As employees struggle with the effects of the recession, a flexible benefits scheme can offer them the opportunity to make savings where they are needed most, says Sarah Coles
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- Flexible benefits schemes are one way of employers offering perks to support staff.
- Employees can tailor flex, so do not need to buy products outside the plan.
- Employees can spread the cost of benefits that would otherwise require them to make lump-sum payments.
- If staff need extra cash, employers could allow them to withdraw their leftover flex allowance as salary.
- Alternatively, they can include benefits in flex that offer discounts on everyday costs.
- Employers can also incorporate salary sacrifice into flex, saving on tax and national insurance.
People had got used to a world where they did not have to worry about making ends meet. If they ran out of money before payday, they could often borrow some. How times have changed. As new loans and credit cards have disappeared over the past six months, many employees are finding themselves in a tight spot, and may look to their employer for help. Simon Binney, divisional director of employee benefits at HSBC, says: “As the recession has bitten, employees are much more aware of their personal finances. They are suddenly putting pressure on their employers, saying ‘how can you help us?’”†
One solution is to offer perks through a flexible benefits scheme. Allowing staff to select their own package means they can get all the protection products they need without spending their own money. So, for example, rather than being shoehorned into a pension scheme or private medical insurance (PMI) and having to buy more pressing things such as income protection in the individual market, they could trade down on PMI and divert their flex allowance to pay for group income protection instead.
Not only does this avoid staff having to spend some of their salary on benefits, but they can also get a better deal, with some perks being up to four-times cheaper on a group rate. Jon Bryant, head of flexible benefits at JLT Online Benefits, says: “It makes their money work harder for them.”
Staff may also get better terms through a flex scheme. “It is one of the main attractions of group PMI that employees will have their medical history disregarded,” adds Bryant.
Schemes can also be structured to help staff spread the cost. Kim Honess, head of flexible benefits and salary sacrifice consulting at Watson Wyatt, says: “One very popular benefit is annual travel passes. Not only do staff get a discount on travel, but they can spread the cost out over the year, interest-free.”
Binney adds: “For many people, that is as important as the discounts themselves.”
Employers may also find some staff are under pressure from their household budgets, so instead of buying benefits, they simply want the extra money. “Some schemes allow employees to withdraw their allowance as salary,” says Honess. “So they could sell holiday, for example, and increase their take-home pay, although they would have to pay tax and national insurance (NI) on it.”
Bryant says this is a popular move, but warns: “Employers have to be careful this does not undermine the reason for having the benefit in the first place. So, for example, if they brought in PMI to help people back to work more quickly when they are ill, allowing them to cash out will remove this benefit.”
Alternatively, and more cost-effectively, employers can offer staff less traditional benefits within their flex package to help cover the cost of common household expenses. “Everyday costs like childcare, travel, shopping, food and petrol can all be included in a scheme,” says Binney.
In the past 18 months, he has seen a trend emerge towards employees choosing benefits that can help reduce their spending, such as discounted retail vouchers.
Alternatively, employers can offer such perks through a voluntary benefits scheme alongside flex. Jason Taylor, managing director of Benefex, says: “Voluntary benefits are very popular now. It is an opportunity to help staff buy things more cheaply.”
The fact that so many household costs can be reduced through perks offered within a flexible benefits scheme means employers could consider allowing people to put more of their salary into flex through a salary sacrifice arrangement. This enables them to give up a portion of their salary and receive a tax-efficient benefit in its place.
“This helps employees save money,” explains Honess. “On some benefits they can save NI, including dental insurance, critical illness cover and travel insurance. On others, staff save both tax and NI, including childcare vouchers, bikes, health assessments, holiday, pensions and income protection. There has been a huge increase in interest in salary sacrifice arrangements in the past six months.”
The added benefit here is that employers can also make a saving on NI contributions. And in the current economic climate, any little help on offer all adds up