Frank Hobson Consulting

practical human resources support

Pay Systems - Flexible Benefits

Your Flexible Friend

Flexible benefits packages (sometimes known as cafeteria systems) have never quite achieved the popularity often predicted for them.

The idea behind such schemes is that employees can tailor their package to suit their own needs and preferences and thus be more motivated and committed. Employers like the idea that staff are shown the true cost of their package, not just the salary element. Any additional benefits can targeted more easily within a formal flex scheme. In some recruitment markets a flex scheme can provide some additional pulling power. So why have they not taken off as much as they are reputed to have done in the States?

The work and preparation involved is obviously one reason. Many of the benefits will be lost if the options are not packaged together and actively promoted throughout the organisation. Another reason must be the frequent changes to the tax and regulatory regimes in the UK that can quickly invalidate several months of work and preparation.

Obviously, any element of employee choice can be offered as a stand-alone item without needing to be wrapped in formal flex packaging and if you are only prepared to offer choice in a small number of areas they may be better treated as individual items. But that is harder to sell as a potential benefit to recruits.

A good flex scheme can be worthwhile in the right circumstances. Consider the following points:

- is your workforce, and the pool from which you need to recruit, likely to value a flexible scheme? Typically, young professionals (often with a partner in a similar job) and older management staff are among those most likely to welcome the opportunity to trade up or down in some items. They are more sophisticated financially and have more discretionary income. Least likely to be impressed are those groups who need to budget carefully to make ends meet;

- on an item-by-item basis, what degree of flexibility might you be prepared to offer? Will that seem a worthwhile flex option? For example, how much holiday might you be prepared to buy back and how much extra leave could you operationally allow?

- how widespread are the benefits that might be flexed? Including benefits that only a few currently enjoy can be difficult to present in a positive fashion.

A formal flex package can sometimes be a useful vehicle for merging two workforces with disparate benefit packages. Normally, there is pressure to merge at the higher of the existing levels but within a flex scheme there can be the option of merging at the lower level but giving sufficient additional salary to those loosing benefit to buy it out.

One advantage of these scheme used to be that, as well as making a personal choice on some of the standard items such as holidays, cars, insurance, pensions, etc. salary could be foregone in return for a range of additional benefits without incurring employers’ NI. The range of such items is now, effectively, limited to childcare vouchers and work-related additional training.

There remains a range of items where the employer can use its purchasing power to offer staff benefits at a lower cost than would be available to the employees individually. These can include insurance, gym membership and various voucher-based schemes.

Of course, these benefits can be offered without being part of a flex scheme.  For example, I could quote two City professional firms where staff can buy high quality annual travel insurance for themselves and their families on the back of the business travel policy. One firm includes this in the options within its flex scheme. In the other, employees simply write out a cheque for that specific benefit.

Frank Hobson

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