A flexible benefits scheme can be a tricky character. Flex plans can appear under a number of guises making it necessary for employers to identify which structure is right for both their business and their benefits strategy in order to gain the best possible return on their investment.
Susan Stevens, head of HR at Toshiba Information Systems, says: “One of the biggest challenges when structuring flex is to make sure that it meets the needs of the business as well as the needs of the employer.”
The first thing organisations need to do when looking at flex is to pin down exactly what they mean by flexible benefits. This, in itself, can be a challenge, with numerous definitions flying around the marketplace. Tobin Coles, head of flexible benefits at the Jelf Group, says that flex, broadly speaking, is a scheme that gives staff the ability to trade benefits within certain confines and rules.
Within these parameters, employers will be faced with a range of options around how their scheme should be structured. According to Jacqueline Otten, principal consultant at Towers Perrin, there are three main ways in which a flexible benefits scheme can operate. She explains that most organisations which operate flex will give staff a pot of money, equivalent to the value of each employee’s existing benefits, to spend on perks.
Alternatively, some employers operate a trading system whereby staff can trade down their holiday entitlement or medical cover in exchange for cash to spend on other benefits.
A third option is for employers to add the value of benefits into employees’ salaries, so they can opt to buy as many or as few benefits as they like, although they will be required to purchase some core options.
When considering which route is the most appropriate for an organisation to take when structuring its flexible benefits scheme, the issues employers need to consider will vary and could depend on what industry they are in.
Organisations operating in the financial sector, for example, are generally more likely to offer flexible benefits than employers in the hospitality or leisure industries, says Otten.
However, the size of an organisation is unlikely to have an effect on how a flexible benefits scheme is structured, says Jelf Group’s Coles. “There are organisations that I know of which have full flex and only 75 members of staff,” he explains.
The cost of offering flexible benefits is an issue for many employers, especially those operating in low-margin sectors such as retail. In this instance, organisations may not be able to provide a flexible benefits scheme to their entire workforce as some staff are relatively low paid. They would therefore need to consider alternative options, such as only providing flex for head office and management staff.
However, Kim Honess, head of flexible benefits consulting at Watson Wyatt, says that schemes can be introduced on a cost-neutral basis for both the employer and employee. For example, staff could potentially fund their participation in a flex scheme by trading a set number of days from their holiday entitlement for cash to spend on benefits. If they then use this to purchase perks offered through a salary sacrifice arrangement, such as a cycle-to-work scheme, they will also save on tax and national insurance (NI), as well as producing savings on NI contributions for their organisation.
Another way of offering flex without having to give staff extra cash, is to provide a points-based system. Employers can set a points value against each benefits option and provide staff with an annual points allocation, which they can trade for perks.
But however they choose to structure flex, employers will need to consider how well a scheme will work within its workforce. Honess explains that employers must consider their reasoning behind offering flex before implementing it. “Employers need to think about their business objectives, why they want to put flex in, what they hope to achieve from it and how they intend to communicate it,” she says.
It is also advisable to carry out a feasibility study. One element of this could involve issuing detailed staff surveys to ascertain what benefits they would like to see included in flex.
In addition, employers that are intending to include salary sacrifice arrangements within a scheme will need to consider the legal issues around this. Employees who earn, or are close to, the national minimum wage, for example, may be unable to participate in these perks as they are legally unable to flex their salary below this level.
Once they have completed a successful feasibility study, employers will then need to embark on the design of their scheme, looking at issues such as which benefits to include in flex. “This will be a very detailed and time consuming piece of work, but can be therapeutic for employers as it allows them to iron out any anomalies in their benefits provision,” explains Honess.
Employers will also need to ensure that flex is not seen as an elusive concept by employees. Some staff, for example, may find it difficult to get their heads around the idea of signing up for their benefits during a given time frame, so will need a lot of guidance. “An idea for employers might be to start their journey into flex by introducing a number of voluntary benefits and developing things from there,” says Coles.
This way staff will become accustomed to selecting benefits online, and when a flex system comes into force it won’t be so daunting for them.
How flex is communicated, therefore, is also key to its success. Aileen Newall, compensation and benefits consultant at Standard Life, explains this was paramount when the organisation launched its flexible benefits scheme in 2006. “We had a communication work stream team and our audience was segmented into different groups. Targeted messages were sent at key stages of the flex scheme’s implementation. Our communication strategy included large group presentations, DVDs, posters, articles in the company magazine and on the intranet site,” she says.
Newall adds that this communication campaign helped the organisation achieve a take-up rate of 70% for the scheme.
With a carefully devised structure and detailed study of how a flex platform can best benefit a company, alongside adequate communication, there is no reason why a flexible benefits scheme cannot be structured to suit a wide variety of business strategies
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How to implement and structure flex
1. Carry out a feasibility study to ascertain how a flexible benefit scheme could best work for the organisation.
2. Survey staff to find out what benefits they would most like to receive through flex and balance these with perks that best fit in with the business strategy.
3. Issue employees with total reward statements so they know exactly what their benefits are and how much they are worth.
4. Communicate the scheme properly to staff so they know exactly what benefits are on offer and how to sign up for them.
5. Build up a flexible benefits scheme gradually. It might be best to add benefits to the scheme at intervals so employees are not overwhelmed by a large choice of options.
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Case Study
Toshiba Information Systems
Toshiba Information Systems is an old hand when it comes to flexible benefits, having just introduced a scheme in 2001.
It underwent a significant change in January this year, however, when it moved the administration and management of the scheme back in-house. Susan Stevens, head of HR, explains: “It’s still early days and we are ironing out a few teething problems, but we have moved the staff in the flex scheme to a new platform and are improving the reporting systems.”
Employees are provided with a flex allowance to spend on the benefits that are best suited to their lifestyle. The options available through the scheme include childcare vouchers, holiday insurance and laser eye treatment.
Staff have a three-week long enrolment period in March in which to select benefits, as well as the opportunity to reselect their options should they undergo a lifestyle change.
The scheme is communicated to all employees when they join the firm and staff are also reminded about what options are available to them at their pay reviews and through the company magazine.