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Employee benefits help you attract, retain, and reward your staff. This guide runs through the basics. What are employee benefits and what could you offer?
Employee benefits are usually part of an overall compensation package for staff. They aren’t seen as part of a pay packet (although they’re usually taxed).
Instead, they’re offered alongside a salary and are designed to attract employees to your business. They help motivate employees to stay at your business and do their job well (for reasons other than their monthly paycheque).
Recent changes in the way firms view employee benefits have placed more emphasis on flexibility rather than giving employees fixed options.
You’re legally required to offer employees a set of statutory benefits:
Automatic pension enrolment – by law, you must offer your employees a workplace pension and pay the minimum employer contributions.
Holiday allowance – employees are entitled to a minimum of 28 days’ paid annual leave, which can include bank holidays (many businesses offer more than the minimum).
Sick pay – employees can get statutory sick pay (SSP) from the fourth qualifying day of illness, up to 28 weeks.
Maternity leave – new mothers are entitled to 52 weeks of leave (paid up to 39 weeks).
Paternity leave – new fathers are entitled to one or two weeks of paid leave.
Adoption leave – if an employee is adopting, they’re also entitled to 52 weeks of leave (paid up to 39 weeks).
Parental leave – for each child (up to age 18), an employee can take up to 18 weeks of unpaid leave to care for them.
Flexible working – an employee can request to work flexibly (for example, remotely or part-time) after 26 weeks of continuous employment, but businesses can weigh the request against business needs and reject it with a good enough reason.
Many businesses offer more than what’s required by law. Have a think about:
Healthcare – you can offer full private medical insurance (which both covers and gives access to treatment) or a smaller-scale health cash plan, which pays out for things like dental and optical costs. Businesses are also increasingly offering access to mental health support.
Cover for illness or death – insurance is available for employees that covers their income if they’re unable to work because of illness or disability, plus life assurance pays out money to an employee’s beneficiaries if they die while they’re employed by you.
More pension contributions – some businesses choose to offer more than the minimum requirement, as well as educate their employees about pensions (and their finances in general).
Bonuses – a bonus scheme incentivises employees to go beyond the requirements of their role. Bonuses can work for employees in roles that are target-driven (like sales), or you can offer an annual bonus to all employees at the same rate, decided on business performance.
This can be a discretionary bonus or non-discretionary. The main difference is that non-discretionary bonuses need to be in the employee contract, where the requirements are explained.
Discretionary bonuses are left up to the employer. The way they’re given to employees is more flexible and the requirements don’t need to be outlined in the contract.
Other employee benefits examples include:
A different form of employee benefits are benefits in kind. These are benefits that aren’t included in your salary or on your paycheque but given to you in other ways. In job listings or on employee contracts, these are often called ‘perks’ or ‘fringe benefits’. These perks are paid for by employers and enjoyed by the employee.
By providing a benefit in kind to your employees, you're developing your company culture as well as showing your workers how valued they are.
Like many other types of benefits, in some instances you may need to pay benefit in kind tax. These perks will need to be reported to HMRC on a P11D. Examples of benefits which incur tax include:
You may also offer benefits in kind which do not incur tax. Some examples of benefits in kind where you might not pay tax include:
There are also examples of employee benefits that are more to do with your business’s culture than you offering specific products.
For example, is it easy for your employees to work flexibly (and by extension do you trust them to get their work done)?
Plus, is there space in the office for them to focus on their wellbeing, and do you carve out time for them to connect with each other?
In terms of employee benefits, an office pool table and beers on Friday have become clichéd, with many businesses recognising that the overall culture needs to be positive and stimulate employee connections and wellbeing.
But they do represent the need for employees to spend time with each other, so think about what social activities make sense for your business.
And finally, consider flexible benefits and voluntary benefits.
Employees can choose from a set of flexible benefits to form their overall benefit package (think gym memberships and cinema vouchers). This empowers the employee to have benefits that are right for them.
Meanwhile voluntary benefits are often extra levels to an employee’s core benefits that they can choose and pay for at discounted rates. For example, you might offer the basic level of a health cash plan to every employee, while giving them the option to pay for the next level at the group rate (which is cheaper than if they accessed it as an individual).
As we’ve established, employee benefits packages can be varied and diverse. The examples above are intended to give you a flavour of what you could offer.
It’s best to research what’s best for your business by speaking to current employees, or working on your business’s values.
Considering that benefits can be diverse, you could invest in an employee benefits platform to help retain employees. With these, your employees log in to the platform and choose flexible benefits that make sense for them.
Platforms like this also offer more for your money, including methods that help employees connect and celebrate each other, as well as wellbeing resources.
Platforms to look at as part of your research include:
Be sure to weigh up the cost of these platforms against what you hope to gain, whether it’s more interest from prospective employees or higher employee retention.
The tax considerations behind employee benefits can be complicated, but most employee benefits do come with tax and National Insurance responsibilities.
Cash benefits like bonuses and commission are handled in the same way as salary through PAYE. Non-cash benefits are known as benefits in kind and can be treated differently, with you reporting them using HMRC’s P11D form. However, you can also payroll benefits.
A trivial benefit is a small employee benefit with no tax due. Trivial benefits include benefits that:
A trivial benefit has to meet all of the criteria above. You don’t have to pay tax or National Insurance, or let HMRC know about them.
Examples of trivial benefits include taking employees out for lunch to celebrate a birthday, or giving employees a Christmas present.
A team lunch to celebrate targets being met won't be a trivial benefit, as this relates to work and performance.
Would you like to know any more about employee benefits? Let us know in the comments below.
Sam has more than 10 years of experience in writing for financial services. He specialises in illuminating complicated topics, from IR35 to ISAs, and identifying emerging trends that audiences want to know about. Sam spent five years at Simply Business, where he was Senior Copywriter.
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