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- Voluntary benefits can play an important role in overall reward strategy by giving employees a total view of their reward package and the benefits available to them.
- The savings made through voluntary benefits can be shown as an approximate value on total reward statements.
- Developing a benefits brand strengthens the reward package an employer offers.
- A popular cost-conscious trend is to offer benefits such as health cash plans as a voluntary benefit where an employer may not be able to fund private medical insurance for employees.
Voluntary benefits can bring a number of attractive qualities to a reward package while helping employers to keep costs to a minimum, says Tynan Barton
Voluntary benefits are becoming an increasingly important part of an organisation’s overall reward strategy as employers recognise the value they add, not only as a cost-effective method of motivating and engaging employees, but also in complementing more traditional elements of reward.
During the economic downturn, many employers were unable to award pay rises, so as an easily incorporated programme, voluntary benefits were a way of rewarding employees that did not necessarily cost much. David Wall, managing director at Logbuy, says: “Employers are looking for quick, simple and cost-effective ways of adding something into a total package to show that they still care, but that does not cost them a huge amount of money.”
Introducing the concept of choice into employees’ reward package helps to further engage them in the scheme and encourages take-up of other benefits. Also, including voluntary benefits on employees’ total reward statements can further strengthen the perks’ position within the overall reward strategy and gives staff a clear picture of what their total package comprises.
Although it is hard to put a monetary value on the savings an employee makes through voluntary benefits, employers can show a theoretical amount of what could be saved if certain discounts were used. Caroline Jordan, head of voluntary group income protection at Personal Group, says: “We explain that, in theory, if [an employee] bought X, Y and Z in a year, they would save this much money. So, for example, staff can save around £1,000 a year if they buy the things they are already buying, but through a voluntary benefits scheme.”
Employers must be clear about their reasons for introducing voluntary benefits and what they want the scheme to achieve. Ian Kessler, reader in employment relations at Oxford University’s Said Business School, says employers need to consider how the discounted products and services “interface with established reward strategies, how well integrated they are, and what they give over and above elements like salary and fixed benefits”.
Supporting business goals
As part of a total reward package, a voluntary benefits programme should support wider business goals, but employers need to ensure a scheme is relevant to their organisation. Charles Cotton, performance and reward adviser at the Chartered Institute of Personnel and Development (CIPD), says: “It is important to look at how the reward strategy supports the people management strategy and business strategy, and how a voluntary benefits package would actually help to support that.”
Voluntary benefits can be viewed as a supplementary mechanism to other elements of a reward strategy, such as core and flexible benefits, or play more of a strategic role in an employer’s overall goals.
Kessler says that if the reward package is seen as comprising three main elements – pay, core benefits and voluntary elements – employers must have a clear strategy about what they want to achieve with each of those and, in turn, how they address the three main reward goals of recruitment, retention and motivation. “How do voluntary benefits fit into that?” he asks. “Are [employers] placing a lot of weight on voluntary benefits to address these issues?”
A strong, comprehensive and attractive voluntary benefits scheme is needed to help address such issues, says Kessler.
Offer true discounts
Paul Brown, senior consultant at Towers Watson, says the real challenge for employers when offering a voluntary benefits scheme is to ensure it offers true discounts that cannot be accessed by anyone on the high street or found online, in order to provide real value.
“These days, people can get discounts and discounted products associated with lots of other areas of their lives,” says Brown. “People can get discounts with their home insurance and bank accounts. Everywhere you go, people seem to be fighting for your retail spend.
“Voluntary benefits sit well alongside traditional and flexible benefits. It is important to somehow tie them all together, so an employee portal that gives staff access to all their benefits is very helpful.”
Developing a distinctive benefits brand, incorporating all perks, is a powerful way of strengthening a reward strategy, as well as promoting an organisation as an employer of choice and engaging employees collectively. Philip Curtis, managing director of Fair Care, says: “Branding is a really good way of endorsing the product. Employees are more likely to buy in if their employer’s endorsement is there in the brand, and it also creates more of an in-house feel about it.”
All benefits can be brought together under a branded one-stop shop, which will not only help to drive more people to flexible and voluntary benefits schemes, but will improve employees’ overall perception of the value of their benefits package. Towers Watson’s Brown says: “If [employers] have got a funded flex programme and a voluntary benefits programme, bringing these together under one brand shows the sum of the parts is greater than the individual elements.”
However, the organisation must be able to deliver on any brand it develops, particularly in difficult times, says Kessler. “In terms of psychological contracts, employers are shaping people’s expectations in a way that leads them to expect a particular approach to reward. In difficult times, if they cannot deliver on that, it has quite a demotivating effect on employees.”
