How to tailor business benefits to your budget

High-quality employee benefits require careful business budget planning. The advantages are significant and help you reach your business goals.

Employee benefits reduce sickness absence and improve retention, engagement, and morale. Satisfied employees are more focused, productive, and creative, boosting your revenue. Lower absenteeism reduces pressure on team members covering for colleagues, lowering stress-related absence or performance issues.

When creating an employee benefits package, your business plan is a great place to start, as it helps you define your priorities and how employee benefits will align with them. It's worth taking a broad-brush approach and considering a wide range of benefits, whether you're starting out or reviewing your existing benefits. Some benefits are required by law but can be enhanced; others are optional.

Many businesses seek employee feedback via one-to-one discussions, surveys and staff forums. These can provide valuable insights into what your employees value and help you allocate your current budget appropriately. You can gather data on the benefits they want to see and the challenges they currently face. It's also a good idea to conduct your own research into the available benefits and funding sources. This means you can offer your staff benefits and perks that they may not be aware of.

Any budgeting process is a balancing act that involves considering cash flow, capital investments, and fixed and variable costs. Your business budget is closely tied to the return on your investment. Many businesses find that their employee benefits lead to reduced absence, increased productivity and greater employee retention. When spending on benefits, consider the cost of temporary staff cover or recruiting and training a new employee if a current employee leaves due to long-term illness or for better wages and benefits elsewhere.

Review the tax implications of your benefits package. Some benefits lower your corporation tax or National Insurance, while others may increase employees’ income tax.

Professional advice helps you understand your business budget and avoid potential pitfalls. Your accountants can assess your financial data, explain relevant tax allowances and offer guidance on your company's financial health.

It's also wise to speak to employment lawyers and HR specialists, particularly if you plan to change your existing benefits, as some perks may form part of an employee's contract. If you plan to offer different benefits depending on an employee's role or length of service, you may inadvertently discriminate against some staff.

An insurance broker can help you maximise value and match insurance to your employees’ needs.

You don't have to offer the same benefits to every staff member. If you provide benefits to some groups but not others, you must demonstrate a business need. Some benefits are legally required and can be enhanced, while optional benefits are available to all but may be used differently depending on individual circumstances.

If you choose insurance-backed benefits, such as health insurance or death-in-service, you can adjust coverage to your budget. Here's our guide to tailoring your benefits to your business budget.

Benefits for specific employees

As mentioned, you can make certain benefits available to employees based on business need. For example, office-based staff who work at a single location and commute by public transport are unlikely to need a company car. Equally, some employees may frequently travel abroad on business, making travel insurance a valuable benefit that can cover travel disruption, work equipment, and provide emergency medical treatment. Staff based overseas, whether permanently or for extended periods, may also need international health insurance to cover routine medical care.

Mandatory benefits

These benefits are required by law in the UK. Each of these must form part of your business plan and budgeting process.

Annual leave

The minimum annual leave allowance for UK employees is 5.6 weeks. This includes all full- and part-time staff, agency workers, and those on flexible or seasonal contracts.

Full-time staff working five days get 28 days’ leave, including bank holidays. Other staff receive leave based on the days worked. For example, someone working four days gets 22.4 days. You can use the Government's holiday entitlement calculator to work out annual leave days for other staff.

Sick pay

If an employee is absent from work for up to 28 weeks, they're entitled to receive Statutory Sick Pay (SSP) of £116.75 per week. Realistically, most employee salaries are likely higher than this, so time on SSP could cause them significant financial hardship. We'll cover ways you can enhance the sick pay employees receive shortly.

Workplace pension

Every employee must be auto-enrolled in a company pension as long as they meet the following criteria:

• Salary of at least £10,000 per year
• Aged between 22 and the State Pension age (which varies due to their current age)
• Works in the UK (this includes regular business travellers as long as they're based mainly in the UK)

The minimum contribution is 8% of employee salaries. Employees contribute 5% and employers 3%.

Parental leave

Eligible mothers can take up to 52 weeks of maternity leave and up to 39 weeks of maternity pay (SMP). Eligible fathers get 1–2 weeks of paternity leave. Maternity begins before birth; paternity starts after. Pay rates vary by wages.

The good news is that you don't have to pay the full cost from your business budget. Most businesses can claim at least part of the cost back from HMRC when processing employee salaries and payroll taxes. Your entitlement varies by business size, with small business owners able to claim more of the costs than larger corporations.

Parents can also choose shared parental leave, which provides up to 50 weeks' leave and up to 37 weeks of pay.

Bereavement leave

Finally, employees have a statutory right to take time off upon the death of a dependent. There is no statutory minimum, so you must consider what's reasonable. While the amount of leave you offer may vary based on circumstances, you should have a defined policy with a set period and explain when you may extend it.

If parents experience a stillbirth or the death of a child, they're entitled to two weeks' parental bereavement leave. Some may also qualify for statutory parental bereavement pay, which is equivalent to the last 33 weeks of SMP.

