If you read nothing else, read this…
• Some benefits may work better when offered on a core or voluntary basis rather than in a flexible benefits plan.
• Factors determining how to offer a benefit include: cost, employee demographics, an employer’s objectives in offering the benefit, and how often staff will want to make changes to the benefit or take it up.
• Offering benefits through flex rather than on a voluntary basis may help to increase take-up.
Case study: PWC calculates best options for flex
PricewaterhouseCoopers (PWC) considers several factors when deciding which benefits to include within flex.
Carolyn Wilkinson, benefits leader at PWC, says its flex plan includes perks that can make employees’ lives easier, such as travel insurance; look after the employee and their family, such as critical illness cover; and result in tax savings, such as bikes for work.
But the firm has removed benefits from flex that it considered may be better placed elsewhere. “We had pet insurance once, but removed it as it had low take-up and a lot of administration,” she says.
Wilkinson says PWC also moved retail vouchers from flex to voluntary benefits to give staff more flexibility in how they take up the perk.
This also helped to mitigate risk to the business after one provider pulled out of the market, leaving PWC to ensure it had enough vouchers to fulfil its commitment to staff who had chosen the perk.
Some benefits may be better suited to an employer’s flex plan than others, says Debbie Lovewell.
Sometimes, the latest fashion trends will not suit everybody and you might have to concede an item is not the best fit for your wardrobe. The same can be said for flexible benefits schemes. While these can be a good way of offering choice, employers may find some perks work better if provided on a voluntary or core basis, particularly if they want to show a duty of care to staff, for example by providing private medical insurance (PMI) or pension contributions as a core benefit.
Paul Brown, senior consultant at Towers Watson, says: “Most [organisations] justify including benefits in a flex plan for these reasons: national insurance (NI) savings for the employer, income tax or NI savings for the employee, access to group rates and discounts, improved terms of cover such as free cover limits on insurances, promotion of business initiatives or equal access to benefits in a merger situation. A benefit should appear in a flex plan only if these positives outweigh the cost of inclusion.”
PMI is one benefit that often comes under the spotlight when it comes to identifying the best way to offer it to staff. Martha How, reward principal at consultancy Aon Hewitt, says: “The problem is, if you allow people to opt out of benefits like PMI, and all the healthy people opt out and all the unhealthy people opt in, you get a rise in benefit costs.”
One option is to provide a core level of cover for staff and use flex to enable them to increase their cover level or add dependants. But this may also push up costs. Julia Turney, head of benefits management at Jelf Employee Benefits, says: “It does not really give anybody any more flexibility than they had already. That is driven by insurers as they do not like the idea of being left with all the people who are going to make claims.”
The same principles apply to risk benefits such as group income protection, says Towers Watson’s Brown.
“Voluntary risk benefits such as life assurance and income protection are highly selective and are often selected only by staff who have a greater chance of making a claim. This can increase premiums and lead to problems finding an insurer to cover the risk if they are included in a flex plan. This can be mitigated by the employer providing a core cover level, which spreads the risk and keeps costs down.”
Car benefits are also a matter for debate. Many car schemes are leasing arrangements whereby employees keep a car for a three-year cycle, so this perk may be better offered outside of flex. But where cars are offered via salary sacrifice, there is an argument for including the scheme within flex.
The annual flex enrolment window can also influence which benefits are better suited to sit outside flex. For example, when staff are required to select their benefits for the coming year, they may have an existing travel, pet or home insurance policy or gym membership, which has months to run. Offering such benefits on a voluntary basis enables staff to take them up at any point in the year. Richard Morgan, director of consultancy services at Vebnet, says: “Operating a voluntary scheme outside flex can work well for those sorts of benefit or where people need to make frequent changes to it.”
Bikes for work schemes
Similarly, offering benefits such as bikes for work outside flex enables employers to offer staff more than one opportunity a year to take up the benefit.
But how a benefit is offered could affect take-up levels, says How. “The take-up of benefits offered through an entirely voluntary plan tends to be quite low because people do not give it their attention. They tend to click on the site only if they are looking for deals. Inclusion in a flex plan tends to increase take-up. For example, [organisations] that offer discounted travel insurance via voluntary benefits put it into a flex plan and suddenly take-up more than doubles.”
Employee discounts are better suited to a voluntary benefits scheme, where staff can access them all year round. How says: “It makes sense to keep it separate because it is not part of their contract of employment, it is just a buying opportunity. Some organisations keep those things out of flex because they do not want to be seen to endorse all products from all providers.”
Matthew Gregson, managing consultant at Thomsons Online Benefits, adds: “Benefits should generally have an economy of scale or tax advantage to be considered for a flex scheme. It can be difficult to justify including other benefits where discounts are available via other means, such as discounted shopping portals or internet searches.”
Offering employee discounts outside flex also enables employers to promote specific offers at certain times. Jon Bryant, benefit consulting director at JLT Employee Benefits Solutions, says: “With a lot of discounts being timed so they are available for a week or two, [employers] want to hit people as soon as they can. It is about building the right triggers into the communication process.”
Overall, however, there is no right or wrong answer as to which benefits should be included in flex. As Jelf’s Turney concludes: “One person’s flex does not look like anyone else’s. We say to employers, let’s look at who the employees are, their demographics, are they trying to maximise tax and NI savings, or are they doing this from a budgetary point of view? What they put in a scheme will be influenced by all those things.”
Perks that may be better placed outside flex
• Private medical insurance
• Travel insurance
• Pet insurance
• Payroll-giving scheme
• Bikes for work
• Employee discounts
• Gym membership
Read more about flexible benefits schemes