Employee Benefits Guide

What are employee benefits?

Employee benefits are non-wage compensation that supplement an employee’s salary and can include everything from private health insurance and critical life cover to mobile phone or gadget insurance and high street vouchers. Some benefits will be taxable so you’ll need to check with your accountant what applies in your case.

Benefits could be, but are not limited to:

• Pensions
• Eye care vouchers
• Private dental
• Gym membership
• Health screening
• Childcare vouchers
• Retirement benefits
• Profit sharing
• Company cars
• Hotel stays
• Free refreshments at work
• Lunch allowances
• Financial advice
• Unlimited holiday allowance
• Pet-friendly provisions

Why do employee benefits matter?

It might be tempting to offer the bare minimum to your employees if you’re a small business. After all, you’ve got costs to keep down and wages to pay. But if your idea of benefits is buying a better packet of biscuits for the office kitchen, then it could be time to think again.

Not offering benefits means less costs in the short term for your business but long term, you could be hindering rather than helping your growth. By offering decent employee benefits you will attract talented staff and help retain those staff you do have. You’ll also build an attractive employer brand and create a perception of a strong, caring and invested employer.

According one report, 69% of employees revealed they are more likely to stay with an employer who offers a good package while 68.2% said there were more likely to take a job if an employer offered a good benefits package.

On the flip side, without employee benefits you could risk higher staff turnover which leads to greater recruitment costs and a smaller talent pool to pick from when you do recruit. It can cost a lot to replace an employee, not just in terms of recruitment but in training and getting new employees up to full productivity and if you’re having to do this regularly the costs can be significant. If you’re a small business trying to grow, do you really want to limit your options and incur those extra costs simply because you’re not offering gym membership or health insurance?

Employee retention

One of the biggest costs of any business is staff recruitment and retention. Every time someone leaves your business it is said to cost more than £30,000, both in terms of finding someone to replace them and the loss of productivity. If you find you have a low retention rate or struggle to attract talented people to your business, then employee benefits may be the one thing that will make a difference.

• Attracting talent
  It can be hard enough finding the right people for your business in the first place and if you’re a small business, offering a huge salary may not be a viable option. Whilst salary is still a very important consideration, a report from the Society for Human Resource Management, revealed employees rank benefits as one of the top three considerations when looking for a job. Other aspects employees rate highly include flexible working, a good work/life balance and career advancement opportunities.
  
  
• Employee retention
  Recruiting skilled staff is one thing but keeping them engaged and happy is quite another. Even after they have signed their employment contract you need to work on retaining them. Attractive employee benefits can encourage staff to remain put but so can less quantifiable benefits or perks such as flexible working, free refreshments, reward and recognition, company away days and volunteering days. For example, AirBnB offers staff $2000 to travel while the Body Shop will pay staff for a set number of volunteer days each year.
  
  
• Align the needs of the business and it's employees
  Managing employee performance and setting targets can allow you to monitor their effectiveness within your business. Greater employee performance will feed into your business strategy and employee benefits will form part of that. For example, reward and recognition for hard work or helping an employee with their own career goals has a beneficial effect on productivity and ultimately business growth.

• Strategic tool
  Employee benefits are an important tool for recruitment and retention and should form part of your business or strategic plan, especially as companies are now competing with their rivals for the top 10% of skilled workers to fill their roles. By creating a strategic plan for the benefits you offer, you will be able to articulate how those benefits will support the goals of your business plan and how they will supplement your recruitment strategy and plans for growth. 

Employee benefits aren’t merely add-ons to a worker’s salary – they can add real value to your employer brand and how staff perceive you, improving recruitment and retention, affording you greater staff engagement and helping to make your business a happier place for staff to work.

By creating a benefits plan or scheme you can have a profound impact on your employees’ health, wellbeing and satisfaction with work. But you need to take a strategic approach to it, planning the benefits you’re prepared to offer, under what conditions and when. Adopting a piecemeal or ad hoc approach can leave employees not gaining full advantage of the benefits on offer, or building in benefits that have no value to your employees, and this can negatively impact your employer brand.

