Very few people go to work just for the money. Of course it is important, but most of us get something else out of it, be it satisfaction, a social element or the very work itself.
And there’s more to pay than just wages. Through employers, many people can access a season ticket loan to travel to and from work, buy health or dental insurance or even cycle to work on a bike provided by a company-based scheme.
Many of these employee benefits are provided through a flexible benefits (flex) scheme. Flex has been around for some time and is simply a mechanism that allows employees to vary how they receive their mix of pay and benefits to suit their individual needs.
Under such a scheme, employees are able to increase or decrease existing contractual benefits, such as holiday, pension contributions and private medical insurance, and also choose from a range of other benefits, including insurance plans, cars, computers and even wine clubs.
Flex usually operates on a salary sacrifice basis, which means an employee’s salary is reduced in return for the provision of the new range of benefits they choose. The advantage of salary sacrifice is that many of the benefits are free of income tax and/or national insurance contributions, providing additional savings on top of the group rates that the employer can negotiate.
“Introducing flex can be a great way to help employees’ money go further, providing them with access to a range of benefits at a lower cost than they would otherwise be able to get themselves,” says Richard Morgan, director of consultancy services at flex specialist Vebnet.
Flex is generally associated with financial services, professional services, technology and pharmaceutical companies, and works particularly well with larger companies of more than 500 employees. This is because bigger employers can negotiate better discounts, says Mr Morgan, but it can operate on a smaller scale, too.
If that is the case, why haven’t we all got flex? Flex isn’t right for everyone, adds Mr Morgan. “It may not suit the culture of the organisation, there may be difficulties in managing data and integrating systems that allow flex to work efficiently or the employer simply may not be able to afford the investment,” he says. “It is also most effective in workforces where most employees have access to the internet.”
Not everyone agrees with this. Although there are costs involved, employers should not fear flex, says Matthew Gregson, managing consultant at Thomsons Online Benefits. The use of technology has radically reformed the running of flex schemes and fears of an administrative burden or high costs are no longer justified, he says.
Flex is also the best tool for anticipating the benefit needs of a workforce, says Mr Gregson, as it allows the employer to control costs while providing employees with a way of picking the benefits most relevant to them.
“Traditional packages miss the mark if they offer benefits that employees don’t value and therefore either don’t participate in or do so without any appreciation of their cost or value,” he says.
Although bigger employers get better discounts, technology continues to reduce the minimum size in terms of staff numbers. It is a more democratic benefit structure, adds Mr Gregson, “removing some of the stigma regarding better benefits for senior staff, as all employees can have access to all the same benefits and options”.
In the current economic environment, though, providing the right benefits through a flex scheme can also help attract senior staff. This is particularly relevant in sectors, such as retail, where economic realities mean salaries need to be closely controlled.
The advantage is that many of the benefits are free of income tax, providing additional savings on top of group rates the employer can negotiate
“By offering a competitive salary, together with thinking creatively around a range of soft benefits and career commitments, retailers can provide executives looking to move with a compelling offer,” says Pauline Wood, managing director of headhunters Court & Spark Consulting.
Money and technology alone are not enough to make flex work, however. Communication is absolutely key to the success of any scheme, says Matt Duffy, head of online benefits at Lorica Employee Benefits. “These should make employees aware of the scheme, educate them on the benefits and choices available, acknowledge any plan or benefit rules and restrictions, and ultimately sell the flex scheme,” he says. “This is where schemes can go wrong, typically through a lack of participation.”
RAC in drive to accelerate benefits
The sale of the RAC by Aviva to the Carlyle Group last year provided an opportunity to develop a reward strategy that supported the new owner’s values and the RAC brand.
A review was carried out and as a result a revamped flexible benefits programme was offered to 3,600 UK employees, says Verona Farquharson, reward manager at RAC.
The scheme, known as “myflex”, offers access to a wide range of benefits, including childcare vouchers, a bike-to-work scheme, dental care and health cash plans. It also introduced new benefits such as gym membership and a home computer scheme.
Myflex exploited the fact that many of the benefits are tax-efficient, so costs could be offset by national insurance (NI) savings. Importantly, the scheme also provides employees with tax and NI savings, along with a wide range of benefits that are more competitive than they would find on the high street.
The campaign caused something of a stir. Take-up was increased on every benefit offered and staff are already inquiring about enrolment in 2013, says Ms Farquharson.
“We believe it is more important than ever that our colleagues feel they are getting the maximum value from the benefits provided in the workplace as well as best value from their spending,” she says. “We see it as our responsibility to source the most cost-effective and valuable benefits choices, which will enable people to tailor their reward package to fit their lifestyles.”