UK: Forward Thinking: A Briefing For Entrepreneurs And Executives In Commerce And The Professions

Last Updated: 21 August 2007
Article by Giles Murphy

In this issue of Forward Thinking, we look at the shifting rules of engagement between employer and employee. We examine innovative approaches to benefits, and some of the pitfalls in attracting, retaining, rewarding and managing people effectively.

The people Revolution

Exploring the changing human resources battleground

Human Resources: War Or Revolution?

During the late 1990s, we heard and read a lot about the ‘war for talent’ in the UK. Years later the skills shortage continues and is fuelling substantial salary increases in some sectors. As a result, it has become increasingly difficult to recruit and retain key talent, especially if the employer can’t afford to enter a bidding war.

A holistic approach

Employers must consider their total offering to employees in a new light. The contract between employers and employees is no longer just about a specific salary level for carrying out set duties. To successfully recruit and retain key employees, it is essential to address the whole package offered to them, from holidays and training to wider personal skills development, such as management of people, communication and negotiation. Another important part of the package is the culture of the organisation, for instance, the ability to work flexibly or take sabbaticals.

This holistic approach has evolved from the demands of employees and their view of benefits as a complete package of rewards. The shift has led to the concept of ‘total reward’, with the provision of annual statements that quantify the overall value of an individual employee’s package, including base salary, variable pay, share ownership and other benefits.

The right strategy

To succeed in this continuing battle to recruit and retain key staff, it is more important than ever for employers, no matter the size of the organisation, to ensure that their people strategy is fully aligned to and supportive of their business strategy. A senior member of the human resources (HR) team should be involved in key business discussions to understand staff requirements now and in the future.

Alongside the responsibilities outlined above, businesses still rely on HR to ensure full compliance with the everchanging, complex area of employment law. Employers look to HR departments to advise on the impact of legislative changes to the business and how these can be implemented and adhered to in the most practical and appropriate way.

Perhaps the war for talent was actually the beginning of a revolution in the attitude of businesses to HR – a realisation that it was a dynamic function that could look after an organisation and deliver much more than pay and rations.

In this issue of Forward Thinking, we look at some approaches to the changing HR battleground, with thoughts on a number of people management issues to try and keep you ahead of the game.

Feeling The Benefit

Providing employees with the right benefits package is vital for staff recruitment and retention, but there’s a lot for employers to consider.

Setting up an effective range of benefits for employees is not just about installing a series of schemes and policies. It’s also about making sure that they are attractive to staff, understood by them, and comply with the law. Only then can the benefits be fully appreciated by staff.

As one Scandinavian employer recently discovered, there’s no point gifting bicycles to employees as part of their package only to find hundreds of bikes posted for sale on eBay!

Above all, the benefits must be affordable to the company and offer value for money. But the question of cost has been clouded by the advent of age discrimination legislation, which is having far-reaching effects on employers.

Here we provide a brief overview of some of the most common benefits available to staff.

Pensions

Despite adverse publicity, a good pension scheme continues to be important to employees and is fundamental to an employee benefits package. A wide range of schemes can be offered, from defined benefit schemes through to defined contribution arrangements that include occupational money purchase schemes. There are also many hybrid arrangements. However, currently the most popular arrangement is the Group Personal Pension Plan (GPPP).

To employers, a GPPP offers a number of advantages because it focuses on cost control while keeping administration to a minimum. The company decides on the level of contribution it can afford and this is its liability limit under the scheme. Ultimately, benefits payable from the GPPP depend upon future investment growth rather than a promised amount of income that the company is required to fund.

Life assurance

Group life assurance is perhaps the most fundamental of benefits and provides a lump sum to an employee’s dependants in the event of his/her death while an employee. The amount payable is usually a multiple of the employee’s salary. Historically, the provision of a dependant’s pension can also be insured, paying out a benefit of, for example, 50% of the employee’s basic annual salary to dependants each year. With the spiralling cost of annuities, companies can control costs by using an extra multiple of salary from which a lump sum is provided to purchase a dependant’s pension.

Disability insurance

Disability insurance provides for an income to be paid to any employee who is unable to work for a prolonged period because of incapacity. Payment is made to the company and the maximum benefit is 75% of the employee’s pre-disability income, less the amount paid by the state as incapacity benefit.