Wide variety of benefits
Voluntary benefits can be a conduit for employers that are looking to offer staff a variety of benefits but may not be able to afford more costly options. Most benefits can be offered on a voluntary basis, which may enable employers to offer them to a wider group of employees. For example, many organisations offer group income protection as a core benefit to their senior management team, but there is an increasing trend in the industry for employers to offer this perk on a voluntary basis.
Personal Group’s Jordan says: “It enables employers to offer staff a benefit they did not previously have. For example, if 80% of the population did not have income protection, the [organisation] could offer it on a voluntary basis, but it still gets the advantage of a group discount. So it saves the [organisation] money as well as offering employees a benefit that they cannot get on the high street at the same prices.”
Another option is to use voluntary benefits schemes as an alternative way of offering healthcare benefits. For example, an employer could remove private medical insurance (PMI) as a core or flexible benefit, and offer a health cash plan through a voluntary benefits scheme as a cost-effective alternative. But if an employer is looking to do so, it may need to consult its employees if PMI is a contractual benefit.
When deciding whether this route is right for their workforce, employers should look at their employee profile and determine whether PMI is still relevant or valued by staff, because a cash plan may be used more regularly. Logbuy’s Wall says: “I think what people are trying to do is not spend on the typical expensive benefits, [but] just putting voluntary benefits in that cover everything in the benefits strategy.”
Where employers provide healthcare benefits as a core or flexible option, they can help to build staff loyalty and engagement by allowing them to extend cover to family members on a voluntary basis.
Salary sacrifice arrangements
Employers also have the option of offering tax-efficient perks through salary sacrifice arrangements to cut costs, while ensuring all employees can take advantage of the benefit. Childcare vouchers, bikes for work and cars are popular benefits to offer in this manner, as is health screening.
Fair Care’s Curtis says: “Some employers pay for an annual health screen for employees, which can be very expensive. They can offer that to employees through a salary sacrifice scheme, which gives them the advantage of spreading the cost over 12 months, and save on tax and national insurance (NI) contributions.”
Voluntary benefits not only sit well within the overall reward strategy alongside pay, core or flexible benefits, but they provide a cost-effective channel for employers to demonstrate their appreciation of staff during cost-conscious times. Curtis adds: “They have high perceived value from the employees’ point of view, but can be a low cost to the employer, unlike some other benefits.”
Voluntary benefits schemes can therefore play a vital role in improving engagement and managing employees’ expectations. Even if employers do not have a huge pot of money to use, voluntary plans allow them to show they are doing something for their workforce and appreciate their employees’ discretionary efforts during tough times.
- The Employee Benefits/Alexander Forbes Benefits Research 2010 found that more employers (69%) offer staff benefits on a voluntary basis compared with 2009 (64%).
- The above research also revealed that the top issues shaping employers’ benefits strategies in 2010 are making benefits more cost-effective (for 68% of respondents) and a desire to improve employee engagement levels (for 60%).
- According to the Chartered Institute of Personnel and Development’s Reward Management Survey 2010, 33% of employers have adopted a total reward approach, while a 21% plan to do so this year.
- According to the CIPD survey, just under half of respondents claim they calculate the size of their total remuneration (pay, benefits and other financial rewards).
- Thomsons Online Benefits’ Employee Rewards Watch 2010 found that over the last two years there has been a 6% rise in the proportion of employers that have implemented salary sacrifice arrangements (to 74% in 2010), and a further 9% intend to do so in the next year.
Case study: Oscar Mayer employees join the voluntary benefits club
Food production company Oscar Mayer launched an employee benefits club in 2000 to give all staff the opportunity to take up voluntary benefits. The club was initiated by company owner and chairman John Bigwood because, like most similar organisations at that time, benefits were provided for its managing directors and senior management, but not for the rest of its employees.
The Millie Club, originally branded as the Millennium Benefits Scheme, is a voluntary benefits scheme that costs an employee £2.25 a week to join. For this, they can access a range of benefits, including a Bupa cash plan and free legal cover. The company also recently launched a discount scheme with Logbuy, which is incorporated into the Millie Club.
Ken Martin, group benefits manager at Oscar Mayer, explains: “We are trying to provide a scheme which has something for everybody.”
Martin says the Millie Club provides access to services that employees would not normally consider. “They would not normally buy into a lot of our benefits – things like will-writing and contacting solicitors for advice – outside the workplace, so we provide that as part of the overall benefits package.”
The Millie Club has proved hugely successful in terms of employee take-up. Of the firm’s 1,600 employees, almost 1,300 have joined up.
Read more on voluntary benefits