Flexible Benefits
Flexible benefits are becoming ever more popular with both employees and employers throughout Ireland. They are effectively elements of the remuneration package which employees can opt in or out of, taking an employer paid benefit or increases salary instead. Flexible benefits shouldn’t be confused with voluntary benefits which are generally little more than group schemes arranged by the employer e.g. VHI discounts on an opt in basis but no employer contribution. So the distinction is with a flexible benefit, if you choose not to take option A, there is an option B etc.
Most flexible benefits scheme are set up on joining the firm and are reviewed once a year. More often than this would create an administrative nightmare for most organisations. However, most companies do allow the scheme to be altered in the event of a life changing situation such as marriage etc where an element of the benefit is affected.
So why have flexible benefits?
The reasons for having such a scheme can be broadly split in two, employee benefits, and employer benefits:
Benefits to the employee
The key from the employee’s perspective is that they get to choose benefits based on diverse personal circumstances and the stage in life they are at. Pension contributions may be perceived as less valuable to a 20 year old compared to a 40 year old. Additionally they can alter the benefits as their career progresses.
Some benefits may also be more tax efficient through a company scheme rather than bought directly. You may be able to pay for the scheme out of your gross pay for example, reducing taxable income. Furthermore, some benefits may be cheaper through the scheme than purchased as an individual due to the bulk buying power of the scheme.
Benefits to the employer
There are numerous reasons why the employer benefits from such a scheme. Most HR Managers will agree that giving employees a choice has a very strong perceived value that will aid recruitment and retention. In a tight labour market even a small increase in recruitment or retention due to this will have a significant financial impact due to recruitment, training, and opportunity costs.
The scheme may give you significant economies of scale when buying the benefit, further enhancing the value perceived by the employee while also costing you less than the salary equivalent. Furthermore, should the cost of the benefit increase, the increment would be passed on to the employee.
Some benefits received by the employee will have no PRSI implications and therefore reduce the employers tax liability. An obvious counterpoint to this is if your staff are at or near minimum wage you could not allow them to slip below it due to flexing.
So why isn’t everyone doing it?
The main reasons cited for not implementing these schemes are cost and administration considerations. The initial set-up costs should not discount technological costs as some may be involved. Transacting business online has very much brought these costs down. The obvious time costs of researching suppliers and implementing the system are very much administration costs loaded to the start up of these arrangements.
Implementing a flexible benefits scheme
One of the most important things to do is put the needed administrative structure in place. A predefined list of what will be needed administratively should be created and duties assigned from this. As it is a new scheme it is vitally important that everyone knows what their responsibility is.
Next is communicating the new scheme to the staff, explaining why the scheme is being introduced, the benefits to them, how they choose their benefits, and who to go to for more explanations/help. Most modern systems are self-service style based on the company intranet, so the main concern here may be the issuing of staff with secure log on details for their account.
On a practical note, it is important to schedule the implementation at the least busy time you can, so might be prudent to avoid year end etc.
Remember if no one takes up the benefits, the whole exercise may be a costly mistake so the communication of the benefits is key here. A lot of companies use “champions” to promote the scheme locally with colleagues. This message can then be reinforced via email and other staff communications. A thorough understanding of your staff’s wants, needs, and motivations will obviously help here.
As when any element of a person’s contract is amended, careful consideration needs to be given to the legal implications of such an amendment. Tax issues of all elements of the scheme must also be analysed.
Most organisations using flexible benefits review it in the run up to the time when they allow employees change options. You may be able to introduce new benefits or examine why some are taken up and others not. More and more companies are also offering less traditional options. For example, experience days e.g. driving a formula one car or a day at a health spa.
There are numerous consultancies that specialise in designing and implementing these types of schemes should you need third party help.
Published in: HR & Recruitment Ireland, March 2008