20 employee benefits to help increase staff retention
Employee benefits aren’t just for your workforce. Provide them well and the business gains too
Simply offering a top-notch salary to attract and retain staff is no longer enough. The employee benefits industry is growing rapidly and, with it, so are employees’ expectations.
A good benefits package is now a sign of status in a business like yours and is the key to motivating a top-performing workforce. Read on to find out what the most effective schemes available to you are:
If you need assistance introducing any of these benefits into your business our experts can help match you to the best Human Resource provider – simply fill out the form below.
While you cannot prevent employees from becoming ill, healthcare benefits can help them return to work more quickly, reducing absence costs and boosting productivity. These benefits are a valuable recruitment and retention tool, which will increase staff loyalty and earn your business a caring reputation.
Private Medical Insurance (PMI)
… Helps with the costs of private treatment and enables staff to jump hospital waiting lists.
… Most policies do not cover HIV/AIDS and pre-existing medical conditions.
… PMI is also perceived to be the most expensive healthcare benefit. Tobin Coles, sales director of Jelf Corporate Healthcare, estimates that businesses like yours can expect to pay about £700 per person per year.
Income Protection (IP)
… Pays an ongoing monthly income to employees that become physically unable to work.
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… You should expect to pay somewhere between 1.25% and 1.5% of payroll.
… If an employee uses IP, the cost will rise because you are legally obliged to continue paying for all their benefits plus National Insurance (NI) and any pension contributions.
Critical Illness Cover
… Pays employees a single tax-free lump sum should they suffer permanent disability or a serious illness.
… Most schemes cover a core list of approved conditions, which can be extended for a further charge.
… Premiums are based on age, gender, health, family history and occupation.
… Schemes no longer cover non-invasive skin cancer, or less advanced cases of prostate cancer.
… Once the payment has been made employees are removed from the payroll, making them less of a long-term liability.
Healthcare Cash Plan
… Provides tax-free contributions towards the cost of everyday treatments such as prescriptions, dental and sight tests.
… Prices start from £1 per person per week, which is often passed on to employees.
… Only helps to fund, not provide, treatment.
Businesses that offer a good pension scheme also score highly in the recruitment and retention stakes. Understanding pensions can be tricky but advice is available from pension consultants and bodies such as the Pensions Regulator or the Pensions Management Institute. There are four main types of scheme:
Final Salary Schemes
… These pay employees a pension based on a percentage of their final salary. This is calculated using their basic salary (excluding commission, bonuses or benefits) and depends on their length of service.
… The most attractive type of scheme to employees, but few businesses are now establishing fresh plans – many are now scaling back their schemes due to lower life expectancy, low inflation and falling stock markets.
… Your business takes the financial risk and you will need to provide additional funding if a deficit occurs.
Money Purchase Schemes
… Money is paid into a fund which is invested on an employee’s behalf. Whatever is in the fund when they retire is used to buy an annuity which provides a regular income for life. Part of the fund can be taken as a tax-free lump sum.
… Employer contributions are fixed.
… Members take the financial risk if stock markets and other investments do not perform.
… If you employ five people or more and don’t provide access to an occupational pension, you must provide a stakeholder scheme, and offer your staff basic advice on what it entails.
… You are not legally required to contribute to the fund and members take any financial risk.
… Employees who join the scheme must be offered a payroll deduction facility to enable them to make contributions, and employers must maintain an accurate record of all employee payments and deductions.
… A list of stakeholder providers can be found at the Pensions Regulator website.
Group Personal Pension Scheme (GPP)
… A cluster of individual pensions, which are built up by each member. You must collect their contributions through your payroll system and pass them onto the pension provider.
… The employer is not required to make any kind of contribution; however, if you want to use the GPP instead of a stakeholder scheme, you must make minimum contributions of 3% per staff member.
… The scheme provider is responsible for administering the programme, not the employer; however the employer may face charges if employees stop making contributions.
… This sort of scheme is typically offered by newer businesses with no previous scheme history.
Some employees will always be motivated by money, particularly those in strongly performance-driven environments, such as sales. Cash bonuses can be awarded as a one-off payment when staff motivation needs a boost or linked to performance targets and paid on a more regular basis. Philip Hutchinson, owner and managing director of RePosition Consulting, says: “If you can’t offer the same pay package as your larger competitors, one of the things you could do is offer a fairly low basic salary but a really good bonus scheme because you won’t have to pay the bonuses unless staff bring the money in.”