The scheme member must remain employed by the company during any claim period. For this reason, cover is usually extended to include payment of the company’s pension contributions and National Insurance Contributions, to ensure the company incurs no additional cost during this time.

As with life assurance, selecting a provider for this cover is largely rate-driven. However, care needs to be taken to choose a provider that will remain competitive in the long term, rather than quoting a cheap premium to win market share.

Private medical insurance

Private medical insurance is becoming an ever-more popular and valued benefit. Schemes can provide differing levels of cover to different grades of employee. While premium cost is an issue when selecting a provider, quality of administration is key. There is no point saving 5% on premium cost if you spend an extra 10% of your time administering the scheme. Private medical insurance is a valuable benefit to staff and can also benefit the employer by securing prompt medical treatment for conditions that may have otherwise kept an employee out of work.

Notes on flexible benefits

Flexible benefit schemes that include tax and National Insurance (NI) efficient benefits can produce significant cost savings for employers. These can be offset against implementation costs or shared with employees. Care must be taken when introducing a flexible benefit scheme to ensure that the rewards offered are attractive, fit with the company’s overall reward strategy, and are understood by employees. Tax and NI implications also need to be fully addressed.

Benefits With Brains

Advances in technology have seen an explosion of flexible benefits schemes, which are an increasingly popular option for suitably sized companies.

In addition to traditional staff benefits, such as pensions, medical insurance and life cover, there is now a wide range of innovative ideas for employee schemes. The technology underpinning these schemes is easy to use and encourages employee participation, typically through a web-based interface.

Kiki Stannard takes a look at some of the more innovative and unusual flexible benefits provided by forward-thinking employers.

Share and share alike

Once used on a discretionary basis as a share incentive scheme for executives, many companies now extend share ownership to all employees, and it is an increasingly popular option.

In fact, the Government encourages share ownership with the HM Revenue & Customs approved Share Incentive Plan (SIP) and the Save As You Earn (SAYE) share option scheme, which offer employees discounted or free shares up to a value of £9,000 per year over a three or five-year period.

A word of caution however: under relatively new accounting requirements, companies are required to value their employee share options and include them in their accounts – a complex area on which professional advice should be sought.

Take it or leave it

The ability to buy and sell annual leave is a benefit that’s been around for some time, although many employers have been slow to take it up. Staff members must take an adequate break without taking too much time off and disrupting business. A typical holiday policy allows the purchase or sale of between three and five days a year. The price of each day of leave is usually a set formula of salary based on the normal number of working days. Deductions are made from gross pay under a suitable salary sacrifice arrangement.

On your bike

In a drive to make staff healthier (and perhaps speed them into work more quickly!), employers can team up with suppliers to provide bicycles for staff to travel to and from work. As long as no staff are excluded by the policy, there is generally no taxable benefit.

Hit the high street

Employees can be issued with a discount card that is topped up with monetary value from their net pay each month. The card is used like a debit card in retail outlets. Many retailers (including major high street stores and online companies) will offer discounts of up to 15% for using the card. The discount is provided automatically at the point of sale or by adding credits to the card.

Benefits for sale

We have seen an increase in the availability of some benefits for purchase by all staff through voluntary schemes. Employees can buy additional life assurance, critical illness cover, medical or dental insurance offered by their employer at discounted rates, and often with less stringent underwriting terms. Other benefit options might include access to childcare vouchers, gym membership and other tangible benefits.

Following the pension reforms of April 2006 (A-day), many employees needed financial and pension advice. Employers can arrange for advice to be provided as an employee benefit. Staff can consult with a preferred adviser, often on a free or subsidised basis.

Counting The Cost Of Age Discrimination Legislation

Make sure you’re in the know about employee rights and your responsibilities.

The new Employment Equality (Age) Regulations 2006 came into force on 1 October 2006 and prohibit discrimination, harassment and victimisation on the grounds of age. Employees now have a statutory right to work until the age of 65.

The new age discrimination rules have forced companies to reassess benefit arrangements and prepare for additional costs. Care is required to manage changes to employee benefits and pension schemes.

Defined benefit schemes

Even before the introduction of age discrimination legislation, defined benefit schemes were in deficit. Employers usually have to contribute extra funds to manage the deficit, and any ‘debt’ must be reflected in the balance sheet in accordance with accounting regulations. This can reduce apparent profitability.