What to consider

Start with a clear vision as to why you need a benefits programme. Is it because you’re already enjoying company growth and you need to quickly attract talent to help with that? Or is it to help hold onto staff you have already invested time and money in? Maybe it’s about matching what your competitors offer, and then offering more, so you get the best staff, not them.

Once you’ve decided why you want to offer your workers certain benefits, you need to decide on what exactly you want to give them and what the cost implications are for the company. You also need to measure the success or otherwise of the benefits because once you put them in place it can be tough to remove them.

In addition, you should bear in mind that not all benefits will motivate all staff and you need to look at your workforce to see what benefits might work best. For example, Millennials who are taking their early steps on the career ladder and don’t have children and families to worry about probably won’t bother too much about childcare vouchers or retirement plans but will find flexible working or gym memberships enticing. Generation X on the other hand, those born between the Sixties and the Eighties, might be more appreciative of pension provision or private health care.

The likes of Facebook and Google have led the way in transforming how workplace benefits are viewed, introducing a whole raft of ideas such as free bars, refreshments, break out areas – the so-called bean bag office culture for grown-ups. Millennials also expect more from the workplace and as well as salary they increasingly look for the perks and benefits that accompany a particular job.

It is no longer enough to offer the basics – fruit carts, bring your dog to work, away days, perk boxes etc. all increasingly play a part alongside more traditional benefits. Employees also increasingly look at what a role can offer them in terms of their own personal career development and growth. Training and advancement as well as perks should form a part of your long term employee growth strategy.

The types of benefits you might consider offering your employees are myriad. You don’t have to offer all of them. Indeed, you don’t have to offer any of them but if you choose not to you should be mindful of the long term impact on employee recruitment and retention.

You also need to consider the financial implications of your business and whether the costs of the benefits you intend to introduce are ultimately cost effective and beneficial.

Financial

Financial benefits are ones which can supplement your employee’s salary and offer them something over and above state provision in some cases.


Pension

The days of final salary pensions are long gone and not many private companies offer them anymore. They usually specify a set level of pension at retirement based on your final salary and years of service. But increased life expectancy, falling stock markets and low inflation have all made these kinds of scheme very costly to administer.

However, private pension provision is still an attractive benefit, particularly for older workers who are more aware of the plans for retirement. Normally, this will be a defined contribution pension scheme where the employer pays in a set amount and so does the employee. When the employee retires they’ll get a pot of cash essentially. The amount they receive will be based on how much has been paid in, how well investments have done and how they decide to take it – either as a lump sum or small, regular payments.

 Share schemes

Share schemes are a great way of building loyalty and giving workers an interest in the business beyond their job. They are invested in the business itself and as a result are more productive. You give the employee free shares in your company or you match any shares they buy in the company.


 Travel loans

Some employers will offer their staff interest free travel loans so they can buy annual tickets, which are usually cheaper than buying weekly or monthly ones. It helps your employees reduce the cost of their daily commute and spread the cost.


 Maternity/paternity pay

You will be liable to pay the statutory minimum where this is concerned. Women are entitled to a year’s maternity leave and provided they’re eligible they’ll get 39 weeks statutory maternity pay (six weeks at 90% of full earnings, 33 weeks at statutory maternity pay and 13 weeks unpaid). However, though you are not legally obliged to offer more you might choose to offer enhanced maternity pay to help attract and retain skilled women. For example, keeping full pay in place for the entire period or offering half pay when it drops to statutory minimum. You can introduce clauses in the employment contract where an employee will have to pay back that extra money if they don’t return to work or leave within a certain period of time after maternity ends.

Similarly with paternity pay, fathers are entitled to two weeks’ leave once the baby is born. You can choose to offer more.

For more information on maternity and paternity pay, read our Parental Rights Guide.

 Bonuses

Bonuses are a great way to incentivise employees. They are most commonly based on productivity or profits and are normally triggered when employees hit certain targets. But they can also be based on attendance, customer service, quality and team or individual performance.

A profit bonus is one where all employees are rewarded for a good performance even though the percentages of what they receive might be different. However, high performers may feel like they are carrying low contributors.

Health and wellbeing

Private medical insurance as an employee benefit has been around for quite some time and is designed to support an employee in the event they become ill or are injured. But increasingly employers are realising the value of having a healthy and happy workforce so the kinds of benefits being offered has grown.


