Should you scale back your benefits package?

If the cost of doing business has increased due to rising costs and higher employer national insurance contributions, your primary goal will likely be making savings. However, reviewing your employee benefits can also help you create a strong benefits package with perks that your team actually uses and values.

A review helps ensure your benefit offerings align with your business goals and evolving demographics. For example, young people typically value different benefits from those nearing retirement. This brings numerous advantages, including attracting new talent and retaining experienced staff. You can also ensure that benefits are flexible and reflect employees' changing priorities, encouraging long-term loyalty. Finally, employee perks can play a key role in building and maintaining employee morale and in fostering a company culture where workers support one another and deliver excellent service to your clients and suppliers.

Reviewing your employee benefits package takes time and careful consideration. You may be motivated by cost savings, but other signs can indicate a need for a review. Let's consider some of the potential downsides of withdrawing or changing employee benefits.

Firstly, some employee benefits are required by law in the UK and constitute the minimum standard all employers must meet. There are minimum requirements for annual leave, sick pay, and parental leave and pay. All employers must offer reasonable bereavement leave and enrol eligible employees into a workplace pension. You may be eligible to reclaim some mandatory payments from HMRC, depending on your business size. While eligibility requirements apply, you must provide employees with access to these benefits.

Many employers enhance statutory benefits, for example, by paying higher rates of sick pay or maternity pay during absences or maternity leave. Matching employees' pension contributions can help them boost their retirement savings. If you've previously invested in going beyond the statutory minimum, reducing these benefits may put you in legal difficulty. Withdrawing certain employee perks or altering your employee benefits has several drawbacks.

They may be contractual benefits

As the name suggests, contractual benefits form part of an employee's contract of employment. Including your benefit offerings in a signed contract creates certainty for you and your team as everything is in writing. Employee handbooks can also provide guidance on the details. However, some employee perks become implied rights through custom and practice, giving them the same status as those set out in their contracts.

Implied rights can be more challenging to identify and may vary between sites if you have different premises. For example, your office may have a long-standing habit of paying generous Christmas bonuses or closing early on the last working day before a bank holiday. You may think of these as discretionary benefits, but if they've been routine for long enough, they may have become part of employees' standard terms of employment.

Understanding contractual benefits helps you avoid withdrawing a perk your team is legally entitled to, which could have serious consequences. Depending on the circumstances, employees may be able to bring a breach of contract claim or constructive dismissal claim, which may require mediation or a visit to the employment tribunal and incur legal fees. If you decide to alter your benefit offerings, understanding what's included provides a strong foundation for contract negotiations.

Reduced employee morale

A high-quality employee benefits package helps your team feel supported and valued. Offering a range of benefits, such as employee health insurance coverage, an employee assistance programme (EAP), and discount schemes, demonstrates your commitment to supporting employees' health and financial well-being. Other options show your investment in employees' families' future financial security through death-in-service benefits and pensions. These benefits combine to boost employee morale, making employees more productive and more willing to go the extra mile for their colleagues and customers.

When you withdraw or change benefits for financial reasons, your team members are more likely to view your relationship as purely transactional. While they're employed to earn a salary, other employee perks help foster a sense of belonging, where workers are valued for more than the tasks they perform. A shift in that relationship can lead to reduced employee morale, lower productivity, and diminished focus and creativity, and can impact team relationships.

When contemplating a change, consider which benefits provide employees with support beyond their employed role and your statutory duty.

Higher staff turnover

Employees who are happy in their work, have good relationships with their managers and colleagues and feel properly compensated and valued by your company are less likely to leave in search of a more fulfilling role elsewhere. As we've discussed, employee morale impacts performance and workplace relationships and can also affect their decision to stay in their current job or look for other opportunities. Higher staff turnover can increase costs due to the need to recruit and train new staff.

Research suggests that employee benefits play a vital role in employee retention, with a high-quality benefits package being a key reason why staff choose to stay with their current employer. Employees most value flexible working, including the ability to work from home, and a generous annual leave allowance. These benefits support a positive work-life balance and can boost productivity, potentially increasing your revenue and leading to a net financial gain. By contrast, employees who intend to leave their current employer say they are dissatisfied with their pay and have a poor work-life balance.

The CIPD's Good Work Index surveys workers across seven dimensions of good work to examine trends in job satisfaction and the factors that influence whether employees stay with their current employer or plan to leave. Absorbing work that matches an employee's qualifications and skill level, and providing adequate pay, are essential. The survey also suggests that employees seek work that supports their health and well-being. Staff whose work negatively impacts their mental health have lower job satisfaction and are more likely to resign. Fostering a positive workplace culture helps, and you should also consider which benefit offerings support employees' physical and mental well-being when reviewing your benefits.

Withdrawing vital support

Employee benefits can provide vital assistance to your team that you may not be aware of as an employer. Employees vary in their willingness to share personal information with their colleagues and managers. You may be aware of work-related stressors, such as high workloads, but challenges outside of work can also affect performance during working hours. For example, depending on your chosen policy, employee health insurance can support parents worried about their child's mental health. An employee assistance programme offers access to financial or legal guidance for employees facing financial stress.

Providers can supply usage data to demonstrate which benefits staff are using. However, the information can't tell you the value each employee places on that benefit. Withdrawing a valuable source of support could have unintended consequences, increasing stress and affecting an employee's performance.

We've mentioned some potential downsides to scaling back your benefits. Thankfully, you can avoid many of these pitfalls by taking suitable steps to assess the impact of any changes before making an informed decision.