Now factor in age discrimination legislation. Employees have a statutory right to work until they are 65 (rather than 60) and accrue an extra five years of pension rights. So, if someone has pension rights that are 1/60th of a final salary of £30,000 per annum for each year of service, this gives the individual an increased pension of £2,500 per annum.

In addition, there will probably be a pension of 50% (typically) payable to the employee’s spouse, partner or dependant in the event of death in retirement, and some of the pension may rise in line with inflation. Extra funding – mostly from employers – will be required to support such increases in pension rights.

A solution may be to restructure pension benefits so that rights earned after 60 are not on a defined benefits basis. However, employers cannot encourage people to retire early by promising no actuarial reduction to their pensions, nor can extra years of service be credited to early retirers.

Defined contribution schemes

For defined contribution schemes, employers must contribute until the age of 65 (where applicable). However, if the scheme has a contribution structure that is tiered by age, that structure may only continue if it achieves a ‘more nearly equal’ outcome, whereby there is broadly the same pension outcome for all members. Tiering structures may be revised or abolished, and contributions levelled up where there are contractual issues.

For GPPPs and stakeholder pension plans, the legislation will allow age-related, tiered contributions. Again, this is only allowed provided the aim of the contributions is to achieve an equal outcome. One way of retaining an age-related, tiered contribution structure might be to ‘objectively justify’ the plan, although insurers may be unwilling to write schemes to a higher retirement age.

Medical and life insurances

The rise in the female retirement age to 65 means that many employers will have to renegotiate the terms of their insurance packages, resulting in higher premiums. Premiums for private medical insurance are often age-related in bands of five years, with as much as a 50% increase in the annual premium from 60-64 to 65-69 years.

Even a small increase in the term for life insurance schemes will have a significant cost impact. Indeed, hikes in rates from 20% to 40% have already been seen. Similarly, changes to permanent health insurance – such as simply raising the normal retirement age – could carry cost increases of up to 50%.

Older employees also tend to have more health issues leading to claims, so as the age profile of employees changes, so will the inherent risk. As mentioned earlier, insurers could refuse to write schemes to cover higher ages or decline to cover individual employees. This could mean companies having to self-insure some employees, resulting in unplanned contingency costs for older staff.

Top Tips For Family Ties

Responding positively to employees with family obligations can help you attract and retain good people.

Over the past few years, we have seen a significant extension to the rights of employees with regard to family responsibilities.

The new Work and Families Act came into force in April 2007, bringing increased rights for working parents and those who care for elderly dependants. However, the introduction of paternity and adoption leave, the right to request flexible working, additional maternity leave and the newer categories of dependant and parental leave are still catching out many smaller employers who aren’t aware of their obligations.

To help you comply with your responsibilities as an employer, we’ve put together some top tips.

Be prepared

It’s important to understand the statutory rights and responsibilities that you and your employees have in terms of maternity, paternity, adoption and flexible working. Make sure you have clear policies and procedures on family rights in place for employees and managers to follow. Also, provide training for your supervisors and managers so they know what to do.

Be supportive

Respond positively to employees who wish to exercise their maternity, paternity or adoptive rights. Show consideration for the practical concerns they have with regard to antenatal care, work arrangements, finances and career implications.

Be flexible

Make adjustments during pregnancy to help an employee continue working for as long as reasonably possible. Give serious consideration to requests for flexible working on return from maternity leave – research shows that more than 85% of requests have been approved so far. If you are concerned about the practicality of a flexible working request, consider a trial arrangement for the first few months and build in a review date.

Be safety conscious

Risk assessments for pregnant women are a legal requirement. Make sure you have someone trained to carry these out. Pay particular attention to the working environment for pregnant employees, and be prepared to make adjustments that will help keep them comfortable and safe.

Be organised

Ask your pregnant employee, or your employee who is planning adoptive leave, to help you plan for their absence.

Make a good plan for cover during maternity or adoptive leave – ask yourself if you need a temporary replacement or if other employees can help.

Keep notes on the discussions and agreements you make with individual employees – it will make it easier to keep track of dates, notification requirements and leave arrangements.

Building People

Forward Thinking talks to Alison Yiangou, finance director of architect firm Peter Yiangou Associates (PYA), about recent changes to the practice and their approach to people management.

Founded in 1981, PYA is a successful architectural practice in the Cotswolds, with projects valued from £250,000 to £10m. Smith & Williamson advises PYA on a number of people management issues.

