Employee benefits are a hugely important element of the world of work. In negotiations and in day-to-day life, both employers and employees all too frequently focus solely on the salary being paid for the job at hand, rather than considering the total remuneration package on offer.
Every employee relies on employee benefits to some degree. Whether it is the company car you drive, the mobile phone you use, or the pension you are relying on, if you are employed by a business it is highly likely that you will be in receipt for some form of benefit.
Employers, meanwhile, use benefits as a way of enticing top quality employees, boosting morale and, sometimes, to minimise tax.
So what are employee benefits - and what do you need to know, either as an employer or an employee?
- What are employee benefits?
When you take a job, one of your first concerns is likely to be the headline salary - that is, the amount you will be making each year. This is understandable; it is the figure that will probably have the biggest impact on your standard of living in the short term.
But it is only part of the picture. In most cases, employees will also be entitled to a range of benefits- either in addition to their salary or instead as part of it.
There is a range of different benefits that may be on offer, from the basics like a pension, to more esoteric examples like cycle to work schemes or gym membership.
- Why would employers offer them?
Employers can benefit from a range of advantages as a result of offering employee benefits. Perhaps the most important of these is the impact on employees morale. Many employees feel more valued by their employer if they are provided with a good benefits package.
There are also some tax advantages associated with employee benefits. You should note, though, that tax on employee benefits is a complex area, as is discussed later.
- What are the advantages for employees?
The advantages for employees depend in great part on the nature of the benefits on offer. To begin with you should understand the salary sacrifice concept, on which many employee benefits work. This system means that you give up a portion of your salary in exchange for a benefit. If you are giving up some of your income, you need to be sure that you are getting a good deal. Flexible benefits are often a good option - but if you are giving up part of your salary in return for so-called 'core' benefits, you might not be getting the most for your money.
You should therefore make sure that you understand exactly what you are getting - and that you are prepared to negotiate with your employer for the best deal.
- What are the tax implications?
Tax on employee benefits via the employer is complex, and it is an area in which employers are constantly in disagreement with HMRC.
Most employee benefits are treated as part of the total remuneration package given to the employee. This basically means that they are taxed like salary. But there are some tax efficient benefits - and you may be able to reduce the tax impact by thinking about how those benefits are paid. For example, a mobile phone provided by an employer to an employee may be more tax effective if the bill is paid directly by the employer, rather than by the employee who is then reimbursed.
- How do I start setting up a benefits scheme?
If you are considering setting up a benefits scheme, you should first consider your legal obligations. You may be required to offer certain benefits including, for example, a pension scheme. As a result of the controversial auto-enrolment rules, businesses of all sizes will be required to give access to an occupational pension.
You may also consider hiring an employee benefits consultant. This can be a complex area, and a professional consultant can help you determine what is best for you and your employees.
Flex schemes, whereby employees can pick and choose their benefits, are becoming increasingly popular. You should consider this type of scheme if you are unsure what sort of deal your employees would appreciate.
- Can I use benefits to reduce employee absence?
Many employers use employee benefits as a way of encouraging or discouraging certain behaviour amongst their staff. High absence levels affect many businesses, and this problem can prove expensive. Employee benefits can be a useful way of managing absence and improving your bottom line.
- What about healthcare benefits?
Private medical insurance is another of the most popular employee benefits. In medium or large organisations it is now almost considered a given that a remuneration package will include private medical care.
As an employer, the range of healthcare benefits you might provide is staggering.
- How about pensions?
Pensions are perhaps the first thing that many employers and employees think of when they consider the topic of employee benefits. A pension is a benefit on which people rely - and it is therefore important, from both the employer and the employee's perspective, that it is got right.
To begin with, you need to understand the terminology. Do you understand the difference between a final salary, money purchase, and stakeholder pension scheme? Your choice of pension type could have a major impact on the amount that you (or your employees) eventually have to retire on.
As an employee, you should again make sure that you are familiar with the salary sacrifice concept. As well as coming from your employer, pension contributions are also deducted directly from your pay packet - so you should make sure you know where your money is going.
If you are an employer, it is also important that you educate your employees about the nature of their pension, for example through a seminar or in a written publication.
Employee benefits are a major element of many remuneration packages. If you are an employer, you should seriously consider taking professional advice to help you make the right benefit choices.
If you are an employee, meanwhile, you should also seek help if you are confused about your rights or responsibilities. Personalised assistance is available for free from groups like the Citizens Advice Bureaux.
Sutton Mcgrath Hartley Financial Services are here to help you understand the benefits of employee benefits, please contact one of our advisers for further details.
- Draft Finance Bill 2019
- Income from jointly held property – Spouses
- Agricultural Property Relief
- Entrepreneurs Relief
- Restarting a non-trading or dormant company
- Running a home office – can you claim on expenses?
- Are you Starting a New Business Venture?
- Auto Enrolment Becomes Business as Usual
- VAT on Residential Property Projects
- Writing a Will – Don’t Forget about your Digital Assets!