Private medical insurance

This entitles your employees to have private medical treatment in the event they are ill or injured. It’s not just about employee wellbeing anymore, health insurance can help reduce absenteeism. If workers are sick they won’t be working productively. Offering health insurance means your employees feel like you care about your workers and you will reduce days being lost due to sickness.

Dental and optical insurance

As with medical insurance, dental and optical insurance can help your staff stay in good condition. And happy healthy staff are productive staff who can positively impact your bottom line.


Sick pay

Staff will be entitled to statutory sick pay which you are legally obliged to provide. However, you may choose to offer occupational sick pay where you pay more than the statutory allowance or allow staff to claim sick pay for longer.

All employee bonus schemes can work well creating a sense of a shared culture and that everyone is in it together. This might not be suitable if you have business with highly specialised roles in it and can actually demotivate those key players who feel like they are carrying the burden.

Profits shares where you issue shares in the business rather than cash is another alternative. Employees can cash in the shares they are given or hold onto them for a longer term investment.

Duvet days

Everyone has days where they’re not exactly sick but simply don’t have the motivation to go into work. Some people might phone in sick when they’re not really ill but as an employer you could offer a duvet day instead. These are built into the annual holiday allowance and mean a worker can take a day off, not as a sick day and not as annual leave. The benefit of this is you reduce actual sick days and workers feel like they’re treated with respect.

Flexible working

Increasingly staff want flexible hours, whether that’s starting late, finishing early, job sharing, working part-time or even setting their own hours. Flexible working allows staff to fit work in with other commitments. It also allows staff the chance to choose where they work and can help promote work/life balance. From an employer perspective, flexible work can empower your workforce, improve loyalty, reduce staff retention and boost your image as a good company to work for.

Gym membership

Some employers offer free gym membership, others will offer a discounted membership with a particular chain or a local gym. Giving your employees some kind of subsidised gym membership can play a role in their health and wellbeing as well as reduce sickness absenteeism. Choosing the right gym provider is important however, to boost employee uptake and you need to make sure your provision caters to staff of all ages and fitness ability.

Additional

On top of more traditional benefits there are many different things you can offer your employees to incentivise them and retain them.

• Childcare vouchers
  
  If you have staff who have children, then childcare vouchers and be a very attractive proposition. Give the high costs of childcare these days, vouchers can offer a substantial saving on childcare provision. Employees exchange part of their gross salary for vouchers they can use towards childcare. They can exchange up to £243 a month and are tax and national insurance exempt.

• Day off on birthday
  
  Technically this isn’t a benefit that you can really quantify but it’s great for morale and psychological health. By letting employees take the day off you’re letting them celebrate and showing them you care more about them just merely their work output.

• Beer Fridays
  
  Beer at work sounds like a contradiction in terms which will kill productivity rather than improve it. But this workplace perk can boost engagement and help wellbeing. It also encourages employees to come to the office rather than telecommuting which can have a beneficial effect on teamwork and staff morale.

• Dedicated development days
  
  Training programmes are well documented in larger organisations but often get left in smaller businesses through lack of time and resources. Running a small business can be hectic and stressful – you hired people for their abilities now, not what they could learn! However, setting regular time aside for development can lead to positive change within your organisation. It creates a culture of self-learning and once one employee gets fired up about something new, it can quickly spread through your team. This excitement for learning new, interesting stuff is contagious, in a good way of course!
  
  It also helps prepare your employees for the time when they leave your organisation, not that you necessarily want to leave. This might seem a bit too altruistic and you may wonder how it benefits you but in the long term it helps build a positive employer brand, allowing you to attract the top staff.

• Rewards
  
  It doesn’t matter how old we all get, everyone likes to rewarded and acknowledged for the hard work they have done. Remember those gold stars you used to get at school and how they made you feel proud and enthusiastic?
  
  Well, it’s the same principle only with better rewards. How you reward your employees is up to you – you might choose to have an employee of the month, or different awards for different aspects of business. It could be as simple as a bottle of wine for a completed project or a bunch of flowers for a target met. The point is to offer things that are relevant to your staff and foster engagement.