These recommendations cover a range of sources to give you a full picture of the financial impact of changes and the human factors involved. While extensive changes must involve a full consultation, it's worth gathering data at intervals to assess whether the benefits you offer continue to meet employees' needs and deliver a good return on investment.

Here are a few of the main steps we suggest taking before making changes to benefits.

Get employee feedback

Seeking employee feedback on the benefits they value and the support provided helps you understand which benefits positively impact morale, support team well-being and increase employee retention. It's worth using more than one method to gather information.

A staff survey lets you rank benefits by usefulness, for example, by using a multiple-choice survey with a scale that lets staff indicate how much they value each benefit and how often they use it. You can also include text boxes for more detailed feedback. An anonymous survey can be useful as staff are more likely to confirm they've used a benefit if you can't link their identity to their response. For example, an employee who has used an employee assistance programme (EAP) for counselling or financial advice may be unwilling to share that with their employer, for fear it will affect their future career prospects. The same applies to a survey that invites employees to share the impact of services they've used.

Staff forums invite open discussion about benefits and allow input from different teams and departments, as well as from staff with differing roles. You could arrange an open discussion for all staff, or seek representatives from across the business. Inviting representatives creates a central point of contact and enables staff to share their views in a way that meets their needs. For example, some staff may be happy to speak with their representative in person or via email, while others may prefer to be able to submit anonymous feedback for discussion.

Finally, if your workplace has a trade union or other employee representation, it's worth including them in discussions, particularly if changes will involve formal consultation in the future.

Consider usage data

Usage data shows you which benefits your team members value and use most often.

You can tailor your health insurance coverage to prioritise the treatments and services your team uses most often. If your health insurance includes employee health assessments, your providers can supply anonymised data on common health issues and well-being trends as well as information on policy usage. Your EAP providers can also tell you how many employees access support and which services they use.

You can assess how much annual leave employees take and behaviour relating to flexible working requests. If you offer voluntary benefits that employees can access via loans or salary sacrifice schemes, you can also gather data showing take-up and whether this is higher among particular employee demographics. For example, sustainable travel options such as season ticket loans or the cycle-to-work scheme may be more popular among younger employees, suggesting a need to retain these benefits in the future to attract younger recruits.

In some cases, low take-up may not indicate that it's time to withdraw or reduce that particular benefit. It could indicate a need to review your company communication strategies to ensure your employees understand what's available. The data can also help to identify broader issues with the company culture. If you notice low annual leave take-up, this may indicate workplace stress due to heavy workloads or a management style that discourages staff from taking regular breaks.

Consider salary sacrifice schemes

We've mentioned using salary sacrifice schemes to provide voluntary benefits that staff can select based on their needs. These can represent significant value to employees, as they let them tailor their benefits to their circumstances. For example, parents can sign up to receive financial assistance with childcare costs while their children are small, but can leave the scheme later when it's no longer needed. Employees' needs can shift over time, either because their living circumstances change or because their financial priorities alter as their salary increases, they want to buy a home, or they head towards retirement.

Salary sacrifice schemes can provide a variety of benefits, including childcare support and the travel-to-work schemes we've previously mentioned. They can also cover the purchase of an electric vehicle for staff who commute to work by car or travel frequently on business. You can choose to provide employees with health insurance via a voluntary scheme where staff pay the premiums if they choose to join, rather than funding premiums through the company.

If you decide to offer benefits using salary sacrifice schemes, ensure your employees have access to independent advice. Salary sacrifice reduces an employee's income, which provides savings on income tax and employer national insurance contributions. However, if they're applying for a loan or a mortgage, the provider will check whether payments are affordable, so a reduced salary can affect their ability to borrow. Your EAP can't provide financial advice, but can offer guidance and signpost employees to suitable sources of support and professional advice.

Get professional advice

Scaling back benefits can be a complex process, and seeking professional advice can help you navigate this effectively. As we've mentioned, some benefits are set out in employment contracts, while others may be deemed implied contractual benefits due to custom and practice. The position isn't always clear-cut, so seeking advice from a specialist employment lawyer will help you understand the position. Changes to contractual benefits will involve renegotiating contracts, so it's also a good idea to discuss your proposals with your HR team or an independent consultant.

Your accountant and financial adviser can also advise you about the financial and tax position relating to your current benefits and the impact of any proposed changes.

Finally, seeking advice from a specialist insurance broker can help you adjust insurance-backed benefits to provide suitable cover that fits your budget.

Shop around

As the name suggests, insurance-backed benefits use insurance policies to provide benefits that would likely be unaffordable to most businesses. Death in service benefits use group life insurance to pay a lump sum to an employee's named beneficiaries if the employee dies whilst employed by you. Income protection insurance provides employees with enhanced sick pay for up to 2 years during an absence. Premiums are typically a fraction of an employee's full salary, so you can offer them financial security without breaking the bank.

Health insurance covers healthcare costs and provides employees with quick access to private treatment that's typically shorter than the time spent on an NHS waiting list.

If you want to reduce your health insurance premiums, a specialist broker can help you find the same, or better, coverage for a lower premium. They can also help you tailor your existing coverage.

Switching to a new health insurance provider can be complex. Health insurance excludes pre-existing conditions, meaning a switch could add new exclusions to your policy. This can cause issues for staff who've already received treatment under the old policy and want to continue receiving it. CMORI or CPME underwriting can help, but the process is complex, and a broker can help guide you through the process.

UK employers increasingly need to cut costs and find more cost-effective ways to provide employee benefits. Seeking professional advice and working with an experienced insurance broker can help you support your staff and get good value for money. At Globacare, we provide our clients with advice tailored to their needs. Contact us today.