What is a flexible benefits scheme?
A flexible benefits scheme essentially allows staff to adapt and tailor their benefits packages to their individual needs. These can include cycle-to-work schemes, healthcare cover, and gym memberships for example.
What are the benefits?
As staff recruitment and retention continues to cause issues across all sectors, offering additional incentives is a great tool for both. Other benefits include:
- A healthier and active workforce: where employers offer gym membership or access to well-being resources, which could lead to higher levels of productivity.
- Motivated employees – flexible benefits are tailored to employee needs, which means creating a great company culture. Staff feel they are listened to and cared for.
Independent IFA Guy Skinner of Citygate Consulting explains, “Something that has changed in the space of four years is the greater desire to understand personal finances and get on top of financial wellness as a method of promoting wider wellbeing. Where we provide employee benefits, we offer financial education as either a paid-for addition, although often at no additional cost. This is something that is well-received and really makes a difference to employees.”
How do flexible benefits schemes work?
Flexible benefits schemes allow employees to contribute to the cost of those benefits through deduction (before tax is deducted). This can be done through a salary-sacrifice arrangement. The benefit for employees is that the taxable income is lowered, raising the amount of take-home pay. This in turn means that employers benefit from sharing the costs with employees. Costs are fixed by the employer, although there is a flexible choice available to employees. They can choose whether to increase or decrease salaries in line with the benefit.
Does size matter?
Many of the SMEs we work with ask whether they are simply just too small to offer flexible benefits. Traditionally it was only larger companies who could offer extensive perks, but this is no longer applicable according to Skinner, “Even if you only employ one person, you are liable for auto-enrolment. It’s this change that brought benefits schemes to the forefront for many SMEs. Traditionally benefits providers required a minimum of 20 employees to set up a scheme, but as the marketplace has changed over the years it’s now much more accessible for small businesses irrespective of size.”
Communication is key
The most important element of setting up a scheme is establishing what your staff want from it. From the many SMEs he has worked with to establish schemes, Skinner cites private medical insurance as one of the most popular benefits, “possibly because it’s so visual, and staff understand fully what they are getting. However, there are so many other benefits of value – like death in service or group income protection, but they rank much lower in popularity simply because staff often don’t fully appreciate them. It’s always advantageous to offer a benefit which you couldn’t otherwise access.”
Consult with your staff on what they would like to see included, for example – childcare vouchers versus cycle-to-work schemes. Make sure they are going to fully take advantage of the benefit. There is no point in offering a gym membership if no one will realistically use it. Discuss the options with your team before making any decisions, set up a focus group or feedback session and present them with the packages available. “It’s all about engagement, make sure staff value and understand it” he advises.
There are a few tax charges to be aware of. This will be whichever amount is higher from the salary sacrifice or the employer cost in providing the benefit. This applies to:
- Mobile phones
- Gym membership
- School fees
- White goods
However, the following are not taxable:
- Cycle-to-work schemes
- Ultra-low emission cars
- Group income protection and group life insurance
It’s important to consider the impact this will have on your business if you opt for the benefits which are taxable. Be sure to incorporate this into your budgeting, and the likely cost per head.
Where next? How to set up a flexible benefits scheme
Once the plan is agreed upon, you will need to assess what impact it will have on any existing HR policies within your business (i.e. sick or maternity leave), and how much it will cost you per employee. If you don’t have an HR manager, you will need to nominate an individual to keep track of all records of new starters and leavers to ensure your plan is up to date.
There are numerous providers on the market, and whilst some still do specify a minimum of 20 employees, there are others who are open to much smaller enterprises. These providers can run and host your entire programme for you – taking away the headache. Some systems will allow staff to access a portal and choose their benefits, whilst smaller operations will consult directly with the staff and keep their own records. After an initial outlay of around £2k, these platforms then become cost-effective – once up and running costing around £400 per year.
“If you can drive National Insurance savings through the schemes, like cycle to work, they will start to pay for themselves” adds Skinner. “With salary sacrifice, we have created benefits packages that cost the employer nothing. It is pure alchemy.”
Speak to a few providers to get an idea of the products available, ask them to come in and present the products, and find one which is best suited to your business.
Reflect and refine
It’s important to continually assess your scheme; monitor what is being used and what isn’t so that you can tailor it accordingly. Continue the communication with staff, get feedback on the systems used and if anything could improve to make sure you are receiving maximum value.
Citygate Consulting offers financial advisory services for businesses www.citygateconsulting.london. You can get in touch if you would like more advice on how to set up a flexible benefits scheme.
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