a scheme, according to the Employee Benefits/Towers Watson Flexible Benefits Research 2010.
- 55% of respondents to the same survey stated that a flex plan has helped to reduce or retain the cost of reward.
- In Mercer’s Global Survey on Employee Choice in Benefits 2009, 45% of UK employers said overall cost had been largely unaffected by implementing a flexible benefits plan.
- In the same survey, 48% of respondents cited resource constraints within the organisation as a significant challenge in setting up a flex scheme.
Munich Re ensures flex unity
Reinsurance firm Munich Re implemented a flexible benefits scheme in order to harmonise the benefits structures of three businesses in its ownership.
The first challenge for the benefits team was to get board agreement from the three companies. Robert Wigmore, compensation and benefits specialist, UK HR shared service at Munich Re, says: “We had to get sign-off at board level for each of the companies to say they were happy for us to go ahead with this.”
After a selection process, Munich Re chose Thomsons Online Benefits to provide the flex plan.
It made a one-off payment during the plan’s first year, which included communication and scheme design. The company now pays an annual cost for the system, rebrokering benefits, introducing new options, and a licence fee for each employee.
Soon after implementing the scheme, the company surveyed employees to find out what they wanted in the scheme. Feedback was positive, so not many changes had to be made.
Read more on flexible benefits