For many employers, business opportunities and plans necessitate a significant growth in skilled staff from a limited skills pool. This is creating a large amount of competition between employers, all vying for the same staff. Recruitment and retention of staff is a significant business challenge that can be seen as much in the charity sector as anywhere else, and this has led to the increasing importance of having a reward package that is attractive to both new and existing staff.

To respond to these changes, many employers are giving serious consideration to the adoption of flexible benefits. This is a method of delivering benefits to employees that is proven to give a significant competitive edge. The power comes from the control that it gives to employees and the change of focus that it creates, away from the cash element of a package to the value of the total reward.

A flexible benefits plan is a formal arrangement, designed to help employees gain a better understanding of the total value of their individual remuneration package, and more importantly to provide a mechanism through which individual employees can select the benefits that best match their own immediate needs and lifestyles.

Recognising not only that each individual employee’s benefit requirements different, but also that those requirements will change from time to time, a flexible benefits plan will usually give employees the opportunity to review and alter their benefits package on an annual basis.

There are now over 400 employers in the UK providing structured flexible benefit schemes for their employees. This includes 30 per cent of the FTSE 100 companies, but more significantly 35 per cent of the FTSE 350 also offer flexible packages. Many smaller employers are now offering this to their employees, with organisations with as few as 100 employees successfully launching such schemes.

The ability of smaller employers to take part has been very much driven by the availability of latest generation software enabling online enrolment by employees and ongoing management of the scheme. This has removed administration from being the barrier it once was to introducing a flex scheme. Indeed, many employers have found that a bi-product of flex is a streamlining of all their benefit administration. Effectively the flex system becomes the co-ordinating function for all benefits.

Most modern Flexible Benefit Plans are established on a ‘salary sacrifice’ basis and, as such, this has the potential to generate significant National Insurance savings for both the employer and their employees.

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In our experience flex can be employed to:

• gain a strong competitive edge in recruitment and retention
• create awareness for employees of the true value of how much is being spent per employee on benefits
• aid the introduction of benefit amendments
• promote a unified corporate image
• help give an employer a forward looking, modern image in the employment market
• rationalise diverse benefit entitlements
• deliver the benefits most relevant to its employees, at an affordable cost
• clearly reveal and control spend on benefits

One of the key drivers for most companies when implementing a flexible benefits plan (and the one that particularly interests the finance director) is the significant tax and National Insurance savings that can be made. For example, by including the employee’s own contribution to the pension scheme in a flex arrangement, it would be possible to change the contributions from the current conventional basis to a salary sacrifice contribution.

This allows both the employer and its employees to benefit by not having to pay National Insurance on member’s payments to the pension scheme. Employees earning below the upper Earnings limit for NI purposes would save 11 per cent on their own payment. Their employer would save a further 12.8 per cent on this amount.

Generally this type of National Insurance saving can be generated from any benefit that does not create a Benefit in Kind (P11d) tax liability. This has led to the growing popularity of a number of “lifestyle benefits” such as buying extra days holiday and provision of bicycles in line with the government’s Green Transport Initiative and some new ideas that are now appearing such as Work Wardrobe (a way of staff being able to get tax relief on their clothing) and Training from Work (which provides for tax relief on computer based training at home for any subject).

Most of the other benefits generally available in flex schemes, although taxable as a benefit, still give employees a tax advantage. This, particularly, for those earning below the upper earnings limit for National Insurance, as they save 11 per cent on the cost of benefits chosen, and the benefit will have been sourced on corporate rather than individual terms. The general effect is to make benefits a highly visible part of a competitive employer’s offering to both existing staff and potential recruits.

Clive Cripps is director of the flexible benefits practice at Entegria

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