What are the pros and cons of flexible employee benefits?

In a competitive environment, recruitment and retention of talent are some of the biggest challenges for employers. When skills are in demand, employers will want to gain an edge on competitors to attract talented staff. However, these employees have expectations in the context of employee benefits. 

People are crucial to any organisation’s ability to grow and thrive. Investing in flexible employee benefits may well pay dividends and help to achieve the organisation’s objectives. As employee expectations and the nature of employment are changing significantly, it’s worth considering the pros and cons of flexible employee benefits before implementation as part of a more comprehensive HR strategy. 

What are employee benefits?

Employee benefits are elements of a remuneration package beyond salary or wages. Benefits may include: 

Many benefits will be tax-deductible with the costs borne by the employer but, increasingly, packages offer benefits that an employee can choose in return for pre-tax savings from their salary. 

What are the advantages of flexible employee benefits?

Recruitment and retention

Offering a benefits package that employees value can help with recruitment and retention of staff in a competitive market. Employees are increasingly seeking benefits that offer them control over their work-life balance, so an organisation that provides a flexible benefits package may stand out for potential talent. 

Investing in staff recruitment is a high cost which is probably the primary argument for a focus on the retention of staff. Once again, flexible benefits packages that employees can tailor to their needs, can improve staff retention and thus lower the costs associated with high attrition rates. 

Developing and supporting a diverse workforce

There is a great deal to be said for a workforce that reflects diversity. With a commitment to diversity comes a requirement to meet the diverse needs of employees. A one-size-fits-all approach to employee remuneration and benefits is no longer so attractive. Meeting different needs with flexible benefits can improve motivation and morale, increase productivity and support the ongoing recruitment of a diverse workforce. 

Reduction in sickness and absenteeism

Benefits that focus on wellbeing and health can contribute to a reduction in sickness and time off. Moreover, providing support to manage work-life balance can result in a decrease in stress and absenteeism. Additionally, benefits that offer flexibility around working hours or remote working opportunities can help staff with caring responsibilities or those who would otherwise benefit from reasonable adjustments in working patterns and location. 

Saving on the bottom line

In offering an attractive benefits package, many employers find that staff may be willing to accept a lower salary. Given that salaries are one of the most significant expenses for many businesses, flexible benefits, where the cost is often borne by the employee in the form of salary sacrifice, can lead to bottom line improvements for employers. 

Control and autonomy 

Staff who can choose benefits that meet their needs at different stages of their life will feel that they have greater autonomy over their work-life balance. Employees can also control how much they spend on specific benefits at different points in their life. A young millennial, for example, may choose to purchase additional annual leave or gym membership but may not see the value in pensions or childcare vouchers until later in their career. 

Saving money

Many flexible benefits can save employees money through a salary sacrifice scheme. That means that they pay for the benefits they want before being taxed. In many cases, these benefits cover items for which they would need to pay in any case, with example including childcare vouchers or additional pension contributions.

What are the disadvantages of flexible employee benefits?

Set-up costs

Implementing a flexible benefits package requires some up-front investment. Before embarking upon a new benefits package, consideration should be given to the potential return on investment. It would be worth investigating whether any existing benefits package meets employee needs and simply requires fine-tuning. In considering the costs, any new technology or software, together with outsourcing or staff to manage the scheme, should be included in expense projections. 

Communicating to staff

Implementing new technology, software and processes to manage a flexible benefits plan in an organisation is just one element of executing change. Employers will then need to raise awareness and acceptance of the new benefits package. Selling the benefits to staff can be time-consuming and will require investment in communications and engagement. Organisations which don’t invest in communicating change will not reap the organisational advantages associated with flexible employee benefits. 

Lack of portability

Not all plans are portable for employees. In the worst-case scenario, an employee may stay with an organisation because they feel they have no other option, even when they are no longer happy or productive in-role. This is counter-productive to the goal of increased morale and productivity and requires consideration in designing any package. 

While many of the advantages and disadvantages highlighted here relate to the financial savings or costs, there are substantial non-fiscal benefits to be reaped for organisations and employees alike. Providing an employee benefits package can promote loyalty and a sense of belonging, enhancing morale and productivity.

However, in today’s competitive market, a one-size-fits-all approach is no longer good enough. The key is flexibility, enabling employees to choose benefits that fit their lifestyle and needs.

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