Enhancing mandatory benefits

We've discussed the employee benefits your business must provide by law. If you have a limited business budget, you may be tempted to leave things there. However, there are several advantages to enhancing mandatory benefits and offering more than the minimum required.

As mentioned, an employee with a high salary could quickly find themselves in financial hardship if their pay were limited to SSP during an absence. Financial stress can damage employees' mental health and could also lengthen their recovery time. Alternatively, they might return to work before they're recovered and face further health issues because they're worried about the impact on their future income.

Enhancing mandatory benefits can help employees achieve a better work-life balance and improve retention. Let's look in more detail at the impact individual benefits can have.

Additional annual leave

Providing your team with an annual leave allowance above the statutory minimum demonstrates your commitment to their well-being. Regular breaks help employees maintain a positive work-life balance by providing quality time with their loved ones. They also give staff time to rest and recharge, which can boost their productivity and focus during work time.

Increasing annual leave could involve raising the number of days available to each employee or increasing the allowance based on length of service. Some companies have introduced unlimited annual leave, though days off are still subject to business-need approval.

You may also find that the increased morale, retention and productivity associated with more leave boosts revenue, creating a positive impact on your business budget.

Pension contribution matching

Pension contribution matching involves matching employees' payments into their pension fund. The statutory minimum requires employees to contribute 5% of their salary, with employers paying 3%. However, you can match their contributions up to a defined percentage. It shows you're willing to invest in their financial security even after they're no longer employed.

Enhanced maternity pay

Statutory maternity pay currently pays 90% of an employee's average weekly earnings for the first six weeks of leave, followed by either £187.18 or 90% of their average earnings for the next 33 weeks, whichever is lower. However, you can pay more. Some companies offer full pay initially, then drop to half pay and then to SMP at intervals, depending on the length of the leave taken. This can help support new parents and increase employee retention.

You can include a clause in employment contracts stating that an employee will repay any additional salary if they don’t return from maternity leave or resign within a specified period, allowing you to budget based on the work they’ll complete on their return.

Increased sick pay

Increasing sick pay helps employees avoid financial stress during an absence. However, you're likely wondering about the impact on your business budget, particularly if you need temporary cover for an absent employee.

Income protection insurance will pay a percentage of an employee's usual salary for up to two years, which is longer than the 28 weeks available with SSP, and you only pay the premium rather than their full salary.

Voluntary benefits

Voluntary benefits let employees choose the benefits that they value most. You can make benefits available to every employee and let them build a benefits package that meets their needs.

You can also provide non-mandatory benefits to all employees. You can provide death-in-service benefits, which provide financial security to an employee's loved ones if they die, by investing in group life insurance. Critical illness insurance pays a lump sum if an employee is diagnosed with a serious illness.

Here are some benefits you can offer as a voluntary option.

Health insurance

Private health insurance is a highly valued benefit, and many employers pay the premiums to provide coverage to all employees. Premiums are an allowable business expense, meaning they could reduce your corporation tax bill.

However, your budgeting process may indicate this isn't an affordable option. In that case, consider offering a health insurance policy and allowing employees to pay premiums if they want to join. Premiums on a group policy are typically lower than on individual health insurance, making health insurance more affordable than it would be otherwise.

Childcare support

The Workplace Nursery Scheme lets employers partner with a childcare provider and pay a monthly fee. Their employees can then pay nursery fees through salary sacrifice, reducing their costs and tax liability. It also reduces employers' National Insurance contributions. However, this typically covers the monthly fee, making it a neutral cost in business budget terms.

Various providers offer access to the scheme. However, you should seek advice from your accountant or financial adviser to ensure your scheme follows HMRC rules.

Travel assistance

There are various ways to help employees with their travel expenses, if needed.

For those using public transport, a monthly or annual season ticket can reduce their cost per journey. However, the financial outlay may strain personal cash flow. An interest-free loan helps spread the cost and demonstrates your commitment to their ongoing employment. You can also use salary sacrifice or reimburse employees for the upfront cost. Alternatively, you can provide subsidised transport, but this will require more careful consideration during your budgeting process.

If employees can safely commute to work by bicycle, the Cycle to Work scheme uses salary sacrifice to help them purchase a new bike.

Salary sacrifice is also an option for employees who commute by car and want to replace their petrol- or diesel-powered vehicle with an electric model with lower running costs.

Employee discounts

An employee discount scheme helps your team save money on a range of products and services. This could significantly impact their financial well-being during a cost-of-living crisis, or improve their quality of life by providing benefits such as discounted gym memberships, cinema tickets, and spa days.

Standalone programmes are available, but most health insurance policies have a discount scheme for members. If you've decided to invest in health insurance, you can combine both benefits, so your business budget goes further.

Providers vary in their approach to discounts. Some offer perks to all members, while others have a rewards program where your staff can earn points toward increased benefits. Always check the small print.

