Case Study: Bupa
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Imagine if nothing changed in employee benefits. You’d be driving a fuel-guzzling car that cost you more in tax than you earned or buying your sandwiches with a fistful of luncheon vouchers.
Thankfully, benefits packages have evolved. Changes in culture and taxation, as well as financial constraints on employers, have helped to shape what’s on offer. Sandy Wilson, head of reward at Norwich Union, says: “Employers used to be much more paternalistic but now it’s much more about giving employees greater choice with flexible benefits and tax-efficient voluntary benefits.”
Luncheon vouchers would probably top the list of fondly remembered benefits for most people aged over 35 years. Although still available, far fewer employers bother with this benefit today. Tracey Evans, associate sales director at IFA firm Towry Law, says: “Luncheon vouchers used to be really popular in the late 1980s, but as the 15p tax break on them hasn’t increased since they were introduced in 1954, you’d be lucky if they’d cover your sprinklies in a coffee shop now.”
At 15p a day, this equals an annual tax exemption of £36 – roughly the price of three weeks’ skinny lattes. And, even 20 years ago when Evans last received luncheon vouchers as part of her benefits package she used to save them up for a monthly blowout at a Chinese takeaway.
Further appeal was removed in 1999 when the national insurance exemption was brought into line with the tax exemption. Ben Turner, luncheon voucher manager at Accor Services, says: “We do continue to lobby the government to increase the allowance. In Europe the allowance is much higher, for example, in France employees can receive as much as Eu5 a day tax free.”
If this fails, Accor has another plan to get luncheon vouchers back in our wallets. Riding on the back of Jamie Oliver’s School Dinners success, it’s looking to introduce a healthy meal voucher. This may just whet the government’s appetite sufficiently to win a bigger tax break.
Other areas of staff refreshment have changed too. Wilson remembers the days when the tea lady used to do her rounds every morning and afternoon with a huge boiling urn on top of her trolley. “This was replaced with vending machines or kettles and more recently with in-house franchises of the coffee shop chains. Employees are happy to pay for a decent cup of coffee,” he says.
The internet has also affected employee benefits. Matthew Murtagh, manager of compensation and benefits at the BBC, says: “We used to offer discounted holidays to our staff but with companies such as Lastminute.com it’s easy to see the whole market and get a really good deal. If an employee found a better deal than the one we were offering, it could undermine the value of all the benefits we offered.”
As well as taking discounted holidays off the employee benefits menu, the internet is also partly responsible for the virtual disappearance of employer-subsidised financial deals. The BBC, for example, used to offer a very traditional range of insurance-based voluntary benefits including medical, dental, home and motor insurance. But, while employees can still buy the health benefits, home and motor insurance are no longer available.
Likewise, and in common with many other employers, it no longer offers subsidised mortgages or personal loans. “The market for these products used to be so much simpler but now it’s not just down to getting the cheapest price. An employee might want a particular repayment schedule or different tie-ins,” explains Murtagh.
A lower interest rate environment has also taken some of the appeal out of these products. “When interest rates were higher it was much easier for an employer to offer a percentage point off the average mortgage rate but it’s really hard to do this in today’s market,” says Evans. Additionally, with mortgage interest relief at source (Miras) removed and the subsidy treated as a benefit in kind, the advantage of paying a lower interest rate is eroded. This type of subsidised benefit can also become very expensive as Jim Aitken, marketing director at AWDChase de Vere, explains: “Some employers were offering mortgages at a set rate, but as interest rates rose this became very expensive. Employers don’t like to finance a benefit where their liability is unknown. This finished off the subsidised mortgage and is also making final salary pensions much less common.”
But where a subsidised deal used to be available, some employees are finding themselves being offered a different form of financial perk – independent financial advice.
The take-up of this has been buoyed by the introduction of the £150 a year tax-free allowance for advice, an amount that entitles an employee to between 60-120 minutes with a financial professional. “It’s a good benefit to offer employees especially as some advisers are gearing their services for this market. For example, we now offer employees access to a range of online tools as part of their tax-free advice,” says Aitken.
Other benefits have also resurfaced in the 21st century, albeit in slightly different formats. One such is the community project, with many organisations introducing schemes where staff can spend time working on projects such as helping school children with reading, running support programmes in hospitals or creating gardens in care homes. Helen Hall, human resources director at Bupa membership, says: “This has grown massively in the last five years, and we’re often asked about it in job interviews.”
Although it’s only recently resurfaced, helping the community isn’t a new thing. Its roots can be traced back to the 19th century when firms such as Cadbury’s and Lever Brothers created new villages. Bourneville and Port Sunlight respectively were created to improve employee community life.
As well as harking back to past benefits, the taxman has done his bit to determine what’s hot and what’s not. Given the way he’s reduced the appeal of some by increasing tax, it’d be fair to say he’s not a big fan of the company car. “Some employers have phased cars out completely and others offer employees the choice of a car or cash benefit. It does tend to be a case of the tax tail wagging the benefit dog,” says Evans.
But while company cars have stalled, bicycles have ridden back into the benefits arena. Once a benefit restricted to Nerys Hughes-style district nurses, postmen and French onion sellers, the bicycle has become a popular perk. Aitken admits to being quite taken aback when respondents to a market research survey indicated that this two-wheeled mode of transport was becoming increasingly popular. But, with the taxman supporting bikes for employees with tax breaks, it could certainly be time that four wheels were replaced by two on the benefits menu.
Case Study: Bupa
It probably comes as little surprise that Bupa is focused on health benefits. Among the options the health insurance company offers its employees are private medical insurance, health screens, gym facilities, annual flu vaccinations, community projects, life assurance and a pension.
Although Bupa provides a wide range of benefits, there are some items that it has withdrawn or adapted in the last few years.
Like many companies, its final salary pension scheme has been replaced with a money purchase one. Similarly, company cars are no longer available. Helen Hall, human resources director at Bupa membership, says: “We’ve phased company cars out over the last 10 years. The tax situation made them much less attractive and we just found that people wanted more flexibility over their benefits.”
Employee demographics have also shaped Bupa’s offering. “We’ve got a much broader range of ages across our employees now and one fixed package wouldn’t fit everyone so we allow a lot more choice,” explains Hall.
There’s also more flexibility about how much time is spent at work with employees able to buy and sell leave entitlement and take sabbaticals once they’ve completed 10 years’ service. “A one size fits all approach doesn’t work anymore. Today’s benefits package must offer staff greater choice,” adds Hall.