Management Advice Blog - Introducing Flexible Benefits

Flexible benefits schemes are structured systems that allow employees to choose the benefits that suit their particular circumstances from a selection provided by their employer. Organisations have introduced such systems as part of a wider move to more flexible working and in recognition that employees have differing wishes and needs at different stages of their life..

Many employees do not fully recognise the total worth of the benefits their employer provides and the move to a flexible benefits scheme is one way to highlight the totality of the remuneration package. This may have benefits to the employer through increased employee retention and reduced recruitment costs.

Some of the reported advantages of introducing flexible benefits include:

  •        giving staff a sense of control
  •        enabling dual career couples to choose complementary benefits and avoid duplication
  •        employers are seen as recognising the diverse needs and different life-stages of their employees
  •       the provision of benefits becomes less contentious
  •       employees appreciate the true worth of the benefits package
  •       improving staff retention and helping to attracting new talent.

This checklist explains the key steps in defining a strategy and in implementing a flexible benefits scheme. In addition, you are advised to seek advice on the tax implications for both the organisation and the individual.

A flexible benefits scheme (also known as cafeteria benefits) is a structured arrangement of cash and benefits that offers choices to employees which enable them to meet their personal needs. Schemes typically include a core package of pay, holiday and pension, with additional flexible options to a value designated by the scheme. The more comprehensive schemes may also include voluntary benefits, which are purchased and paid for by employees. Flexible benefits are usually funded by the organisation, and therefore any organisation wishing to introduce them will need to think carefully about the financial viability of introducing them.

Action checklist

1. Define the strategy

Before starting to develop your strategy for flexible benefits it is important to question whether your organisation needs such an approach. Planning and implementing a full flexible benefits scheme requires the input of time and money, so it is important to be clear on your reasons for going down this route, especially in times of uncertainty or austerity.

Consider the following:

  • What is the market offering for the industry you work in?
  • Make sure that you fully understand the context of your existing reward strategy. Does a flexible benefits scheme provide a good fit?
  • What is the motivational and financial value of your existing reward package?
  • What do you hope to gain by implementing a flexible scheme?
  • Have you asked your employees what they like and dislike about your existing approach?
  • Could you use a focus group or staff survey to investigate this area?

You might determine that simple changes to your existing package of benefits will meet your objectives. For example, would allowing employees to buy and sell holidays, make additional payments into their pension scheme, and use salary sacrifice to buy childcare vouchers provide a simpler route to improving staff perceptions of your benefits package? Would the provision of an annual total rewards statement raise staff awareness of the value of existing benefits to them?

If you decide that a flexible scheme provides a good strategic fit, make sure you allow plenty of time to research, plan, implement and communicate with employees.

2. Decide on the form of benefits package

There are a number of key issues you need to address. You need to determine:

  • whether you will design the scheme in-house or use a consultant
  • your policy for providing core benefits
  • your mix of core and flexible benefits
  • how you plan to administer the scheme
  • how employees will select or purchase benefits
  • the benefits that are on the menu
  • the enrolment process
  • the enrolment period for existing employees and for new recruits
  • how you will promote the scheme to employees
  • how you will evaluate the success of the scheme.

3. Designing and administering the scheme

You can either design and administer the scheme in-house or outsource the process to a specialist company. You may decide on a hybrid approach whereby you use a consultant to help design the scheme, but administer it in-house using your own staff.

The in-house approach requires the allocation of staff time and budget. Also, as most organisations now adopt web-based administration solutions, you need to consider whether you have the technical ability to develop your own scheme or will be using one of the many existing programmes. Realistically, the latter may only be an option for very small and simple schemes. Many of the computerised systems that are used for administering such schemes include an option that allows employees to model their own choices, which can simplify the process.

You may decide to use a consultant to identify appropriate benefits suppliers. One advantage of this is that they should already have contact with many suppliers and may be better placed to negotiate discounts.

There are a number of consulting organisations that will take on the whole process of design, implementation and administration. Many have their own administration software or work closely with the producers of one of the many administration packages. You may benefit from this ability to negotiate good rates for insurance and pensions and they may also be able to add value through their existing relationships with retailers.