How has people management changed for your practice?

We have expanded quite rapidly in the past year. In May 2006, the 6 partners appraised 5 staff, a year later we appraised 18 staff, and we’ve had 4 people join since spring 2007, so that shows how quickly we’ve grown! When you’re 10 or 11 people it’s really very different to when you’re 28 people.

The way I think of it is that a tadpole doesn’t need a skeleton but a frog does! When you get bigger you need different things to maintain the structure of your business.

So how did you go about developing your business structure?

Two years ago, we formed a Limited Liability Partnership (LLP). That’s how we first came into contact with Smith & Williamson Solomon Hare (Smith & Williamson’s Bristol office), when we needed advice on restructuring from a partnership to an LLP.

From this initial contact, we heard about Smith & Williamson’s HR workshops, which we thought could be useful to us. So we decided to attend a series of six HR workshops and were really impressed by the calibre of people. The workshops made us realise how much we needed to change – not just legal things like contracts, but in terms of doing the best for our staff.

What made you take the decision to ask for HR support?

There are two aspects to this. The first is that we’re not big enough to employ a specialist personnel manager. Asking Smith & Williamson to help us with people management is exactly like having an HR department on the end of the line. Second, the People Management team was able to help us with a complete revamp of our recruitment procedures, contracts of employment and staff handbook. They gave us an ‘HR MOT’, whereby they reviewed all of our HR practices and spoke to our members of staff individually in order to identify areas for improvement.

What issues emerged from the review?

Probably the main areas where we weren’t doing well enough were training and communication. Although we have a philosophy of open communication, when you grow quite quickly you suddenly realise that not everyone knows what’s going on in the way that they did when you were a smaller organisation.

How did you practically address these two issues?

We are developing our training policy and working with Smith & Williamson to encourage our employees to take day release courses to achieve further qualifications and develop their skills. We also encourage staff to undertake continuous professional development. To support this, we run in-house events and workshops, where specialists give talks on professional issues like sustainable buildings, planning law and contracts.

During staff appraisals, we are very careful to draw out any training needs that we think staff could benefit from or undertake themselves. We also have a follow-up process to make sure that those training needs are properly addressed. Regarding communication, Smith & Williamson made recommendations such as a staff notice board and a monthly lunch for the whole practice to talk about issues that have come up, how things are going and so on.

How did the review help you move your business forward?

It was helpful to have the issues about training and communication objectified. The People Management team offered actual practical support to help us bring in new measures, for example, they helped us draft our staff handbook. We gave them the basis of what we wanted in the handbook and they worked with us to make sure it included all the things it should from an employment legislation point of view. Our practice administrator is now working with Smith & Williamson to develop new training documents.

How does the People Management team work with you on a day-today basis?

Essentially it is a collaborative effort. The team provides their skills, knowledge and expertise on the legal requirements around staff issues like discipline, maternity leave, flexible working, paternity leave, end of leave, adoption leave and age discrimination.

They also give us letter formats for employee records and have suggested an induction process which we can adapt to our practice needs. Alternatively, we can send the team a proposal and they will review it to make sure we are complying with legislation. We can always check back with the People Management team to make sure everything is acceptable.

Going back to the staff handbook, this is a collaborative process because it combines things that we have to address, such as employment legislation, things that we should address, such as good practice, and things that we specifically want to address, such as the commitment to being a carbon neutral practice.

What staff management issues do you face?

Recently, a secretary returned from maternity leave and requested to reduce her days from five to two. The People Management team supported us with all the legal and practical implications. They also helped us with our latest round of recruitment advertising, from choosing an advertising firm to placing the ad.

On the rare occasion when a disciplinary issue has come up, the People Management team has talked us through it step by step. For example, if we have to write a letter to an employee, we can check the issues with the team and they will say, "look, you’re safer not saying this" or advise us on different levels of procedure.

What’s the most important aspect of people management for your practice?

The absolute bottom line is compliance and employment legislation, but the main thing for us as partners is how we look after our people. In an architectural practice your people are your main asset. We want our employees to feel happy and fulfilled as people, so we try to provide them with the support they need to fulfil their objectives in both their private and working lives. We have a philosophy that we work to live, not live to work, and a life-work balance is very important to us. If there’s a problem, our staff know that they can come and talk to us. We try to nip difficulties in the bud rather than let issues build up.

