Employee benefits - You scratch my back ..

Providing employees with a range of benefits can deliver a number of advantages to employees and employers alike. Whether you have hundreds or thousands of pounds to spend on every employee each year, there are ways to maximise the value of the policies and make them an investment rather than just an expense for your business.

When deciding upon your employee benefits strategy, consider what your objectives are first. "What you decide to provide will depend on what you want to achieve," says Mike Blake, group sales manager at employee benefits specialists PMI Health Group. "While some employers want to put together benefits that their employees will appreciate, others will look at what different organisations in their sector are offering so that they are sure they will be able to compete for key employees."

Some employers will also look for benefits that provide them with business advantages. For example, an organisation with high levels of absence might look to implement schemes such as an employee assistance programme, private medical insurance and a sickness absence management system aimed at helping tackle the problem.

Budget is another major consideration but a benefits package does not have to cost the earth, as Philip Ashwell, regional director of Heath Lambert Consulting, explains: "Price is important but the advantage it delivers to the employer and employee is much more important."

He points to cash plans as an example, which have been available for more than 100 years and, until a few years ago, had a rather dowdy image. Ashwell comments: "These offer much more relevant benefits now such as employee assistance programmes, as well as cover for dental and optical."

"Plans have become slicker and have more of an employer focus now," admits David Wilson, head of the intermediary division at cash plan provider Healthsure. For instance, employers can cover off some of their duty-of-care requirements, such as eye tests and stress counselling, with a cash plan costing as little as £1 a week for each employee. As the plan will include other benefits that employees can use, this may prove more cost-effective than arranging cover for these areas specifically.

Insurers have also recognised the need to appeal to employers and have added all sorts of additional benefits to their products to help support them. An example of this is Canada Life's BusinessCare, which is included on the firm's group income protection product. This provides access to employment advice, covering everything from legislation through to tax and recruitment. Marion Ware, head of marketing at Canada Life Group Insurance, explains: "This provides a valuable business service, whether or not you need to make a claim. Legislation is changing constantly and it's not always easy to stay on top of this, especially if your company isn't very large and doesn't have a dedicated HR department."

Convey

Whether you provide your staff with a full range of benefits or just one or two, communication is key to maximising their value. "The success of a benefits package can be down to communication," says Blake. "Employees need to be reminded about what they receive."

Wilson agrees, saying that the value of any benefit diminishes if employees do not know that it is there: "If awareness of a cash plan is high, employees will use it and we'll see high levels of claims coming through."

Blake recommends promotional activity such as worksite marketing, intranet, newsletter and wellness days to boost usage, adding that providers can help with this.

A total reward statement can also be an effective way to demonstrate the value of the benefits you provide. These list all the benefits the employee receives, including salary, and states their monetary value so the employee can see instantly how much their package is worth. "If I were setting up my own company, one of the first things I'd do is implement a total reward statement," says Ware. "Most employees don't think about how much their benefits cost and they can add a decent chunk on to salaries."

It is possible to buy software to run total reward statements, though Blake believes smaller employers can do it themselves with a simple spreadsheet program: "Setting these up requires some initial administration, as most employers will keep relevant details all over the place, yet once this is done they can be updated whenever necessary, with most employers sending them out once a year."

It is also worth checking exactly what is included, as many of the insurers have added extra benefits to some of the risk-type products so that they appeal even if someone does not need to be ill to make a claim. Blake remarks: "A lot of the medical insurers are introducing additional benefits that can help employees look after their health."

For instance, Bupa added Positive Health to its corporate medical insurance. This is a confidential, online health assessment tool that allows an employee to obtain an overview of the state of their health and then use the personalised advice and information provided to make improvements. Norwich Union includes a similar health assessment service, known as Corporate Health Manager.

It is also common to receive a range of member discounts that could be used for health-related items such as gyms, or for other products from the insurer.

Check

Whether you are revamping a benefits package or building something from scratch, surveying staff can be a valuable way to find out what they want. "Provide employees with what they want, not what you think they will want," says Jim Aitken, marketing director at SBJ Benefit Consultants. He recommends consulting employees through surveys or focus groups.

The table on p.27 shows which benefits appear in flexible benefits schemes most commonly, a good indication of what is popular generally.

In pole position is childcare vouchers. In the main, this is due to the tax breaks available on them that allow a parent to save up to £1,195 a year in tax and national insurance, as well as permitting an employer to reduce its national insurance bill by up to £373 a year for every employee taking the vouchers.

Dental insurance, in second place, has leapt up the charts in the last few years as it has become more difficult to access NHS dentistry. Pam Whelan, corporate dental sales manager at Denplan, comments: "There are still pockets of NHS dentistry around the country but if you haven't already registered with an NHS dentist you'll probably find that you'll be able only to see a private dentist. Because of this, more and more employers are being asked by their employees for help with dental costs."

The employer or the employee can pay for dental plans, though it is also possible to put an entry-level plan in place to cover accident and emergency and allow employees to upgrade their cover.

As well as asking employees what they want, for some benefits you can measure usage to help you determine what is popular. This is particularly the case with some of the health-related benefits for which you will receive feedback from the provider.

However, Ashwell warns that not every product will become an overnight hit: "Some products, such as employee assistance programmes, take several years to bed-in, with word-of-mouth recommendations helping to push up usage."

Choice

A flexible benefits scheme, where employees pick the benefits they want from a menu, can be a particularly powerful way to deliver a benefits package. "Employers offering flexible benefits packages see a much higher level of employee satisfaction," says Simon Bailey, head of marketing for employee benefits at Aegon. "The more segmented the workforce, the more effective it will be, too."

Just about anything can be included within a flexible benefits scheme and the Employee Benefits annual survey lists 45 different benefits from traditional covers such as pension and life assurance to lifestyle benefits such as concierge services and bicycle loans.

