Employee benefits: the real cost to a growing business

Employee benefits have always been an important part of any remuneration package, but they have become even more vital in the past couple of years. As firms have scrambled to cut costs, many have reduced their headline salary offerings – but a good employee benefits package has helped them continue to secure top quality talent.

With wages unlikely to rise significantly for some time yet, this reliance on employee benefits looks set to continue. But, while many firms understand the importance of benefits, others steadfastly refuse to offer their employees anything beyond a salary. Many do so because they presume that employee benefits are prohibitively expensive – but you can also incur dramatic costs by failing to provide them.

Why offer employee benefits?

Many employers wonder why they should be expected to offer employee benefits when they are already paying a salary. While this is a fair question, it symbolises the most common misunderstanding about benefits. Employee benefits should not be seen as an add-on to a salary; you should not consider them a favour given to your staff. Instead, they should be thought of as an intrinsic element of the remuneration package that you offer.

Employee benefits have been proven time and time again to improve employee satisfaction. A good benefits package helps make workers feel valued by the firm, and this increases productivity. Conversely, an employee that picks up a pay cheque and the end of each month but makes do with little holiday and a measly pension fund, is unlikely to feel that their employer cares about them. This lowers morale throughout the workforce, and productivity suffers as a result.

As an employer, one of your priorities is to get the maximum level of productivity possible from your workforce. In many cases, this job is made significantly easier with some simple employee benefits.

Are benefits expensive to offer?

While some employee benefits can significantly increase your total staffing costs, many of the most effective benefits can be secured cheaply. For example, many employees would value an extra few days’ holiday over an increase to their employers’ pension contributions.

You should remember that you do have some legal responsibilities in this area, for example when it comes to pension contributions. But paying more than your legal requirement, even by a very small amount, is likely to be seen as a good gesture among many of your staff.

What about tax breaks?

Aside from the increase in productivity that they can often provide, many employers use employee benefits to bring down their tax liabilities. Most benefits work on a ‘salary sacrifice’ basis. This means that, for tax purposes, they are treated in the same way as conventional income. But others, particularly those that are related to travel, are treated more favourably.

It is important to investigate the tax treatment of employee benefits that might relate to your business. For example, if you run a plumbing firm, you might be interested to note that company vans provided to employees are taxed more favourably than company cars. Similarly, providing bikes for employees to cycle to and from work is not treated as a taxable benefit at all.

Are incentive schemes as good?

Many employers provide incentive schemes, rather than offering a standard benefits package to every employee. Under an incentive arrangement, employees are given benefits (or sometimes salary) commensurate with their performance. Performance-related pay is one of the most common forms of incentive scheme, and is particularly popular in sales.

While incentive schemes can be a good way of encouraging hard work and healthy competition amongst staff, it is also worth considering the downsides. Schemes of this sort can just as easily create schisms within your workforce, and make those who have had a bad month feel less valued and therefore less inclined to work harder. You may wish to consider consulting with your staff before rolling out this sort of scheme – and, of course, you should remember that you must continue to fulfil any contractual obligations for the term of the agreement.

Employee benefits are likely to become an increasingly important element of the package offered by any firm to potential employees. If you want to continue to attract the best possible employees at the lowest possible cost, while getting the maximum possible productivity from your workforce, you must ensure that they feel valued. Employee benefits are an effective means by which this can be achieved.