Consultants may also be willing to distribute and analyse employee opinion surveys, handle focus groups, design and implement the scheme and handle the communication process. They will have a wealth of experience from projects with other clients and should be able to save you time in understanding the marketplace and creating solutions to satisfy the diverse requirements of your employees.

It is vital to fully understand the cost implications of going down each of these routes before making a decision.

4. Organise the structure of the scheme

Most schemes stipulate that employees must retain certain core or mandatory benefits. These should take account of tax and employment law requirements, such as the minimum holiday allowance and the provision of staff pensions. Employees may not opt for flexible benefits, e.g. via salary sacrifice, which take them below the National Minimum Wage. You may decide that certain staff benefits also make good business sense, such as private medical insurance. Typically, however, organisations try to keep the core element of a scheme to a minimum to give employees as much choice as possible.

5. Decide on the benefits menu

Most flexible schemes are launched with a variation of the existing benefits package, but you may decide to start from scratch or extend the options to provide a far wider range of benefits for selection. The challenge is to provide a menu of benefits which satisfies the needs of all eligible staff, but which does not confuse by providing too much choice. Some of the most common benefits offered are:

  • childcare vouchers
  • critical illness insurance
  • dental insurance
  • healthcare cash plans
  • holidays
  • pensions
  • retail vouchers
  • travel insurance

Make sure that your menu is of interest to employees at all stages of their career and with varying personal circumstances.

6. Define the enrolment options

You need to determine a process for enrolling on the scheme and for making changes to selections. Online enrolment via an intranet or secure internet connection may be the only feasible option for large schemes, but you need to consider whether all employees have access to the web during their working day. It may be necessary to make computers available to employees who do not have their own work station.

Paper-based enrolment may be the only option when few employees have regular online access in the workplace. The documentation should include a personalised preference form, which typically contains details of their current benefit entitlement, the value of the available flex fund, and the cost of the different options available. Staff and an administrative process must be in place to handle the returned forms.

Whichever approach you adopt, it is common practice to send a confirmation of the selections, possibly for the individual to sign. You may also need to allow a period of time for reconsideration.

Total reward statements may be distributed at a specified time after the selection process has changed. This serves to remind employees of the value of the total package and also keeps the flex scheme in peoples' minds. Online systems often produce an indication of total value during the selection process.

Remember also that people's circumstances may change - for example, they may suffer a bereavement - and this may then have an effect on the benefits they wish to use. It is advisable to set out the terms of when and how employees can change their benefits.

7. Communicate with employees

Organisations that have adopted flexible benefits have found that effective communication is key to successful employee engagement. Develop a communication strategy that:

  • provides an introduction to the plan for all new employees
  • drip-feeds information to staff prior to the launch - perhaps via newsletters, for example
  • includes a high-profile launch event
  • provides a detailed explanation of how the scheme works and the range of choices available
  • educates employees about some of the technical tax issues, such as salary sacrifice
  • encourages staff enrolment and selection of options
  • follows up on employees who do not enrol
  • promotes the scheme, once it is up and running, to maintain interest and increase participation
  • keeps employees informed of changes to the scheme.

The communication methods which may be appropriate include:

  • road shows and formal presentations
  • the corporate intranet
  • newsletters, bulletins and posters
  • personal letters to employees
  • emails
  • one-to-one consultations.

Giving a scheme distinctive branding has helped organisations to increase awareness among employees and promote awareness. The name chosen should reinforce the key message that the scheme is about giving employees more choice and personal control of the package.

8. Monitor take-up and develop the scheme

The most successful schemes are likely to be those where the benefits on offer are regularly reviewed. A measure of success commonly adopted by organisations is take-up rate. At its most basic level, this records the level of engagement from employees with the scheme, but you should attempt to delve deeper and record the take-up rate for each benefit on offer.

However, taking these figures at face value may lead employers to miss key employee concerns and may mean that they do not fully understand the perceived value of benefits with a low take-up, such as childcare vouchers, to those individuals who do opt for them. Consider using focus groups or an employee survey to get a more complete understanding of perceptions.

Managers should avoid:

  • making schemes too complex
  • rushing to implement a scheme without adequate strategic thinking and communication
  • failing to take account of legal requirements and changes to those requirements
  • considering that this is a one-off process. Successful schemes need refreshing on a regular basis