3 Ways to Offer Flexible Employee Benefits to Your Workforce

Employees don’t just want flexibility – in 2023, they expect it. In the past 3 years, we’ve seen more and more businesses offer flexible hours, hybrid working arrangements, and even flexible pay schedules and annual leave allowances. So why do employee benefits packages remain fixed at so many companies?

Making your employee benefits offering flexible can deliver numerous advantages to both your business and workforce. By allowing employees to tailor their benefits packages to their individual – and everchanging – needs, you can ensure your benefits are delivering real value. So, while employees benefit from physical, mental and financial wellbeing supports tailored to them, your business can benefit from increased employee engagement and loyalty.

And by empowering your workforce to choose benefits they’ll actually use, you can maximise the return on investment of your benefits spend, potentially freeing up more budget to spend on additional benefits or other HR initiatives.

Of course, flexible benefits can’t be introduced at a snap of your fingers. The method, processes and policies will very much depend on the nature of your business, as well as your budget availability. Implementing flexible benefits requires a lot of thought and planning – but if done right, you can reap the rewards of increased employee satisfaction, retention and wellbeing.

There are three options for offering flexible employee benefits in the UK.

1. Personal Benefits Allowance

This is perhaps the truest form of flexible benefits, and the most attractive to employees. They are assigned an allowance and given a range of benefits to choose from up to that value.

Personal benefits allowances can be set as a fixed amount, such as £2,000 a year for all employees, or as a percentage of their salary. You might also allow employees to contribute themselves, such as through salary sacrifice, if their needs exceed the set allowance.

The financial limit, and your ability to provide a personal benefits allowance, will very much depend on your budget availability. Consider your current spend and employee benefits objectives. If you’re looking to reduce costs and already have a high spend, granting a relatively low allowance limit may save you money without taking away benefit options that employees value. If your goal is to boost wellbeing and retention, or attract new talent to the business, setting a higher limit with a range of benefits options can help you achieve that goal.

You should also consider the volume of benefits you want to offer. Too many can be an administrative burden for HR, particularly if you don’t have the right tools in place to manage choices. Too few will provide limited choice, diminishing the benefit of flexibility.

Some benefits may need to be compulsory – such as group risk policies like life cover and income protection. If this is the case, you’ll need to decide whether these benefits are deducted from the allowance and make this clear to employees.

To limit the administrative effort to manage flexible benefits, you might choose to set a benefits selection window – particularly for benefits that require an annual commitment, such as health insurance.

2. Salary Sacrifice and Deductions

If you don’t have the budget availability to provide a personal benefits allowance, or want to offer further choice beyond the set limit, you might choose to offer benefits on a salary sacrifice basis.

Employees choose from a range of benefits and opt into those that meet their personal needs, and pay for them out of their pre-tax salary. For schemes like pension contributions, pension advisory services, cycle to work, and car schemes, employees can usually benefit from reduced PAYE tax and National Insurance contributions. So, while their benefits aren’t paid for by the company, they still benefit financially from reduced tax contributions by paying out of their pre-tax salary.

Salary deductions are slightly different. While there are no tax advantages to employees paying through their salary, you may be able to negotiate group or corporate rates for certain benefits. Employees can also spread the cost of purchases over 12 months, avoiding large upfront costs they may not have the means to pay. So, while you don’t fund the benefits as an employer, employees can still benefit from reduced and staggered costs.

Employers must ensure employees’ post-benefits income is never less than minimum wage, so it’s crucial you have policies and processes in place to keep salary sacrifices under control. Employees should also be aware that some lenders may take salary sacrifice contributions into account when assessing mortgage affordability, as it reduces their final income. Of course, employees can opt out of these schemes, but may need to do so a few months before applying for a mortgage so the changes are reflected on their payslips.

3. Employee-Funded Benefits

While almost any employee benefit can be offered as a salary deduction, it has its limitations. In addition to minimum wage and mortgage considerations, having too many deductions could impact eligibility for disability benefits and maternity pay. Managing many salary sacrifice schemes can also be an administrative burden for HR.

As a result, you might choose to offer discounted benefits to be funded by the employee directly – particularly for those benefits ineligible for tax reductions. You may be able to negotiate discounted group or corporate rates directly with benefits providers, such as for health insurance and gym memberships, and enable employees to pay the reduced rate directly from their bank account.

While this method offers the least financial benefit to employees, it may be a good option for organisations with limited budget and resource to provide a range of company-funded benefits.

Making Your Benefits Flexible

Whichever method you choose, including the right type of benefits is of course key to a successful employee benefits strategy. Each and every benefit should contribute to your wider HR and people strategy, as well as meet the needs of your employees.

Of course, those needs are not only diverse across your workforce; they’re also constantly changing, particularly in the current economic and post-COVID climate. When implemented correctly, flexible benefits can help continuously meet a wide range of needs.

Technology should take a key role in any flexible benefits implementation. With the right tools, you can make benefits options clear, accessible and easy to update for employees. Communication and education are always crucial to employee benefits – if your workforce doesn’t understand their benefits, how can they be expected to make the most of them?

Using technology solutions to manage your flexible benefits programmes can also help your business to understand the return on investment of your benefits spend, through continuous visibility into uptake rates for each employee benefit. These insights can inform ongoing benefits reviews and maintenance, providing the data to make informed decisions when looking to remove current benefits or introduce new ones.

Flexible benefits may not be straightforward to introduce for the first time. But if you get it right, with the right tools in place, you can help boost employee morale, loyalty, wellbeing and recruitment – while getting more for your benefits spend