Childcare vouchers top list of most popular flexible benefits

FLEXIBLE BENEFITS

Childcare vouchers top list of most popular flexible benefits

Childcare vouchers, dental insurance and bicycle schemes have topped a list of the UK’s most popular employee benefits, reveals new research published by Hewitt Associates.

  • Childcare vouchers are offered by 98% of flexible benefit schemes.

  • Dental insurance is the second most popular benefit (92%).

  • Cycle-to-work schemes are the third most popular benefit (91%), with their popularity doubling in the last year alone.

While childcare vouchers are the most popular benefit, the government is planning to scrap tax relief on childcare vouchers by 2015. Martha How, head of reward consulting at Hewitt Associates, said: “Reducing, or altogether scrapping, tax relief on childcare vouchers will have a major knock-on effect, particularly for employees that rely on the tax benefits they have through childcare vouchers to secure a means of returning to work while caring for the family. After 2015 a 40% tax rate couple taking childcare vouchers will be £2,392 per year worse off and a basic rate tax paying couple will be £1,808 worse off.”

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Health-related benefits

Hewitt’s research reveals a notable shift towards health-related benefits. Permanent health insurance is now offered by 67% of flexible benefit schemes, compared with 23% in 2007/08. Health screenings are now offered by 75% of companies, compared with 56% in 2007/08.

One in ten schemes risking financial penalties

Industry best practice dictates that all flexible benefit schemes gain formal approval from HM Revenue & Customs. Despite this, 10% of organisations in the Hewitt survey have not yet secured endorsement approval.

How said: “We were very surprised to see that one in ten schemes have still not gained formal approval – this is much higher than expected. By operating a flexible benefits scheme without HMRC agreement on benefits tax treatment, companies are risking a potentially lengthy and painful investigation which could result in penalties, including back payment of taxes. We urge these companies to seek immediate approval. Companies which already have approval need to keep a close eye on changes to legislation to ensure their schemes remain compliant."

Emerging trends

While Hewitt’s survey is mainly an indicator of current practice, it also reveals emerging trends in the market as leading employers are seeking ways in which to maintain and increase employee engagement in a cost-effective manner. Based on the survey and its ongoing dialogue with clients, Hewitt expects to see greater interest in pan-European flexible benefit schemes and “green” benefits such as season ticket loans, bus tickets and low carbon emission cars.

A final word

"As the flexible benefits market has matured, employers can no longer rely on the novelty of the basic structure alone to deliver best-in-class employee benefits. The most forward-thinking employers are working with the industry to take flexible benefits to the next level, and there is a real thirst for fresh, new ideas.” – Martha How, head of reward consulting, Hewitt Associates.

Definitions

Flexible benefits plan: “A benefit structure which offers employees the choice of how they receive the value of their total reward package, as cash and a combination of benefits. Plans generally include statutory minimum days’ holiday and ‘core benefits’, such as basic life cover, which employees cannot opt out of.” - Hewitt Associates.

Salary-sacrifice plan: “Where an employee exchanges the right to receive cash in return for an alternative benefit. Salary-sacrifice plans can be standalone, covering a single benefit such as contributions to the employee’s pension, or can offer a range of benefits such as holiday buy and sell.” - Hewitt Associates.

Want to know more?

Title: Flexible Benefits Survey, Hewitt Associates, October 2009.

Survey details: The survey, now in its 14th year, incorporates data gathered from 120 organisations with a significant presence in the UK, representing 740,000 employees. It reveals the current practices of companies in relation to flexible benefit plans.

Availability: For further details about the survey contact Hewitt, email: enquiries@hewitt.com or tel: 0207 939 4000.

Hewitt Associates provides “leading organisations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges”. Hewitt has offices in more than 30 countries and employs approximately 23,000 associates. For more information, visit www.hewitt.com.