Flexible benefits packages were slow to take off in the UK. Ian Luck takes a look at why things have changed.
Flexible benefits were first introduced in the US in the 1960s. You could have guessed their origin as they were previously called 'cafeteria benefits'. The reason for this was that staff were able, for the first time, to choose the benefits best suited to their needs from a range being offered by the employer.
By more closely meeting the requirements of individuals, employers with this type of arrangement are generally more attractive to current and prospective employees.
The trend towards flexible benefits did not hit these shores until the 1980s. So, in the last 20 years or so, surely we have seen an explosion in the number of flexible benefits arrangements? Well actually, no.
The main reason for this is probably their perceived complexity – particularly the amount of administration required to keep accurate details of each member's chosen benefits. Broadly speaking, flexible benefits were the preserve of larger organisations that could afford to commission a bespoke administration system. But within the last few years, advancements in system design have made them more accessible to everyone.
The systems are now more modular in design. This not only reduces the cost of replication as the underlying system remains the same for all companies, with the ability to turn components on and off according to need, but it also adds greatly to the flexibility of the offering. Various modules can be activated at different times to enable a controlled roll-out of benefits to staff.
While a bespoke system will better fit all the intricacies of an individual company, at tens, if not hundreds of thousands of pounds, they are beyond the range of most company budgets. For a minimal reduction in functionality, that most companies would not notice, a high-quality flexible benefits administration system can now be sourced at a fraction of the cost.
If you shudder at the thought of introducing a major new piece of IT to the company, then let me allay some of your fears. Firstly, these new systems are internet hosted. There is no big server to accommodate, update and maintain. Provided you have access to the internet, you can install and use one.
Of course, installing a flexible benefits system is a major project. This is where your advisers should come into their own. By working closely with you, your advisers will have a good understanding of your requirements so they can resolve many of the more mundane queries. This will leave you to manage the data collection – possibly the most important part of any flexible benefits system.
Ultimately, a good flexible benefits model is dependent on having control over the data. It is important to have a central source of all information on your staff, as and when required, to enable effective management. It should also allow employees to self manage the data so that human resources (HR) departments need not get involved in the minutiae.
Reviewing Existing Benefits
It is useful to be able to use data to update providers and payroll systems and to reiterate to staff the breadth of the benefits package, perhaps through the use of total reward statements.
Although flexible benefits can be introduced to promote an existing benefits package, ideally they will be part of a wider review of the total rewards strategy of the company. A review should take into account the ways in which employees are being motivated and rewarded, and feed directly into their individual management. This will ensure that not only do you get the maximum out of the system, you get a co-ordinated approach to these vital areas. Your adviser should be able to help you with an examination of the way in which you are managing your employee benefits in order to maximise their effect.
Experience suggests that the most vital part of any flexible benefits package is the feasibility study. It is well worth spending a little bit extra on a comprehensive and wide-ranging feasibility study before embarking on the project. Not only will this pay dividends in the long run, but it will become the basis of your HR department's business plan for the foreseeable future.
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.