Good deal

As well as enabling employees to pick the mix of benefits they want, a flexible benefits scheme can make you seem much more generous. While your spending is capped, employees can enjoy benefits at much lower prices than if they had bought them themselves: comprehensive medical insurance could cost as little as £450 through an employer scheme but around £1,000 if bought direct.

Group benefits can also be easier to arrange than if bought individually. Bob Cheesewright, group risk marketing manager at Friends Provident, comments: "If you have more than five employees then you'll be able to receive free underwriting on group risk products such as life assurance, income protection and critical illness."

With this, you will be able to offer a level of cover without having to have any medical underwriting. The amount you receive will depend on the size of the group and salary levels, though as an example Cheesewright says that, of the several thousand people employed by Friends Provident, only 13 have to be underwritten. "You might get better rates if employees are healthy and go for underwriting but free underwriting will let some employees take cover that they may have difficulties getting by themselves," he adds.

While there are significant benefits, Bailey warns that introducing a flexible benefits scheme is no panacea: "You do need some engagement with employees in the first place. If you do not have this then they will just be suspicious about why you've introduced a new scheme."

If this is not an issue then the good news is that flexible benefits schemes are becoming an option for much smaller employers. Groups with as few as 50 members can now have some flexibility in their benefit package design.

If this is still too large, another option is to offer access to a range of voluntary benefits, either on a standalone basis or alongside other employee benefits. These are products made available by the employer but paid for by the employee, who will be able to access preferential rates and terms. "These (schemes) allow you to adapt benefits to current trends and can be an entry into a flexible benefits scheme," adds Ashwell.

There is a wide range of products that can be offered and providers are often happy to help with the promotion of these benefits, helping you to make the most of your package.

Legislation and benefits: Age discrimination

Age discrimination legislation came into effect in October 2006, introducing a number of challenges for employee benefits. There are cost implications as, while it is possible to offer benefits to older employees, some such as group income protection and life assurance, become more expensive. Flexible benefit schemes may offer a solution as Simon Bailey, head of marketing for employee benefits at Aegon, explains: "We are waiting for the results of a test case on this as you can argue that flexible benefits are discriminatory as well as anti-discriminatory. However, as long as you can demonstrate that the intention wasn't to discriminate against someone on the basis of age then you should be fine."

Case study - TD Waterhouse

TD Waterhouse is a financial services company that provides share dealing, investment and information services to investors online by telephone and in person. It employs around 550 people over three sites in Leeds, Manchester and London. In June 2007 it introduced a flexible benefits programme, TDWFlextra, to its employees. This was designed to promote an employee wellbeing culture at the company and maximise the value of benefits by offering more tax-efficient options for employees. The following benefits were included in the initial package:

• Group personal pension plan
• Share incentive plan
• Holiday (the opportunity to buy extra days)
• Canteen card
• Green bikes
• Healthcare cash plan
• Health screening (for employees or their partners, or both)
• Mobile phone purchase
• Childcare vouchers
• Dental insurance
• Travel insurance
• Season ticket
• Personal accident plan

Because the flexible benefits package was so different from the previous service, employees were able to pick the benefits they wanted for a six-month period initially. At the end of this, they were allowed to amend their packages, with the new choices taking effect for 12 months from January 2008.

Tracy Booth, HR director at TD Waterhouse, says the programme has been extremely popular among its employees, with around 80% of them taking advantage of the range of benefits on offer: "I was very keen to ensure this momentum continued in 2008, so we worked very closely with our benefits consultants, Aon Consulting, to introduce some new benefits that have a focus on wellbeing, financial protection and value."

These new benefits include life assurance, long-term disability cover, car parking, the ability to sell holiday entitlement and a retail card that replaces paper vouchers by allowing employees to receive discounts of between 4.5% and 10% with a pre-paid credit card. It also introduced a personal account, which can be used to pay for any wellbeing or learning activity such as gym or golf club membership, conversational Spanish or IT classes, with any contribution paid into the account by the employee receiving a 50% subsidy from the company. "The Personal Account is perfect for supporting our employees well-being, as we're able to provide employees with the freedom to undertake sports and learning activities of their choice and receive financial support from the company," adds Booth.

Legislation and benefits: Welfare reform

Government requirements on welfare reform are yet to be finalised but early indications suggest that employers will be encouraged to help employees remain in the workplace. "I would be astonished if the regulations insist on anything mandatory for employers but it's worth watching as there could be requirements in the future," says Bob Cheesewright, group risk marketing manager at Friends Provident. To some extent, employers' requirements are covered by the Disability Discrimination Act (2005) already. This Act states that employers must do everything they can reasonably to help someone stay in the workplace if they are disabled.

Group income protection policies can help an organisation comply with this: as well as covering an employee's salary if they are unable to work long term due to illness or injury, these policies provide rehabilitation as well as advice and support to ensure legal compliance.

Legislation and benefits: The Welfare Reform and Pensions Act (1999)

Employers are required to offer their employees access to a stakeholder pension scheme, although they do not need to make a contribution. This state of affairs is set to change, however, with the government proposing that employers pay 3% of an employee's salary into a pension - known as the personal account - from 2012. It is prudent to bear this cost in mind when setting up other employee benefits.

Legislation and benefits: The Health and Safety at Work Act (1974)

The Health and Safety at Work Act (1974) requires an employer to make the workplace safe and without risk to employee health: this includes mental as well as physical health. All sorts of employee benefits can help look after employees' mental health, though employee assistance programmes were given a boost following a Court of Appeal ruling in 2002 that stated an employee assistance programme could safeguard an organisation from stress claims. This statement was clarified further last year when it ruled that providing a counselling service was not sufficient and that it had to be part of an employment culture which safeguarded mental health.