You must provide all employees with a minimum of 28 days’ paid holiday a year, although this can include bank holidays. Many businesses like yours offer above this to differentiate themselves from competitors. And linking holiday entitlement with length of service provides staff with an incentive to stay.
Under proposed changes to the parental leave system announced by the government in early 2011, a father’s minimum leave entitlement will increase from two to six weeks, and new parents will be able to split the nine months’ leave previously reserved exclusively for the mother.
On May 16 2011, the government began a consultation on the proposed changes. Business groups have spoken out against the planned amendments, but the full results of the consultation will be announced in due course.
Flexible benefits, or Flex, programmes allow individual employers to create a tailored package of benefits for their business, including everything from childcare vouchers and additional holidays to company cars and free mobile phones. It is estimated that more than 500 UK companies now offer Flex programmes.
Under the typical terms of a Flex scheme, employees must agree to surrender a portion of their salary in return for the benefits they choose, and most employers give their staff a self-service menu of options to choose from, deducting money for each benefit from their overall salary.
Voluntary benefits schemes also offer employees flexibility. These are a range of discounted products or services that you make available to staff, but which they purchase themselves. These can include optical, medical and dental cash plans, childcare vouchers and leisure services such as gym membership.
Companies such as Edenred and Benefex offer benefit management schemes which enable employers to select the benefits they want to offer their staff, and create a system for payroll deductions if they wish. Such firms typically have contacts with hundreds of retailers, so can provide a conduit to companies which can provide the perks and discounts you’re after.
Statutory Redundancy Payments
After two years’ continuous service all employees are eligible for a redundancy payment if you eliminate their position. The amount is based on employees’ length of service: those aged between 18 and 21 will receive half a week’s pay for every year of continuous service, staff between 22 and 40 will receive a week’s salary for every year, while those aged 41 and over can expect a week and a half’s pay for each year they have worked for you. However, the weekly entitlement is capped at £400 if you don’t want to pay the full amount. The first £30,000 of these payments will not be taxed.
To ensure you get the most from your benefits package, it is vital it appeals to your employees. There is little point investing a great deal of time and money in a scheme if staff do not to use it. So a little creativity can go a long way.
Consider what your employees are most likely to value. Beers on a Friday, half a day’s leave to accompany a grandchild on their first day at school and even hugs and kisses are all offered in businesses like yours.
John Whiteley, renowned diversity expert and board member of BHr Consulting, advocates a creative approach: “Those sorts of policies are starting to differentiate the better employers.”
For tax purposes, the above options are all treated as benefits in kind and are taxed as employment income. But there are exceptions. Alastair Kendrick, director of employment tax services at Mazars, explains a range of benefits that qualify for tax relief.
“These are typically offered to staff through a process of salary sacrifice when an employee gives up the right to receive part of the salary due under their contract of employment. The sacrifice is made in return for the employer’s agreement to provide a benefit.” Before implementing any of these schemes, however, Kendrick recommends seeking professional advice “to ensure you are structuring it correctly”.
Elizabeth Graves, senior associate with the employment, pensions and benefits department at law firm Freshfields Bruckhaus Deringer, adds: “You want to ensure the terms of the arrangement are carefully drafted.” This should clearly set out who pays for what and what will happen if staff leave your employment or abuse the benefit.
Cycle to Work Scheme
This scheme enables employers to lease a bicycle to employees, usually for an 18-month period. The employee can then purchase the bicycle for a fair market payment at the end of the scheme. The initiative saves employees up to 40% in income tax, 11% on NI contributions, and employers can avoid VAT by claiming in the normal way.
For more information, please visit Cyclescheme – this contains all the relevant information you need on the scheme, and offers links to more than 1,800 bike retailers and distributors.
You can provide employees with £55 of childcare vouchers or employer-contracted childcare per week, tax and NI free. Further information on the voucher scheme is available from the Employers for Childcare website.
Tax relief is also available on travel season ticket loans up to £5,000; £150 worth of pensions-related financial advice; staff parties and annual celebrations up to a limit of £150 per employee; corporate gifts up to the value of £250 and long service awards up to the value of £50.
With this number of options on offer deciding what to offer isn’t always easy. Hutchinson explains: “There isn’t really any limit to what you can put into a benefits package but you have to make it fit with your business strategy. If you put too many products into a scheme, it dilutes it slightly.” But get the mix right and you will benefit just as much as your employees.