Hewitt Publishes Results of 14th Flexible Benefits Survey
27 October 2009
London – Childcare vouchers, dental insurance and bicycle schemes have topped a list of the UK's most popular employee benefits, reveals new research published today by Hewitt Associates, a global human resources consulting and outsourcing company.
Hewitt's comprehensive flexible benefits survey, now in its 14th year, incorporates data gathered from 120 organisations with a significant presence in the UK, representing 740,000 employees. The survey reveals the current practices of companies in relation to flexible benefit plans, where employees can select from a range of benefits based on their individual requirements.
Top three benefits
Childcare vouchers, a means of tax-efficient childcare, are now the most popular benefit excluding pensions, as they are offered by 98% of flexible benefit schemes. Dental insurance is the second most popular benefit (offered by 92% of companies with flexible benefit schemes). Bicycle-to-work schemes are the third most popular benefit and are offered by 91% of flexible benefit schemes, with their popularity doubling in the last year alone.
While childcare vouchers are the most popular benefit, current proposals from the Government propose scrapping tax relief on childcare vouchers by 2015.
Martha How, head of reward consulting at Hewitt Associates, said: "Childcare vouchers top the list of flexible benefits, but their current tax-free status is under threat. Reducing, or altogether scrapping, tax relief on these will have a major knock-on effect, particularly for employees that rely on the tax benefits they have through childcare vouchers to secure a means of returning to work while caring for the family. After 2015 a 40% tax rate couple taking childcare vouchers will be £2,392 per year worse off and a basic rate tax paying couple will be £1,808 worse off."
Hewitt's research also reveals a notable shift towards health-related benefits. Permanent health insurance is now offered by 67% of flexible benefit schemes, compared to 23% in 2007/08. Health screenings are now offered by 75% of companies, compared to 56% in 2007/08.
One in ten schemes risking financial penalties
Industry best practice dictates that all flexible benefit schemes gain formal HMRC approval. Despite this, 10% of organisations in the Hewitt survey have not yet secured endorsement approval.
How noted: "We were very surprised to see that one in ten schemes have still not gained formal approval – this is much higher than expected. By operating a flexible benefits scheme without HMRC agreement on benefits tax treatment, companies are risking a potentially lengthy and painful investigation which could result in penalties, including back payment of taxes. We urge these companies to seek immediate approval. Companies which already have approval need to keep a close eye on changes to legalisation to ensure their schemes remain compliant."
Continued growth in flexible benefits
Flexible benefits have continued to grow in popularity in recent years. Hewitt's survey reveals 43% of UK companies have implemented or are in the process of implementing flex plans for their employees, compared to just 17% in 2003. Hewitt calculates there are currently in the region of 600 flexible benefit schemes in the UK and believes this is set to grow further.
"Flexible benefits have traditionally been the domain of large multinational companies but we are now seeing small and medium companies taking a greater interest – not least due to the potential financial benefits such as national insurance savings," How explained. "This is driving an increase in popularity and flexible benefits are now reaching critical mass in the UK. We expect this trend to continue over the next five years."
Emerging trends
While Hewitt's survey is mainly an indicator of current practice, it also reveals emerging trends in the market as leading employers are seeking ways in which to maintain and increase employee engagement in a cost-effective manner.
Martha How said: "As the flexible benefits market has matured, employers can no longer rely on the novelty of the basic structure alone to deliver best-in-class employee benefits. The most forward-thinking employers are working with the industry to take flexible benefits to the next level, and there is a real thirst for fresh, new ideas."
Based on the survey and its ongoing dialogue with clients, Hewitt expects to see greater interest in pan-European flexible benefit schemes and 'green' benefits such as season ticket loans, bus tickets and low carbon emission cars.
