Although it’s a little worse than when Capita conducted the equivalent survey in 2013. Then, 74% of employees indicated they would be more inclined to stay loyal if they were receiving a decent benefits package – rather than, to continue with the Meatloaf theme, fleeing for pastures new like a bat out of hell.
These statistics tell us several things. First, that benefits can play an important role in employee motivation and retention. And secondly, with specific reference to the apparent decline in the value some workers ascribe to them, that there is no room for complacency among employers.
“From an employer point of view, offering benefits rather than cash is usually about creating an attractive package at minimum cost,” says Dani Novick, director at Mercury Search & Selection. “Ideally, what you need to offer is something that has more value than it costs.”
Of course, employees will always have an appetite for cold hard cash, but employers are missing a trick if that’s the only dimension of reward they consider.
“As smaller employers start to get bigger they begin to look at benefits because they realise it can give you a lot more bang for your buck than straight cash,” says Debi O’Donovan, founder of the Reward & Employee Benefits Association (REBA). “Sometimes people leave because of salary, obviously. But often when you do a survey, it doesn’t come top of the reasons for leaving. It will often be ‘I don’t get on with my line manager’, ‘I don’t like the job’ – it’s often more cultural things. And benefits can be used to mitigate that and create a better culture. They are not going to recruit and retain on their own, but they can support your culture.”
O’Donovan is at pains to stress there is no one-size-fits-all solution for employee benefits. She advises employers to think carefully about the composition of their staff and what would appeal. Better still, she suggests actually taking soundings – asking employees what benefits have the greatest attraction for them.
With wage inflation having lagged behind RPI increases for a number of years, and house prices and rents having escalated dramatically, inevitably employers are under pressure from employees to increase salaries. Yet even so, according to Martha How, reward partner at Aon Employee Benefits, focus group and employee research undertaken by her firm points to a heightened interest in benefits.
There are several likely reasons for this. For a start, the staged roll-out of workplace pensions has put benefits on the agenda at every business. As part of the auto-enrolment process, all employers will be required to offer eligible workers a workplace pension. Larger employers are already obliged to do so, but by 2018 all businesses will have to be compliant (an essential guide to auto-enrolment is available from the Pensions Regulator). And as this is taking place in the context of further pensions reform, it’s a hot topic. On top of this, the media coverage relating to NHS funding has put healthcare provision front of mind for many employees. As a result, demand for private healthcare plans delivered through employers is rising.
Core preferences
Aon’s focus group research reveals that the vast majority of employees value the following ‘core’, typically employer-funded benefits very highly: pension, healthcare and income protection. “Many employees opt to increase their levels in each of these benefits by their own contributions,” says How. “Statistics are difficult here because employer funding levels vary. But in a ‘typical’ employer, 20%-25% of employees opt to increase at least one of pension, medical cover or income protection above core or standard levels.”
Beyond this, the things that employees jump at vary considerably for different people, at different life and career stages. Unsurprisingly, pensions tend to be less of priority for 20-somethings than for older members of a workforce.
In order to understand more about certain preferences, Aon researched the benefits that employees opt for. On analysing the benefits choices made by over 130,000 employees, it found ‘buying holiday’ to be the most popular. Next in order of popularity were: critical illness insurance, travel insurance, dining discount card/retail discounts, ‘holiday selling’, cycle-to-work schemes and gym membership.
This interest in holiday flexibility certainly squares with the experience of Yorkshire printer Ryedale Group. The business, which employs 80 full-time staff and has an annual turnover of around £7m, derives the majority of its revenue from the horticultural industry. This is very seasonal in nature, with the bulk of the activity occurring in spring.
“We have some hard benefits,” says Ryedale commercial director James Buffoni. “We offer healthcare because in the situation we are in we can’t really afford to lose the key people, particularly around spring. It’s in our interests to make sure they are healthy. If they have health problems, it’s good if they can deal with them quickly. That’s where the private medical insurance comes in.”
Allied to this, there is also a soft benefits policy of flexibility around time off. Employees are able to bank and cash-in hours. In practice this means longer days during the peak production season are set off against more time off during quieter periods, such as during the summer – which goes down well with employees, particularly those with young families.
Buffoni adds that the philosophy at Ryedale is to help employees should they need it. For example, in the past the company has lent money to workers who have been in financial difficulty.
Webmart chief executive Simon Biltcliffe takes the view that cold hard cash works wonders “up to a point” but that “the law of diminishing returns kicks in” once people have enough to live on. Salary sacrifice – a tax efficient arrangement, where the employee gives up a portion of their salary in return for a non-cash benefit – for pensions and to a lesser degree cycle-to-work have proved popular among Webmart staff. However, Biltcliffe argues that to maintain employee interest and ensure that what is offered is appreciated, it’s important to be creative and keep things fresh.
“What really works is a range of things. And changing them over time. Because everything degrades very quickly experientially. If you do the same thing people go ‘meh’, whereas the first time it’s ‘wow!’ So you need to keep it fresh and interesting.”
Things that have gone down well with Webmart employees include time off in lieu, flexible working, a family-first policy, mental and physical wellbeing exercises and support, family crisis support and training. The company also has a farm that employees can stay at free of charge and a regular ‘wheel of fortune’ prize draw – with the chance to win £1,000 up to 12 times a year. As it’s a prize draw, the money is tax free. Past winners have spent their money on driving lessons, kitchen units... even cosmetic surgery!
Local factors
Factors such as business location can have a profound impact on the uptake of a benefit such as cycle-to-work. Printers located outside of major urban centres are likely to have many members of staff commuting in from some distance away by car. Whereas Calverts, which is based in central London has seen three quarters of its people taking up cycle-to-work.
