Provision of a comprehensive benefits package to staff is becoming increasingly important to companies as mobility of labour increases in a buoyant UK market. In particular, the massive number of new dot.com start-up businesses over the past 18 months to two years has left many companies feeling vulnerable - the prospect of making money almost overnight might encourage even the most loyal of employees to abandon their jobs and become online entrepreneurs.
At one end of the spectrum, certain investment banks have recently taken unprecedented steps to reward and retain their key staff. But it is not only a company of this magnitude with large cash reserves that are becoming concerned. Staff involved in small and medium-sized businesses can also be extremely well placed to spot potential business opportunities afforded by the internet and are equally as likely to be lured away.
IFA opportunities
As a result, more and more businesses are looking to enhance and reshape the benefits packages they offer their staff, to ensure that they attract and retain employees of the highest calibre. This opens up an important and growing new area where IFAs can add value to their corporate clients.
Where in the past IFAs have provided advice on areas such as group pensions and possibly group life assurance cover, the opportunity to extend this with the provision of a full employee benefits package should prove attractive to employers.
'Employee benefits' is a term that is used to describe a broad range of benefits. It applies to mainstream benefits such as critical illness cover or income protection as well as more diverse benefits such as retail vouchers, gym membership and crèche facilities.
Trends in the US point to a significant increase in more imaginative types of benefit designed to make employees lives easier in the light of a continuing tendency for individuals to work longer hours - a problem which is often compounded when two professionals are living together. This includes services such as on-site aromatherapy massage, take-home meals service and even dog-walking services.
Although it is predicted that this trend is likely to follow in the UK, in the meantime mainstream benefit provision remains first priority in most cases.
Benefits choice
One concept in the area of employee benefits that has been much talked about in recent years is that of flexible benefits. This type of provision enables employees to select the benefits that are most appropriate to their lifestyle and circumstances, from a broad and often diverse menu of options.
Flexible benefits have typically been introduced by companies following a deliberate change in corporate culture or following a merger or acquisition. The concept of empowering employees to select their own benefit options sits well with a corporate culture where employees are allocated a high degree of responsibility for their own job functions and empowered to perform their job correctly.
Value-added services
Although the emphasis is on flexibility, employees rarely have complete freedom of choice. They have a high degree of control over the benefits they choose, but generally employers prefer to have some core benefits provided for all staff or, in some cases, for certain key groups.
One example of this might be for more senior staff where the employer might decide it prudent from a business perspective to provide private medical insurance, income protection and life cover for employees within a certain age group.
It is an important point that while a benefits package is by its very nature of benefit to employees and can help a business attract and retain key staff, there are now some value-added services that can also prove beneficial to the business in other ways.
For example, if the benefits provider incorporates additional services, such as rehabilitation following accident or illness, it can mean that employees are quickly helped back to work ensuring productivity is not affected and minimising potential disruption to business. These considerations are particularly relevant in a small business environment where certain employees are deemed 'key' and can have a major impact on the running of the business.
Although the concept of a providing a broad range of employee benefits within a flexible scheme may be attractive to employers, the reality is that the cost of a full, flexible benefits scheme may prove prohibitive to many smaller and medium-sized businesses. Although a 'flex' system may provide the opportunity to control cost, it is unlikely that it will enable employers to make cost savings.
The principal expense is likely to be the administration of the system. A broad range of benefits may involve an eclectic range of different providers. In addition, as each employee will have different selections, there will be a need for administration at individual scheme member level, which is likely to prove expensive.
For this reason, employee benefits consultants have tended to target larger enterprises where the cost and implementation of this type of system is more feasible. However, mobility of labour is increasing within the UK market as a whole, and for growing small businesses the same business considerations that motivate larger employers to adopt flexible benefits systems are just as crucial, if not more so. In this type of circumstance, employers are looking for the advantages of a flexible benefits system, but without the inherent administration complications and costs. In this type of situation, a menu-based system can prove advantageous.
Here, the employer selects a menu of potential benefits for the workforce and the employees are free to select their preferred benefit options from this menu. Typical menus might include mainstream benefit options such as critical illness, life cover, spouse life cover and income protection.
Although this might mean that the number of benefits options are more restricted, it also means that the administration costs are greatly reduced.
Using web technology is one cost-effective way of approaching the administration issue and can also prove to be an inexpensive and adaptable way of communicating the benefits system to staff.
Small and medium-sized businesses are an increasingly valuable market for IFAs and a menu-based employee benefits package can work well in this type of company, particularly for businesses with between 50 and 500 employees. It also fits in well within a stakeholder pensions environment.
The major appeal of a menu-based system is presently to the service and technology industries, since factors such as relationships between staff and clients or technical expertise of staff may be crucial to the ongoing success of the business.
Growing market
Employee benefits is a growing market for IFAs and there is a great deal of scope to add value to corporate clients by helping them implement a comprehensive benefits system.
For small and medium-sized businesses, this service may prove particularly attractive and a menu-based system can work well in this environment as it provides flexibility without prohibitive costs.
IFAs focusing on the corporate market would do well to consider employee benefits as an important way of enhancing the service they can provide to their clients.
Rod McCarthy is marketing actuary, employee benefits at Scottish Equitable
