December 2020. Have we seen the end of flexible benefit schemes as we know them?
Flexible Benefit arrangements first started to become popular at the turn of the century. Many companies initially referred to them as cafeteria benefit plans, a term borrowed from the US, where plans are still referred to in this way.
The original plans were costly to implement, due to the complexity of the original technology platforms, and, for some, there was a focus on delivering a raft of different benefits as cost effectively as possible, from the employer’s perspective.
As technology improved it became more cost effective for employers to take advantage of these arrangements, and in latter years we have seen a move towards developing a suite of benefits which enable the multi-generational workforce to design their reward package in a fashion that best works for them.
Most recently, employers are starting to use their flexible benefit platforms to enable them to offer a wider set of benefits to support employees with their financial, physical and mental wellbeing, with a focus on environmental impact of their choices weaved in.
So, will Covid 19 shape yet another change in focus for employee reward, towards Responsible Reward?
The most common benefits in recent years include:
- Buying and selling annual leave
- Bicycle loans / cycle to work schemes
- Childcare vouchers
- Pension contributions
- Private medical insurance
- Gym membership
- Season tick loans
- Healthcare / Dental insurance
- Life insurance
- Company car and fuel benefits
How are these likely to change in a post Covid 19 world?
Financial and mental wellbeing are gaining more and more focus, so what are your options in these areas, and what is the future for season ticket loans and company cars as we all increasingly work from home?
In recent years we have started to witness employers offering financial wellbeing options. Employers are providing educational videos, helplines for employee to discuss their financial worries, facilitating loans, as well as short- and long-term savings plans. Looking at some of these in more detail
Post Covid, season ticket loans may be a thing of the past. However, employers can provide loans for other purposes, of up to £10,000 interest free, without triggering a taxable benefit for employees. Employers are increasingly considering making such loans available for wider purposes.
Employees can elect for a monthly amount to be deducted from their pay to be invested in a savings plan. Short term savings plans include ISA’s, with some local authorities offering the benefits of a Credit Union facility, either for savings or to gain access to affordable loans.
For longer term savings, employers and employees focus on investing in a pension plan. Increasingly, employers are going one step further and working with their insurance provider to offer funds aligned to the environmental and societal priorities of their employees.
Whilst flexible benefit plans have offered options that support physical wellbeing, the world of mental wellbeing has received less focus, until recently. Even prior to Covid, more and more employers were considering offering benefits such as coaching, mindfulness and yoga to support the mental wellbeing of their employees. There is increased lobbying at government level for more benefits associated with supporting mental wellbeing to be delivered without attracting a tax charge. It seems likely that this area will gain more and more attraction as the impact of Covid on mental wellbeing becomes more of a focus.
Travel & Cars
There are some quick wins here for employers and employees. Offering electric cars can offer significant savings as can cutting up the company fuel card, as the tax cost of this benefit can often be higher than the cost of the fuel itself! And of course, we may well see a resurgence of the Bikes to Work Scheme as employees start to venture back to the office.
As well as these new areas of focus, with increased pressure to reduce costs, more and more employers are turning to flexible benefit plans to help them deliver as much net pay as they can to employees, without increasing their overall costs. Some of the interesting and innovative benefits that we are exploring with employers include bulk buying discounts. For many years, employers have been using their combined buying power to offer employees discounts and shopping vouchers with retailers. Could Local Authorities combine their buying power to gain discounts for their employees on more essential day to day necessities such as electricity and gas bills, as well as holidays, once we can all travel again?
Introducing these via salary sacrifice can make the savings go even further. The below table shows the NIC savings to employers that can be delivered via salary sacrifice. For larger employers the savings to both the employees and employers can be significant. Of course, the savings can be used to deliver even more benefits to employees. Additionally, there may also be savings related to employee and employer pension contributions. Whilst this may reduce the amount going into the pension or pensionable pay / entitlement, it will mean savings can be made at a time when cash is vital in the short term. It may also help those who are close or exceeding annual or lifetime allowances for pension contributions.
The benefits that employees will value will, without doubt, evolve as we move forward into the post Covid world.
Many employees have re-evaluated what is important to them during the lockdown period. For some it will mean evolving their working hours to enable them to achieve a better work / life balance.
Many will have benefited from mindfulness, as well as other tools introduced by their employers’ during this period, to help with mental wellbeing and will want to continue with these into the future. Most, if not all of us, will have also had to focus on personal finances and may have also challenged how they can contribute to changing our world. So, we believe, we will be entering a new era of Responsible Reward.
Get in touch
If you would like to discuss any aspect of the above or how this applies to your organisation, please contact us .