Calverts is also unusual in that it is a workers’ co-operative. Its sales and marketing director Arthur Stitt makes the point: “Employee-ownership is one of the best ways to motivate workers and give them a genuine investment in their business.”
Of course, you don’t need to be co-operative to introduce a degree of employee ownership into the equation. “Depending on the size of employer, it’s certainly worth consideration around the introduction of share plans,” says Towers Watson head of client development, health and group benefits Mark Ramsook. “Save As You Earn [SAYE] is a great way for employees to save money. People can see a direct impact in terms of their efforts – the impact on the share price, or direct ownership of the organisation.” There are also tax advantages for the saver.
Ramsook makes the further point that when it comes to offering group life or income protection cover, employers must make sure that the products they buy are designed not only to maximise benefits to employees but also to manage the amount of risk the business is exposed to. He recalls a company in the oil and gas sector which regularly ferries a lot of its employees to and from oil rigs by helicopter reacting in horror when it was pointed out that its life assurance policy didn’t actually cover people travelling on helicopters. While the print sector isn’t noted for a heavy dependence on choppers, the general point is a good one. The devil lies in the detail – don’t get caught out!
Making the most of perks
Communication is vital. Take the time and trouble to explain to employees what benefits they are receiving and what advantages these offer. Investing in benefits without properly telling your workforce all about them is more than a lost opportunity – it can be money thrown away. Failing to tell staff about the benefits on offer is costing UK companies £2.7bn every year, through increased staff turnover and sickness absence, according to research from Cass Business School, which is part of City University London.
As well as providing information to your employees via routes such as newsletters, online video and so on, it may make sense to give one of your employees the role of ‘benefits champion’ to help cascade information through the company.
Always seek to align your benefits strategy with your HR and business strategy. This can help cement the core values of your business, which in turn may help with retaining and attracting staff.
Listen to your employees and bear in mind that their needs will evolve. Recent Davidson Asset Management research found that 82% of workers want their benefits package to change as their circumstances do.
Companies can offer extra perks, discounted products and services to their workforce at little or no extra cost through what are known as voluntary benefits schemes. These benefits are paid for by the employee, potentially through payroll, with the employer often able to use its scale to secure a discount.
If you do run a voluntary benefits scheme, make sure the products you offer are not available elsewhere at a substantially lower price, for example via voucher companies like Wowcher and Groupon.
Free tea, coffee, etc go down well with workers.
Think creatively. Arrangements that make life a little easier for employees are obviously appreciated. This could be arranging pick-up and drop-off with local service providers like dry cleaners or providing staff with storage space for shopping deliveries.
Things to bear in mind
From 1 November 2015, the rate of insurance premium tax (IPT) rose from 6% to 9.5%. Clearly, this has a direct inflationary impact on the cost of employee benefits such as private medical Insurance.
Developments such as Pensions Freedom have heightened the need for financial education in the workplace. Yet research by Jelf Employee Benefits has found that while the vast majority (93%) of employers believe that the myriad recent legislative changes to employee benefits increases the need for financial education for staff 40% of employers don’t offer their staff any assistance with financial education. Some companies run seminars with reputable independent financial advisors.
Childcare vouchers, which have proved very popular under salary sacrifice, are due to be replaced by a new tax-free childcare system in 2017. However, employer-supported childcare (the official name for childcare vouchers) will remain open to new entrants until the new system launches and employers will be able to continue offering vouchers to parents who have already signed up.
Mobile phones for the employee’s personal use can also come under salary sacrifice schemes. This is growing in popularity. A handset may be provided under the scheme and employees make tax and National Insurance savings on their bill.
Employers can save up to 13.8% in National Insurance contributions on any deductions made from employees’ salaries through salary sacrifice.
By offering benefits you are giving employees a good reason to care about the company, increasing the likelihood of them staying loyal.
Putting in place health insurance plans, especially if this is done within the context of a wellbeing strategy, will encourage more employees to have regular check-ups and take better preventative care of themselves – for instance, by eating better or taking more exercise.
In cycle-to-work schemes, the bike is usually paid for under a hire agreement via a salary sacrifice arrangement. Typically this lasts for a 12- or 18-month period. At the end of this agreed period, ownership of the bike is transferred to the employee.
Training and career development can have a massive impact on morale – not to mention the value and capabilities of workers.
Employee assistance programmes (EAPs), an independent and confidential service paid for by the employer, can help resolve problems in employees’ lives by providing counselling and advice on family or personal relationship issues, and legal, health and workplace problems. By offering EAPs employers are not just behaving responsibly by looking after their workers but are also making it more likely that employees dealing with problems will be able to remain in work and keep focused on the tasks in hand.
If the cost of providing private medical insurance is too daunting, it may be worth considering offering a health cash plan supported by employer contributions. Health cash plans reimburse members for the whole or partial cost of health services such as dental treatment, optical care and physiotherapy.
Arm yourself with further information
HMRC booklet number 480, a tax guide to benefits and expenses is free to download as a PDF: bit.ly/HMRC_480.
For a run-down on tax and employee share schemes: bit.ly/share_schemes.
Small gifts given to employees such as flowers or an inexpensive bottle of wine may be treated as ‘trivial’ and thus exempt from tax. Further details of what qualifies are available from HMRC: bit.ly/small_gifts.
A useful A-Z on expenses and benefits can be found here: bit.ly/expenses_benefits.
Which? provides handy impartial advice on salary sacrifice and other aspects of employee benefits: bit.ly/which_SS.
