Employee Benefits: a simple guide

If the words 'employee benefit' are taken literally, you'd be forgiven for
thinking that all the benefit sits with the employee.

But with 69% of staff saying they would be more likely to stay with an employer that offered good benefits and 68% saying they’d take a job for the same reason1, it's clear that employers also stand to gain.

For employees, a benefit package can help plan for old age and unexpected events (like becoming ill or injured), and can save them a bit of money on day-to-day expenses too.

For employers, a strong, relevant and well-communicated benefits package not only helps employers make sure they get the pick of employees at recruitment, but can also help them retain happy, engaged and committed workers.

It's worth remembering that not everyone needs the same employee benefits. At different times of life, and in different family situations, different things are important. When creating or reviewing a benefit package, employers need to consider their workplace demographic and employees need to think about whether the benefits they have are the right ones for them.

Here are some of the most common employee benefits:

Please note that this is a guide only 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.


1 in 8 people have to stop work due to ill-health or disability before reaching the state pension age2 



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 what they've put in. 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


Share Schemes

There are lots of different types of share schemes. These could involve employersgifting 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.

Workplace ISA

More and more businesses are offering 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 then you pay in.


Each year 300,000 people leave work due to a long-term mental health condition3

Sick Paydoctor_illness.jpg

Most employees are entitled to £89.35 a week (as at Feb 2018) 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.

Advisers: Request a Sick Pay Insurance quote


Income Protection

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 themselves.

Group Income Protection policies can be set up in different ways by an employer. Usually, they're set up 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. 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.

Advisers: Request a Group Income Protection quote

Dental and Optical insurance:

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.

Dental get quote

Private Medical Insurance (PMI)

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. 

Critical Illness Insurance

Critical Illness Insurance 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 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.

Advisers: Request a Group Critical Illness quote

Health Screening

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

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.

Advisers: Request a Group Life Insurance quote



Childcare Vouchers

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 childminder up until a child's 15th birthday (16 for disabled children). However, it’s worth noting that the scheme will close to new applicants on 6th April 2018. It’ll largely be replaced by Tax-Free Childcare. For more information, see gov.uk’s childcare section.


Car Allowance

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. 

Interest Free Travel Loan

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).

Gym Membership

Some employers will give employees a free gym membership, while others will offer a discounted rate at a local gym or gym chain. 

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More information:

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 Capita Employee Insight Report 2016-17
2 https://www.tuc.org.uk/news/one-eight-people-are-too-ill-or-disabled-work-state-pension-age-says-tuc
3 Thriving at Work – Stevenson/Farmer. Oct 2017