Is it ethical to allow an employee to forfeit their right to life cover to take up a golf membership in its place? Following HR Zone’s focus on reward this month, Quentin looks at flexible benefits and questions whether they are as good as the hype that surrounds them.
So what are ‘flexible benefits’?
At the basic level they are an option which allows an employee to select a remuneration package that aligns with their lifestyle.
For example, a single person may not get full benefits from an employer’s provision of private medical insurance which is provided on a family basis. They may wish, instead to exchange the value of that benefit to purchase an additional days holiday taking out a medical cover for a single person in place of a family package.
This may sound very attractive to an employee but what about the employer?
While there are obvious benefits in terms of employee satisfaction and the impact on recruitment and retention, there are also costs associated with the system as well as some moral choices.
For example, what view should an employer take if an employee wishes to reduce the provision of life cover? With some employers offering up to four times base salary such a sum could have a huge impact on any dependants of an employee should they die.
But suppose that employee decided to trade in life cover for discounted membership of the golf club? Should we be bothered? Is it our place to have an input on decisions like that? If you take the free market approach, then of course the answer has to be ‘no’. It’s up to the employee to decide where their benefits will apply. Sounds okay as a rationale, but it doesn’t explain why for many years employers have been happy to effectively pay reduced salaries in order to fund life assurance schemes.
It would be a very tough HR person who could look at the recently bereaved partner of an employee and explain that the employee had elected to take golf club membership over life cover!
And what about holidays? One of the topics that exercises the minds of government ministers downwards (or should it be upwards!?) is that of work/life balance. Most people will be wedded to the concept as being a ‘good’ goal – but for many it is simply a mere aspiration.
If as a nation we believe that work/life balance is a valuable concept, then should employees be able to trade their holidays in beneath a certain level? Perhaps the working time regulations holiday entitlement should simply be the lowest level, although I expect many will agree with me that the level is currently, unrealistically low. I would be interested to know how organisations currently handle this aspect of flexible benefits.
One issue raised by many is the cost of flexible benefits. There must be additional administrative costs associated with flexibility, however, there will also be some hidden costs to it. For example, if an organisation currently provides private medical cover and offers employees the opportunity to exchange that value for cash or another benefit, who is most likely to do so?
The answer of course is that it will typically be the younger and generally fitter employees who pull out of that benefit leaving those covered as being the ones more likely to claim with the likely result that premiums will rise. The other cost risk is that the bulk purchasing of benefits will become less, thereby reducing the economies of scale and increasing costs.
So what organisations really need to focus on is the benefit to be gained from flexible benefits. Certainly there will be increased costs and benefits, but where the balance lies has to be individual to each organisation. The other huge topic to be addressed is that of pensions.
How many employers can really get the message across to a 20 year old that they need to start making contributions into a pension scheme? I believe that flexible benefits will only make that communication more difficult but that’s for another article!
What is your experience of flexible benefits? Have you introduced them within your organisation? If so, what did you get out of the process? What about tips and hints to help others going through the process?
Quentin Colborn is a freelance HR consultant who supports organisations across a wide range of topics. He can be contacted on T: 01376 571360 or at [email protected]
Colborn’s Corner: series articles
- Who remembers industrial relations?
- HRZone stirs up porn probe
- Compensation culture or fair treatment?
- Mind your Ps and Qs
- Assessment Centres – are they worth it?
- What’s in a name?
- Disciplinary dilemmas divulged
- Employee engagement – realism or wishful thinking?
- Internal communication – who told you about that?
- Is there a place for ethics in HR?
- Employment Law in 2005 – a case of over-regulation?
- Pensions – whose crisis is it?
- The 2005 Election – what does it mean for HR?