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Andrew Walker

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A guide to benefits: the basics


Employee benefits are an important part of the employee package for recruiting and retaining employees. When it is difficult to recruit suitable skilled people, having a benefits package can often give an organisation the competitive edge. Andrew Walker, Head of Business Development at Croner looks at the different ways of incentivising staff and the key principles for a successful reward strategy.

An employee remuneration package will generally include cash (i.e. salary or wages) and non-cash elements. The non-cash elements form an important part of the package and play a key role in recruiting, rewarding and retraining staff.

Some benefits, such as pension provision and health insurance may be available to all staff regardless of grade or position. Other benefits, such as company cars, may be given only to those staff whose jobs demand them, or to reward staff on reaching a certain level.

Flexible benefits package
A flexible benefits package is one that gives employees some choice over the benefits that they receive. Often there will be a level of core benefits that all staff receives e.g. pensions and medical cover plus a choice of additional benefits within specified guidelines from a ‘menu’. This flexibility is usually attractive to employees who can choose the benefits most useful to them or that best fit their lifestyle.

A flexible benefits programme may also save tax and National Insurance if the employee chooses tax and NIC-exempt benefits in place of taxable salary or wages. Flexible benefits may also secure cost savings because the employer does not have to pay for benefits that aren’t being used. However, there can be some disadvantages to a flexible benefits system, including:

  • Danger of increasing costs
  • Problem of valuing benefits
  • Complex administration
  • Tax and VAT implications.

Non-cash benefits

The non-cash benefit elements of the pay package can be extremely valuable to the employee and non-cash benefits are often tax and NIC-efficient.

The number and value of non-cash benefits usually decreases down the corporate hierarchy. At the bottom of the corporate ladder, basic salary, bonuses, overtime and shift-work pay are not usually boosted by many perks.

The list of possible non-cash benefits is long and includes:

  • Childcare provision
  • Life assurance
  • Paid leave
  • Medical checks.

Whatever benefits system you choose there are a number of key principles for a successful reward strategy:

  1. Recruit the right people. Whether you are aiming to bring in only those who have the right skills or behaviours to make your business more successful, or whether this is designed to give the mix of staff a broader, more diverse base, then this must be the starting point. How can we hope to have an engaged workforce if there aren’t the right people for the job?
  2. Invest in them. Whether this is money, time or both, it seems clear that employees need to see some effort being made for them if they are going to value the whole reward proposition. Incidentally, it can quite often be the case that the most expensive rewards are the least effective.
  3. Agree clear objectives. I am sure we would all recognise this one. If we want our employees to achieve good things for our businesses and to feel valued, then we have to help them get there. Agreeing (rather than setting) objectives that are achievable and which really contribute to the organisation’s goals is a sure-fire way to people on track and “engaged”.
  4. Set standards and examples. There has been much discussion recently about helping employees see the difference between the “what” and “how” of performance. Setting the standards and demonstrating how this translates in real life is one of the most effective ways of splitting these two concepts. The objectives cover the “what” and the standards define the “how”. The trick as an employer is to be able to value both.
  5. The payback. This is the part where it can go wrong and yet it is so simple to get it right. Once all the areas above are covered, then it really is a case of the employer delivering on the deal. If the employees have done what you agreed, and assuming that this has got the right result, then you need to give them what you promised. That way, they will be eager to come back for more in the future.

I’m sure you must be thinking that this is too simplistic, or isn’t that just obvious. Well I agree with the first point, but as with all simple plans the hardest part is the delivery and this has to be tuned to the needs of both the employer and the employee.

Andrew Walker is Head of Business Development at Croner


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