The small and medium-sized market is seen as rich pickings by providers which are designing products to suit firms’ needs and pockets, says Nick Golding
Historically, the main areas of the benefits playground were open primarily to the heavyweights – larger employers that had the spending power to afford whichever perks they wanted.
Smaller employers were often expected to offer an obligatory pension scheme and perhaps some sort of affordable healthcare offering. But not anymore. Now many are moving into the benefits stomping ground of larger outfits, and providers are responding by re-designing their benefits offering in order to supply appropriate schemes.
Tobin Coles, head of flexible benefits at Jelf Corporate Consultancy, says: “Smaller firms are thinking long and hard about the benefits they want to provide. They will all offer some sort of pension, but now they are looking at what else they can provide.”
Many benefits providers have been quick to recognise this and have started to offer products that are tailored to the needs of smaller employers. Smalland medium-sized enterprises (SMEs) are traditionally defined as those with 250 employees or less. This definition, however, is frequently broadened in the benefits marketplace to cover organisations with 1,000 staff or less. “Providers are now realising this is the most lucrative area of the marketplace. Underneath the 10,000 employee firms, there are employers with 1,000 and less staff that are the large companies of the future,” says Coles.
Marion Ware, head of marketing, group risk at provider Canada Life, adds: “We see an awful lot of business potential in this area. These firms are looking for very simple products.”
Canada Life, for example, has developed products to tap into the demand for benefits from smaller employers, designing tools to cater for the fact that budgets are often far tighter among this group.
And it is not alone as other providers have followed suit. Bupa Healthcare, for instance, is also equipped to offer smaller organisations products around issues such as absence management and staff wellbeing.
Cost is an often obstacle for smaller organisations when it comes to implementing new benefits. In some cases, it can act as a barrier, for example, to group risk benefits. These are traditionally more widespread among larger entities because the greater the number of employees covered, the more cost effective the scheme. So to cater for smaller organisations, Canada Life has created its Canada Life Automated Self Service (Class) product, which allows employers to calculate the cost of group risk perks within a strict budget.
Accessed through independent financial advisers (IFAs), employers can use the service to examine the various group risk products that are on offer, and then tailor these to suit their budget.
“Small employers can go online and not only choose the scheme they want, but they can implement it as well, which minimises the admin and the [price],” explains Ware.
Flexible benefits is another area that is opening up to smaller employers with the introduction of off-the-shelf products to the market. But employers are well advised to implement total reward statements (TRS) before proceeding to flex to ensure staff fully understand the value of the perks they already receive. Such communication can act as a useful reminder and thus help drive employee take up of benefits once a flex scheme has been introduced.
Annika Haslett, head of flexible benefits at Gissings Advisory Services, explains: “Smaller organisations are working on staff with TRS before the launch of flex, because education generally improves take up.”
Many employers work with providers to work out the most cost-effective way to communicate benefits. “Sometimes it is a case of looking at whether it is necessary to have a communications message that flashes and spins round, because often it can say the same if it is static, and it is much cheaper,” says Haslett.
Whereas flex schemes are often perceived as being better suited to larger employers, some providers have designed packages specifically for smaller organisations.
Ceridian, for example, has created flex plans for smaller companies that are affordable and flexible enough to suit the needs of employers with fewer than 1,000 staff.
Gissings also offers these size of employers a flex option which costs approximately £15,000 and is more affordable than the type of packages that larger companies often implement, priced at around £35,000. It is able to offer this more cheaply because the package requires employers to take on some of the running of the scheme and to carry out the report taking which would normally be undertaken by the provider.
“These are simple, self-administered schemes. There is a report-building function in there as well, so the employer is taking on a lot of the work that we might do, but it allows them to have flex without spending too much money,” explains Haslett.
Some consultants hold on-site seminars for employers to help them understand that size doesn’t necessarily restrict their choice of benefits. “We tend to hold seminars for smaller firms that want to learn more about the [available] benefits,” says Coles.
Other providers will supply employers with communication materials to help them save on costs. Mobile phone provider Flexphone, for example, designed its Flexphone in a Box product specifically for employers with less than 1,000 staff. Russell Horton, managing director, says: “These organisations want a shrink-wrapped package that is ready to go and that staff would be interested in. They are never going to roll out 30 schemes like a larger [employer] would because of the administration fees.”
The product is designed to work on a ‘plug and play’ basis, which means there is no need for employers to conduct any additional work on the scheme once they have bought the product. It also includes marketing material, which can include leaflets and posters, and the provider can also visit an employer’s workplace to explain how the scheme works to increase take up.
It is also in providers’ interests to keep a tight rein on the cost of products because take-up rates are certain to be lower with small firms. “The key thing is that you will get [a lower] volume of take up per company with small firms, so [products] need to be low cost for the employer and the provider so that even if the take up is ten phones, we are still making some money,” explains Horton.
Kwik Fit Financial Services offers a variety of benefits to its 840 employees, and values the way that providers help to make the package easy for staff to understand.
Elizabeth McVeigh, senior HR co-ordinator, says: “It is a case of the more clarity the better. The fact that providers offer leaflets and marketing material to explain the benefit, means a higher take up, and [lower] cost.”
Manpower may also be a problem when implementing and administering benefits in SMEs, because smaller employers may not have the resource of a dedicated HR or benefits team. “If you have a company with 400 employees, you may not even have an HR admin team, so what is essential is that the provider comes up with something that is dead simple,” says Coles.
CASE STUDY: Kwik-Fit Financial Services
Kwik-Fit Financial Services, which employs around 840 call centre staff, is keen to limit the administration around its flexible benefits scheme.
Elizabeth McVeigh, senior HR co-ordinator, explains: “We have had problems in the past where flex products have been an administrative burden, but having providers offering straight-forward and easy-to-use benefits makes life a lot easier.”
When communicating its salary sacrifice mobile phone scheme, for example, it made full use of its provider by running a roadshow, to ensure that the plan was communicated effectively to staff, and to maximise employee take up.
“We were provided with all the marketing material we needed. Smaller employers need this as we don’t have the admin teams that larger ones do,” says McVeigh.
Potential concerns for smaller organisations
- Cost: Many smaller employers have fewer funds than their large counterparts, however, some providers have launched tools to help employers keep to budget. Fewer employees also means a lower take-up and a slimmer chance of making a scheme cost effective.
- Administration: Smaller organisations often have a small HR team, or no HR staff at all, so they need to shop around for providers that are willing to take on the role of administrator when it comes to tasks such as preparing and distributing marketing material.
- Education: Many consultants and advisers spend time educating smaller employers around the benefits options available to them.
- Communication: Using technology and total reward statements, smaller employers can effectively communicate benefits to staff and limit the risk of achieving a low take up. Some providers can help boost take up by holding benefits roadshows for employees.