Since the start of the Covid pandemic in March 2020, the number of people working from home in the UK has increased. With more employees now home-based, benefits-inkind that are centred on the workplace are less attractive; but there is also the issue of fairness for those who, through their job role or domestic situations, need to be office-based.
Historically, where companies have offered fixed benefit packages, it is to all employees, irrespective of their individual needs or preferences. However, the rigidity of these packages often results in employees paying for benefits they do not use while lacking options that could significantly enhance their work-life balance, which may be the situation with many home-based employees in particular.
Salary Sacrifice Vs Flexible Benefits
Many businesses already have a type of ‘flexible benefit’ scheme in place in the form of a salary sacrifice scheme, which enables part of an employee’s salary to be exchanged for a non-cash benefit, usually increased pension contributions (although other benefits such as bikes, mobile phones and bus passes may be included).
However, hybrid working has increased the use of what is termed ‘flexible benefits’ packages, which allow all employees to choose from options centred around an individual’s personal circumstances where an employee is allocated a ‘benefit allowance’ (described in some schemes as a ‘flex fund’ or ‘flex account’). Many employees opt for additional holidays under these schemes.
If there is one, the main difference is that ‘salary sacrifice’ may refer to a degree of employee choice given on a single employment benefit. A flexible benefit scheme often applies a choice to several different employment benefits at the same time.
Flexible benefit plans can also permit specific eligibility criteria for an employee to qualify. A few benefits are available to employees who work a certain number of hours per week, and others are available to employees who have been with the company for a certain time.
‘Benefit Allowance’
This ‘allowance’ represents the amount of money the employer is prepared to spend to provide the employee with their chosen benefits. HMRC usually accepts that the allowance itself is not taxable or subject to National Insurance contributions (NICs) unless the employee chooses to draw some of the allowance partly or all in cash.
Sometimes, the employer’s scheme allows the employee to ‘spend’ more than their benefit allowance. Any additional amount over the allowance is subject to PAYE, unless there has been an effective reduction in the employee’s contractual pay. Employees are therefore effectively reinvesting some of their income into a benefit of their choosing. If the employee wants additional benefits beyond what the employer’s contribution covers, they can opt to pay the difference through payroll deductions.
Bear in mind that very few ‘flexible’ benefit schemes are genuinely flexible. Most schemes are built on ‘company paid’ benefits, where the employer provides a minimum level of core benefits that the employee cannot remove (at least not for a cash alternative); as such, not every benefit is optional.
Employee Credits
Flexible benefits programmes often use a creditbased system, where employees are allocated a certain number of credits they can use to purchase the benefits of their choice. This system also allows the ability to allocate a higher amount of credits to different levels of work or length of service. This type of scheme benefits from the ability to adjust employee credits annually to accommodate changing circumstances.
Practical Tip
Although permitting flexible benefits may go a long way towards retaining or attracting staff, offering flexible benefits adds to a business’s costs. Setting up and managing the scheme requires time and can be complicated to administer as each employee may want different types and levels of benefits. Remember that any re-evaluation of benefits-inkind needs to factor in employer’s NICs of 13.8% for 2024/25 (increasing to 15% for 2025/26).