Employee benefits uptake: why less choice is more

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The benefits industry has long held to the mantra that offering more employee choice is the way to deliver better benefits but there’s not much evidence that this, on its own, is the lead factor is employee satisfaction. So it’s worth digging a little deeper and seeing whether choice is always the best thing to offer as an employer seeking to run a successful benefits package.

Firstly, let’s look at why benefits are used at all. What’s the point of going to the effort and expense of giving employees more than just base pay when lots of research shows that appreciation of benefits is poor?

Employers often cite retention as the most important upside of employee benefits but that doesn’t really provide much insight into how the benefits actually deliver on this and so it’s probably better to look at what employees value first. This can be categorised into three general areas:

1. Protection

These benefits are often insurance-based and designed to provide help when things go wrong and when financial circumstances can be challenging, like during a long term absence or a period of poor health. 

Life cover and healthcare benefits are good examples and enable employers to demonstrate that they will support their employees beyond just paying for their work when they are fit and healthy. 

These are well established at larger employers and in the public sector but still not common among smaller employers.

2. Wellbeing

These benefits tend to be more preventative and aimed at supporting employees who are actively at work.

Examples of these are counselling services, both by telephone and face-to-face, money towards dental and optical care and access to GPs and medical screening.

3. Money saving

These provide employees with money saving opportunities. This can be from tax incentives available through pay, like salary sacrifice childcare vouchers and the cycle-to-work scheme through to retail discounts offered through specialist providers like Reward Gateway and Perkbox.

I’ve purposely left out benefits that relate to motivation and argue that, whilst these can be hugely important, they vary widely and cover things like share options, incentive plans and bonus schemes and fall outside the scope of this article.

The important point to make is that protection and wellbeing benefits are typically employer funded and provide little employee choice. That’s not a bad thing - look at the public sector, where benefits are well funded and regularly cited as being of high value and important to employees.  

Money saving: where the choice lies?

The choice around benefits exists in the money saving category, where employees pick and choose how they want to spend their own money on things that are relevant to them.

As the cost of these schemes is generally low, offering these as benefits will normally be viewed as relatively low value by employees compared to the employer funded protection and well-being benefits.

In terms of employee satisfaction, employe funded benefits will always trump benefit choice because the employer is paying for the former rather than just providing access to savings. Offer an employee a decently-funded pension, employer paid life and medical cover and it will win every time over offering some retail discounts and access to some “spend your own salary” bikes and vouchers.  

OK, but the argument goes that few employers can afford to pay for benefits like the ones mentioned and therefore providing choice gives employees a better way of allocating a smaller employer benefit subsidy to things that they want.    

And not all employees are the same, and that seems to make sense. Except it doesn’t. As ever, it’s not that simple. All employees will want to retire, will need to protect themselves and their loved ones if things go wrong, so it’s important to clarify what the purpose of employee benefits are before leaping to telling employers what’s best - perhaps a more considered view would help make employers understand the role of benefits in the workplace.

Let’s go back to the point that few employers can afford to pay for benefits

Research published by Ellipse in 2017 showed that 43% of SME employers do not provide any additional benefits other than a workplace pension.

Of those who do, the most commonly offered benefits are the cycle to work scheme and childcare vouchers, that is money saving benefits that have no employer funding. 

The research also found that most employers lack the awareness of benefit costs and that’s understandable as the benefit industry has done a fairly poor job of marketing their products, especially to the SME market.  

Having said that, employer funded packages are available from a few pounds per month, so cost doesn’t have to be an issue.  The main hurdle continues to be lack of interest in benefit providers and advisers developing simple products and trust to help employers set up benefits for their employees.

Looking towards the future, it’s good to see that a number of new benefit providers are emerging that offer a new approach aimed at providing better access and value to employers of all sizes.

About Richard Stewart

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