Employee benefits: a simple guide
Recruitment and retention to meet current and future business needs are the main drivers behind employers’ thinking on employee benefits (66% and 56% respectively).
More than half (52%) want to support and promote work/life balance, and health and wellbeing1.
Providing the right mix of benefits to meet these needs, while also ensuring that what’s on offer is what employers actually want can be a tricky balancing act.
Here’s a quick overview on some of the main employee benefits on offer from providers.
***This page is only intended as a guide and should not be taken as advice. For financial advice about the suitability of any product for your business, please speak to your financial adviser.***
Each year 300,000 people lose their jobs due to a long-term mental health condition2
Most employees are entitled to £94.25 a week (as at January 2020) after their first 4 days off sick. It's called Statutory Sick Pay, and covers them up to 28 weeks.
Employers sometimes offer more sick pay than this (it's often called Occupational Sick Pay - OSP), or offer employees cover for a longer period. It's worth an employee finding out how much they'd be paid, and how long for, because it'll help them decide which other sorts of cover they might need.
A short-term Income Protection plan like Sick Pay Insurance can provide short-term financial support for sickness absence. It can start from as little as one week’s absence and generally pays out for up to one year's absence.
Income Protection pays a percentage of an employee's salary each month (typically 60-80%) as a regular income, if they can't work due to a long-term illness or injury. Getting Income Protection through an employer (called Group Income Protection or GIP) will often mean that most medical conditions an employee may have prior to the policy are covered. Joining an employer’s GIP scheme can also cost less than if the employee took out a similar policy themselves3.
Group Income Protection policies can be set up in different ways by an employer. For example, they may start so that payments start once Statutory Sick Pay or Occupational Sick Pay end. Typically, GIP pays benefit after 6 months off work, though the employer can choose when they want the policy to kick in. As long as the employee meets the terms and conditions of the policy, the payments continue until either the employee goes back to work, or reaches the retirement age given in the policy or another timescale in the policy chosen by the employer when it was set up. For example, some policies have a 'limited term' which means they only pay out up to a set time – say 2, 3 or 5 years off work, rather than to retirement age.
Typically, corporate dental insurance reimburses the cost of routine NHS treatments like examinations, hygienists, fillings, crowns etc. as well as injuries and accidents - anywhere in the world and up to a set limit. It can also contribute towards the cost of more expensive treatments such as implants and child orthodontics.
Dental insurance also pays towards the cost of private treatment – again up to a set limit.
Optical insurance helps pay for eye tests, glasses and contact lenses, and often pays out a lump sum in the event of accidental and permanent sight loss. Cover for both can normally be extended to cover family members.
Critical Illness means an employee receives a tax-free lump sum if they're diagnosed with one of a number of specific medical conditions and survive for a minimum period of time once they're diagnosed (usually between 14 and 28 days). The Critical Illness policy will list exactly which medical conditions are eligible, but these typically include cancer, heart attacks, stroke, MS, dementia and Parkinson’s Disease, among others.
Private Medical Insurance pays towards the cost of private treatment for certain medical problems. It doesn't cover every medical condition, so it's important for employees to check the policy details to see what's covered.
A health cash plan covers the cost towards minor healthcare needs such as physiotherapy appointments, seeing a specialist or other medical expenses. It also provides cover towards dental or optician’s bills, though the range of cover is usually not as comprehensive as dental insurance.
Health screening provides a regular health check. This usually involves a physical examination to identify any current conditions an employee might not be aware of, but will also involve questions to help work out which diseases they may be at risk of, and how they can improve their health by changing their lifestyle.
Life Insurance (also called Death in Service) pays a tax-free lump sum if an employee dies, to provide support for the people who depend on them financially (like their partner or children). It's often calculated as a certain number of times their salary, so if they earned £25,000 and had a '4 times salary' policy, their dependants would get £100,000.
Over three-quarters (76%) of UK employees were members of a workplace pension scheme in 2018 – up 29% since auto enrolment was introduced in 20124
A pension is designed to fund an employee’s retirement. Most pensions these days are 'defined contribution' pensions. In this type of pension, an employee and/or their employer each regularly put a set amount of money into the pension account. The value of the pension when the employee retires depends on, for example, how much they've put in to it and how the funds perform. Once they retire, the employee then has a pot of cash which they can use to fund their retirement in various ways, such as an annuity.
The main reason for getting a pension through work is that the employer will often contribute too.
The second type of pension is a 'defined benefit pension', and it's becoming much less common in private sector companies. In this type of pension, the amount the employee gets when they retire is worked out using a formula, which may include their final salary, an average salary over time or how long they've worked there.
Auto enrolment means that employers without a pension scheme now need to offer one to their employees. There's more information at www.nestpensions.org.uk
There are lots of different types of share schemes. These could involve employers gifting shares, offering shares in the company at a reduced rate, or matching the number of shares employees buy. Schemes can be limited to certain levels of employee, or require a certain number of years of service.
There are extra opportunities for employees to save or invest money through their workplace - above and beyond traditional methods like the company pension scheme.
An ISA through the workplace typically allows employees to contribute to a stocks and shares ISA investment direct from their salary (after tax). Returns are tax-free and employees may enjoy extra cost savings such as lower or no management fees, start-up charges or fund switching free of charge. However, it’s important to remember there are no guarantees. Investments can go down as well as up and you may get back less than you pay in.
Childcare vouchers are taken out of an employee's salary before tax and National Insurance through 'salary sacrifice' up to £55 of salary a week. These vouchers can be used to pay for nursery, preschool, a nanny or a child minder up until a child's 15th birthday (16 for disabled children).
However, the scheme closed to new applicants on 6th April 2018 and was replaced by Tax-Free Childcare.
An employee who still receives childcare vouchers must tell their employer within 90 days if they sign up for the government’s tax-free childcare scheme. The employer will stop providing new vouchers and the employee cannot rejoin the childcare voucher scheme. For more information, see gov.uk’s childcare section.
A car allowance means that an employee gets an extra payment to allow them to buy a car for their work. Some employers give a mileage allowance, which means an employee gets a certain amount for each mile driven on company business. Or companies may favour the more traditional company car scheme, where employers provide an employee with a car.
However, there are certain National Insurance and reporting obligations, and it’s also worth remembering that there can be financial benefits if the car has low CO2 emissions.
Employers can provide employees with an interest free loan of up to £10,000 in any tax year - a benefit often used to allow employees to buy an annual travel card or season ticket (they're usually cheaper than buying daily, weekly or monthly tickets).
Some employers will give employees a free gym membership, while others will offer a discounted rate at a local gym or gym chain.
There's plenty more information available for both employers and employees:
For employees: There's detailed and impartial advice about employee benefits over on Money Advice Service Or have a chat with HR (or the MD or Office Manager in a smaller company) if you don't know what benefits you've currently got, or if you would like to ask for changes to your benefits.
For employers: Find out more about employee benefits by speaking to your IFA, or take a look at one of the many employee benefits sites such as www.employeebenefits.co.uk
1 CIPD Reward management report November 2018
2 Thriving at Work – Stevenson/Farmer October 2017
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