Benefits bring cheer in continuing economic gloom

When employers are finding it hard to finance pay rises, attractive benefits packages can motivate staff, writes Nick Martindale

Despite the UK’s emergence from recession and recent positive employment news, most employers remain cautious. Not surprisingly, this is continuing to filter through into pay policy; figures from XpertHR in October forecast private-sector salaries would rise by just 2.5 per cent over the next year, barely keeping track with inflation.

Against this backdrop, the effective use of benefits to incentivise and reward employees becomes even more important, potentially allowing employees to make salaries stretch that bit further in the face of rising costs.

“Organisations can help employees absorb cost of living increases by providing benefits they don’t have to buy themselves or doing deals for them,” says Charles Cotton, performance and reward adviser at the Chartered Institute of Personnel and Development (CIPD). This could be through a third-party provider, but doesn’t need to be; smaller firms may be able to have a similar impact by approaching local businesses directly for staff discounts, he adds.

Yet, while the use of benefits may be more important than ever, most employers are reluctant to increase the spending and resources they devote to financing such provisions, says Kim Honess, UK head of flexible benefits at Mercer consultancy.

Organisations can help employees absorb cost of living increases by providing benefits they don’t have to buy themselves or doing deals for them

They remain reluctant to abandon core benefits that have traditionally been provided by employers, such as life assurance, but might allow individuals to reduce their minimum provision down to one times salary rather than the traditional three or four, she says. This enables employees to pick and choose other benefits through flexible benefit schemes that are more in keeping with their circumstances. “It allows people to trade more,” says Ms Honess.

Alongside this, the use of voluntary benefits, where organisations provide employees with access to a range of additional benefits, has become more common, adding to the array of choice available. “Just having a longer list of benefits can also increase the perceived value, even if the employee is paying for it,” says Paul Brown, senior consultant at Towers Watson.

Increasingly, employees are tending to look for benefits that can make their base pay go further. “Employees are really seeing the value of making savings wherever they can, whether it’s on childcare or through the purchase of discounted retail vouchers, which can enable them to make savings on their everyday expenditure,” says Kuljit Kaur, head of business development at The Voucher Shop.

Where employees are funding benefits themselves, either through salary sacrifice arrangements or directly with a provider, they can prove even more attractive if they qualify for tax and national insurance savings.

Effective communication of just what employers are doing to save employees money, including the use of online net pay modellers in voluntary benefit systems, is important in ensuring staff fully appreciate what they are getting, adds Mr Brown.

Yet benefits can only go so far in ensuring staff remain motivated and committed to the organisation, warns the CIPD’s Mr Cotton. “If you’re not able to give people a reasonable salary, it doesn’t matter how good your benefits are because they won’t be able to cope with all the increases in living costs they’ve had to absorb over the last three or four years,” he says.