Good old-fashioned core benefits such as life assurance and private medical insurance may provide a bedrock for flex, but don’t dismiss cheap low take-up options that provide a little pizzazz says David Woods
Selecting options offered by a flexible benefits scheme is like ordering from a menu in a glitzy restaurant. Diners reading from a dinner menu would never choose food that they do not like, instead they order their favourites and ask the waiter for help if in doubt.
Unfortunately, in the benefits arena, there is no chef or waiter to explain to employees reading a flex menu what the specials are, so it is up to their employer to offer a range of flexible benefits to whet hungry appetites.
Staff have, as a result, been given the freedom to choose from perks such as membership to a wine club, cycle-to-work schemes, or even carbon offsetting initiatives. The various options available mean that employees can, in theory, have a more fulfiling lifestyle, save for the future, protect their health and wellbeing, and even do their bit to save the planet.
Nonetheless, the take-up rates of different flexible benefits vary, and this is a serious concern for employers when choosing what to include. Considering that flexible benefits schemes are designed to operate as a recruitment and retention tool, an employer that has a lot of popular options will be much more attractive to staff. There is no point in offering flexible benefits, no matter how innovative they are, if nobody wants them.
In short, offering flexible benefits that are attractive to staff will generate interest, prompt high take-up rates and boost engagement levels. In contrast to the benefits that are hot, those that are not will have scant appeal for the majority of employees due to cost, circumstances or just lack of interest. Or as Mark Eaton, director of benefits provider the Personal Group, puts it: “They are benefits which are unappealing to the employee profile, but which have been put in place to appease a chosen few.”†
Flex’s top picks
Seemingly, the benefits at the top of the popularity ladder are the good old-fashioned core benefits such as life assurance and private medical insurance. For example, employers offering life insurance for employees through flex had an 81-100% take-up rate, according Employee Benefits/Towers Perrin Flexible Benefits Research 2007. Benefits such as life insurance have been around for a long time and Jacqueline Otten, principal at consultancy Towers Perrin, believes that issues of health and protection are always a priority. She says: “We see high take up on these ‘boring’ benefits. These are things that are often required by mortgage companies and people need them.”
However, these old faithful benefits have competition from other options available to staff. Holiday purchase, whereby staff buy extra days off, generally has a high take-up rate, according to Matt Baker, flex consultant at Jardine Lloyd Thompson. This is simply because people like the option in order to have control over their annual leave. Baker says: “Holiday purchase is always in the top-three most popular benefits in any scheme.”
According to Personal Group’s Eaton, retail vouchers are another popular flexible benefit. “Holiday trading and shopping vouchers are very popular and this reflects in employees being more aware of the need for a healthy work-life balance.”
Retail vouchers can allow an employee’s money to go further because employers have used their buying power to ensure that employees receive more bang for their buck. Baker believes that this benefit needs to be clearly explained to staff as they only get one chance each year to buy retail vouchers through a scheme. “The idea of shopping vouchers has to be properly explained to staff as they need to understand that they must plan their shopping for an entire year,” he says.
Another ‘hot’ benefit is income protection payable through salary sacrifice from employees’ gross salaries, claims Eaton. “This is a great way for employees to extend their company sick pay, tax efficiently, and which enables the firm to also save on national insurance,” he explains.
Take up myopia
However, it is easy for employers to fall into the trap of only caring about take-up rates when assessing their flexible benefits options.
Alistair Denton, managing director of benefits solutions provider Motivano, says all flexible benefits will be popular with the people who choose them. “Flex is about giving a wide range of people within an organisation the benefits they want for their particular lifestyle and demographic. Even if a small number of people take up a flex item, they could be key members of staff that render an edge over [an organisation’s] competitors,” he says.
Flexible benefits that have relatively low take up are sometimes the options that look more interesting at first glance, such as sport season ticket loans and membership of wine clubs, but these are not benefits that appeal to everyone’s taste or circumstances. However, Otten still sees that these benefits have an important place in flex schemes. “Putting these [options] in place is not hugely expensive and gives a plan a much more colourful feel, even if people do not take them up,” she claims.
These can also make an employer stand out from its rivals. And it is also worth bearing in mind that just because there is not a high take-up rate for a certain benefit, this does not mean that it may not become popular in the future. Baker says: “If a flexible benefit is not popular, the employer should be asking why. Perhaps if a particular benefit was relaunched and better communicated to staff, more people would be interested.”
A clear explanation of how tax-efficient benefits operate may, in fact, help boost take-up rates. Benefits such as childcare vouchers, mobile phones and bikes-for-work schemes are the hot contenders in this field. Other tax-efficient flexible benefits that have great potential are vouchers for on-site catering services, however, not all employers have the facilities to offer this, and bus travel schemes.
Looking to the future, increasing awareness around corporate social responsibility issues and the impact on the environment of carbon emissions mean that green flex options such as cycle-to-work schemes, carbon-offsetting initiatives and payroll giving are likely to become more popular. It may take time but take up should increase.
Whatever options employers offer, they should ensure that they understand the needs of their workforce and put in place benefits that appeal to each demographic†
Case Study: KPMG
Financial consultancy firm, KPMG UK, has 16 options in its flexible benefits scheme, but the most popular is life assurance, followed by the pension and medical insurance.
The next most popular benefit is holiday trading so staff can buy or sell leave provided they are left with between 20 and 30 days.
Other benefits with high take-up rates are travel insurance and critical illness cover for employees and their dependants.
The least popular option is bikes-for-work; simply due to the fact that only a smaller number of people would be able to use the mode of transport to travel to work.
KPMG’s Annual satisfaction survey for 2007 revealed that 72% of staff believe the benefits package fits their needs. This represents an increase of four percentage points on 2006.
Dave Condor, director of human resources at KPMG UK, hopes that the scheme will encourage staff to take benefits that best suit their lifestyle. He says: “We are trying to make people take an active choice rather than just accept core benefits, so that they are able to get the value that they want [from the scheme].”
Case Study: Nationwide Building Society
Nationwide Building Society has a comprehensive flexible benefits scheme from which 19,164 staff can select perks.
Prior to Nationwide’s takeover of Portman Building Society, around 50% of employees actively selected flexible benefits through the firm’s Choices scheme.
The plan has 15 options including environmentally-friendly initiatives such as a carbon offsetting option and a cycle-to-work scheme.
Rosemary Crabb, rewards analyst at Nationwide, explains: “Flexible benefits should be about genuine choice, offering a range of options that will help employees manage their salary package and lifestyle. We have a diverse workforce and our aim is to build a benefits package that will include something for everyone.” She says that childcare vouchers have the biggest take up in terms of monetary value. Nationwide offers a 5% discount on top of the tax and national insurance savings that can be made by employees. In terms of numbers, the most popular flexible benefit is RAC breakdown cover, which more than 2,000 members of staff have taken up.
Through the Choices plan, employees can also top up their Fruitful Rewards Value Account into which non-cash awards and rewards are credited, including seasonal gifts and some bonuses. Staff can redeem their balance against a wide range of products, and discounted gift and retail vouchers.