Flexible working hours

Flexible working hours allow staff to request a schedule that suits their circumstances. 9-5 working may suit some staff, while others prefer to shift their start and finish times to avoid a busy commute or start work after the school run. You must assess each request based on business need and set parameters to ensure your business operations continue to run smoothly. There are no direct costs, but flexible hours can benefit employees' morale, productivity and mental health.

Flexible working location

A flexible work location has similar benefits to flexible working hours. It can help you to make employment more accessible for staff with disabilities or caring commitments. Consider whether you can offer full-time home working or a hybrid approach.

When reviewing your business budget, you should also include any direct costs associated with providing technical and health and safety support to hybrid or home workers. It's also worth considering how you'll support their well-being.

We've mentioned that there are ways to tailor coverage in some insurance-backed benefits to suit your requirements. This applies to life insurance that pays a multiple of an employee's usual salary or income protection, where payments begin after a set period of absence. With flexible health insurance coverage, you can tailor your coverage closely to provide services and benefits your team are most likely to use, making the best of your business budget. Insurers offer small-business and corporate policies with coverage tailored to companies of different sizes.

There are various ways to reduce your premium, including adding a policy excess. You can choose to pay your premium monthly or annually. Monthly premiums might mean you spend more from your annual budget, but they can help with cash flow.

You can use employee data as a guide to tailor your coverage. Here are a few data sets to help you consider your options.

Sickness absence data

Sickness absence data can help you make informed decisions about the benefits your employees are most likely to use.

Analyse the data to identify common conditions that lead to long-term or significant absences. You might also see patterns of absence, such as employees taking frequent days off during a specific period, like peak times. Seek input from managers, HR and occupational health, particularly if they're involved in discussions during absences or while managing frequent illness. Physical conditions can be easy to spot, but other absences might indicate mental health issues or burnout that you can support with enhanced mental health coverage. The data can help you make informed decisions about the coverage that will best support your team.

We should sound a note of caution, however. While you may not see significant absences due to cancer or other serious illnesses, you should still provide coverage to support your employees if needed.

Employee health assessments

Most health insurers offer employee health assessments with support to help workers improve their health and well-being. They're available to every member, so it's worth encouraging your staff to book appointments. Your insurer won't give you confidential medical information, but they can provide anonymised summaries showing common concerns and health trends. These may be work-related health concerns or external factors affecting your employees in their personal lives.

Review employee demographics

Employee demographics can influence the health issues that will likely affect them. The risk level for some conditions increases with age, which can influence the coverage you want to provide if you have an older workforce. It's also worth examining the gender split amongst your team to consider whether it's worth spending money on gender-specific benefits such as menopause support.

The nature of your work can also inform a strategic plan to manage risk. For example, a high-pressure environment can cause stress. Desk-based roles pose different health risks than active jobs, but both can lead to musculoskeletal conditions. Your health insurance can provide treatment and preventative services.

Workforce surveys

Demographics are useful, but every team member is an individual with unique requirements. We're not suggesting you tailor your health insurance to include a service requested by only one employee. However, seeking feedback and input can help you identify and incorporate the benefits your employees are most likely to use. If you have a small team with disparate needs, feedback can help you decide how to provide health coverage. For example, you might decide to offer a health cash plan that provides cash back on routine health expenses, or to fund an employee's chosen individual policy tailored to their preferences. This approach could be particularly beneficial to small business owners with few employees.

Workforce surveys let you ask employees about their health needs and any issues they experience in their work and personal lives. Regular surveys help you monitor how your health insurance is performing after you invest. For example, if staff report high stress levels, you might provide additional mental health support and quick access to counselling. Later surveys will tell you whether that's helping your team feel less stressed and more supported. It's a good idea to set key performance indicators to benchmark progress and assess whether benefits are having the desired impact.

Uptake of current benefits

Assessing whether staff are using their benefits can impact your chosen coverage, but it can also be a sign that you need to review your communications strategy. If staff surveys indicate your team values a benefit you already provide, but it isn't being used, it's likely due to a communication issue. It's worth allocating some of your business budget to more effective or more frequent communications if it delivers a higher return on investment.

Alternatively, it could simply be that you're spending money on benefits your staff don't value.

Staff retention and behaviour

High staff turnover can indicate underlying issues in your business culture that may not be directly related to your health benefits. However, it's worth asking managers and HR staff to report any frequent issues that arise in exit interviews.

Warning signs of potential health issues or inadequate support can appear in employees' behaviour. Presenteeism, where staff come to work when they're clearly unwell, skipping breaks or working late as part of their normal routine, can indicate poor work-life balance and increased stress, or exacerbate existing physical health conditions. Providing health coverage that offers timely care or ongoing support can improve outcomes.

Investing in employee benefits can deliver a wide range of business benefits when funds are allocated wisely. If you’d like to learn more about how the right insurance policies can support high-quality business benefits, contact us for tailored advice.