How employee benefits can support your team in a cost-of-living crisis

During 2021 and 2022, the cost of living in the UK increased due to a record increase in the rate of inflation, which affected food prices, fuel costs and energy bills. Homeowners with mortgages also faced additional costs thanks to higher interest rates on loans. While interest rates have reduced, UK households and businesses still feel the effects of the cost-of-living crisis.

72% of adults say their living costs have continued to rise thanks to higher food and energy bills, while household budgets were stretched as earnings didn't go as far as before. While interest rates have fallen, people with mortgages may also pay more as their current deals end, leaving less in the budget for other essentials.

The cost-of-living crisis continues to impact households across the UK. Regular employment is no guarantee of financial security, with 78% of employees reporting experiencing financial strain. Happily, 49% of those said their employers were sympathetic to these difficulties.

When employees worry about their financial well-being or worry that they'll be made redundant, their performance will likely suffer. Financial stress can affect employees' focus, concentration, and decision-making and cause low mood, impairing their ability to work effectively, ultimately hampering business growth. It can also cause physical and mental health issues, which can lead to absenteeism in some cases.

Companies that create a positive culture to support staff in sharing their worries or who provide financial education will likely see the benefits in reduced sickness absence and lower staff turnover. Enabling employees to discuss their financial health also offers valuable information to help companies provide employee benefits that offer targeted support.

The simplest way to reduce the impact of cost-of-living increases on your employees is to pay a market-rate salary that keeps pace with rising prices. However, businesses face increased costs just as their employees do. Coupled with the rise in employers' National Insurance contributions, this likely means that significant wage increases aren't viable. One-off bonuses are worth considering, particularly if they're tied to performance-related or income goals.

Your employee benefits package can be a cost-effective way to provide staff with financial support. Understanding their needs is vital. We've mentioned encouraging staff to discuss their money worries. Staff surveys and forums are also a good way to gather information about their needs.

Here are some employee benefits that can offer support.

Pension contribution matching

Research suggests that the cost-of-living increases have impacted people's ability to pay into their pensions. While workplace pensions require a minimum employee contribution of 5%, with employers adding 3%, many employees will base their retirement planning on higher regular pension contributions. Lower payments could mean staff must retire later or face a lower retirement income if this isn't possible. They can also affect the amount of income tax an employee pays, as pension contributions come out of gross salary before tax.

Offering pension contribution matching up to a specified amount boosts your employees' pension funds and can reduce your corporation tax bill.

Discount schemes

Employee discount schemes offer discounts on various products and services. Some schemes are free or low cost, while others are an added incentive for paid employee benefits, such as health or life insurance. Depending on your chosen provider, staff can access discounts on healthy food, days out and holidays. Some insurance companies, like Vitality, focus on health and well-being, providing access to discounted gym memberships, fitness tracking technology and other well-being products.

Speaking to a specialist health insurance broker will help you assess which schemes offer support and benefits your employees will value.

Health insurance

As we've mentioned, health insurance can help employees save money by providing access to discount schemes. However, it can also help employees by preventing health issues or giving them quick access to private healthcare, thereby avoiding a lengthy absence from work that could impact their long-term physical and mental health.

Depending on your policy's coverage, health insurance can also support staff to improve their financial well-being and help employees save money.

Mental health support

Health insurance typically provides mental health support, which varies depending on the coverage you select when buying the policy. Basic policies usually offer 8-10 counselling sessions and access to telephone helplines providing guidance on sources of support.

You can also add an Employee Assistance Programme (EAP) to your policy. An EAP provides access to counselling services and specialist telephone helplines with guidance on legal and financial matters. While these don't offer legal or financial advice, they can help employees understand their rights and signpost them to appropriate services.

Help with routine health expenses

If your staff don't qualify for free dental or optical care, they're likely paying for private treatment or going without, particularly as finding an NHS dentist can be challenging. Adding optical and dental coverage to your health insurance covers your employees' eye tests, dental appointments and treatment without them needing to pay.

It can also provide a cost-effective way for your business to fund eye tests for employees working with display screens.

Help with childcare costs

Childcare costs are a significant expense for employees with pre-school children, while parents with school-age children may also face wraparound care and holiday club fees, particularly if they work full time. Research suggests that approximately 70% of working parents have either left their jobs or are considering leaving because childcare is prohibitively expensive. Offering support with childcare costs in your employee benefits package could help you retain skilled staff.

The Workplace Nursery Scheme lets your business partner with a registered childcare setting to enable parents to pay fees via salary sacrifice, which reduces their nursery fees and income tax and National Insurance payments. Employers must pay a fee to the nursery, but this is typically offset by a reduction in employers' National Insurance payments.

The tax-free childcare scheme lets parents of under-11s pay into an account, which the Government then tops up by 20% for basic rate taxpayers, meaning parents only pay 80% of their fees. The Holiday Activities and Food Scheme funds holiday clubs and food for children entitled to free school meals, who have additional needs or whose parents receive certain benefits. These are free for eligible parents, meaning you can support staff by publicising the scheme and providing information on ways to apply.

Enhanced sick pay

Suppose employees must take time off work because of illness or injury. In that case, their earnings can quickly drop, resulting in financial strain, particularly if they're already struggling due to cost-of-living increases. Offering enhanced sick pay in excess of statutory sick pay can help employees pay their bills and take adequate time to recover.

Paying an absent employee's salary can put financial pressure on your business, particularly if you must also source temporary staff to cover their workload. Income protection insurance pays a percentage of an employee's usual salary for up to two years' absence, and your business only pays the cost of the premium.

Transport costs

For many, the cost of living increases coincided with a return to office-based working post-COVID. Research found that travel costs for hybrid workers varied from 9% to 22% of their income, depending on their location and mode of transport.

Employee benefits can help employees reduce their commuting costs and offer other benefits.

Employee loans

Salary sacrifice schemes let employees reduce their gross salary and make payments directly to their childcare or pension providers. They can also pay for a bicycle or an electric vehicle. While HMRC treats car loans as a benefit in kind that attracts additional income tax, loans for ultra-low-emission vehicles remain tax-free. Electric cars are typically more expensive to buy but cheaper to run, so helping employees with the initial payment can reduce their overall cost of living.

You can also use salary sacrifice to provide season ticket loans for public transport. These loans let employees spread the cost of a season ticket, which typically costs less per journey than individual tickets.

Flexible working

Flexible working arrangements let employees work from home, shift their working hours or a combination of both. Flexible working supports employee well-being and can also help them save money. Working from home full-time or on a hybrid basis lets them avoid or reduce transport costs, while a later start lets them take advantage of lower off-peak fares.

Flexible working can also benefit parents by helping them share childcare responsibilities and reduce childcare fees.

Career development support

Career development helps staff grow their earning potential and increases employee retention, as it can help them see a future with your company. Some career development opportunities are free or low-cost, such as in-house mentoring or opportunities for work shadowing in other departments.

Paying for courses or offering education loans lets staff acquire new knowledge and skills, which could benefit your business. There are various ways to provide loans with differing tax implications, so always speak to your accountant or financial advisor to make an informed choice.

The right insurance products can help you offer cost-efficient support to your team in a cost-of-living crisis. Contact us for advice tailored to your needs and budget.