Which areas do you want to look at next with regard to people management?

Recently, we’ve been on Smith & Williamson’s workshop on performance management. Next we’ll be looking at team building and helping senior people to manage staff.

Slippery People: Staff Management Issues

Keeping your employees happy, fairly rewarded and at work can sometimes pose tricky problems in the workplace. Rachel Stone tackles some common scenarios.

What do you do if a member of staff starts to take lots of self-certified sick days which last just a couple of days at a time? How do you deal with allegations of bullying from a new employee? What’s the best way to reward a member of staff who is covering for a colleague on long-term sick leave? Regardless of the size of your company, these issues are surprisingly common. We look at some practical solutions.

The persistent ‘sickie’

There are many reasons for short-term absence. If an employee persistently takes self-certified sick days, it’s important to establish whether it’s genuine sickness or if he/she is taking unauthorised time off for other reasons.

Home or relationship difficulties, stress, work overload and the demands of caring for a family or an elderly parent can all result in an increase in absence levels. Start by reviewing the absences and look for patterns, for example, particular days of the week or time off around bank holidays.

When a staff member comes back to work after such an absence (even just for one day), immediately arrange a return-to-work interview. This is a good chance to confirm the reasons for the absence and find out if any support is needed. Find out if there are underlying problems at home or work, and whether the employee has seen a doctor or is receiving treatment.

All the evidence suggests that following up, for example, using return-to-work interviews, has the greatest impact on absence levels compared to concepts such as ‘duvet days’.

If absence continues to be a problem, ask your employee to meet you to discuss the issues. Give him/her the right to be accompanied, and openly share any information you have collected about his/ her absences – people are often shocked to find out how much time off they have had.

Point out the difficulties that absences cause for you and the business. You could ask the employee to provide a doctor’s note for all absences, but you will need to pick up the cost of medical certificates. You can also ask the employee to give consent for you to obtain a medical report from his/her general practitioner.

If there are no medical reasons for the absence, meet with your employee to discuss an expected improvement in attendance, a date for review and the consequences if no improvement is made.

Potentially, you could dismiss your employee if the problem continues over time. But be careful to check for underlying health problems or any disability discrimination issues before you come to any decision, and always follow the statutory process properly.

Finally, absence management software is available, which can be beneficial to companies, depending on their size. An absence management facility is often a feature of an integrated HR software solution, such as Smith & Williamson’s own Flexible Solutions platform.

The bullying victim

Suppose a new employee makes allegations of bullying by your staff. How do you deal with these claims?

It doesn’t matter whether you can see any substance to a complaint about bullying, you need to take the matter seriously. As soon as you can, arrange a meeting with the employee to investigate the complaint promptly and sensitively, and give your employee the chance to talk the problem through with you.

Identify instances of alleged bullying and why they are unacceptable. Make detailed notes of any meetings and tell the employee that you will investigate. If required, meet with other staff and make sure you have the full picture before making any decision. Be as open minded as you can. Existing members of a close-knit team may regard unreasonable behaviour within the team as normal, but it may cause considerable distress to a new employee. What’s funny to one person may be deeply offensive to another.

Employees may simply be unaware that their behaviour is unwelcome or inappropriate, and you may be able to sort this out informally. However, it may need to be dealt with formally as a disciplinary matter. If this is the case, your careful investigation and detailed notes will be of great help for those who handle the disciplinary process.

The stand-in

Rewarding a member of staff with a pay rise because he/she is covering for a colleague on long-term sick leave may seem fair and reasonable, but it could cause problems when the colleague returns to work.

Salaries should reflect the market rate for the continued role and performance of an employee. By awarding a pay rise to an employee for taking on additional duties on a temporary basis, you are rewarding the employee permanently for short-term efforts. The higher salary will continue to apply after the employee’s colleague returns to work and he/she has resumed normal duties. Companies in this situation could be exposed to the risk of an equal pay claim if there is inequity between staff doing equivalent work.

A better solution is to recognise additional responsibilities carried out by an employee by offering an ‘acting-up allowance’ for the duration of a colleague’s absence. This rewards and recognises extra effort in a fair and transparent way, and means that pay can revert to normal when the employee’s usual role is resumed. Acting-up allowances can also be useful in other situations, for example, where an employee takes on additional responsibilities when a colleague is on maternity leave.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.