Well designed and
implemented flexible benefits or cafeteria benefits schemes, as they are also
called whether offering individuals the latitude to decide which benefits to
take amongst those offered by their company, still sound quite attractive to
many employers, the flip side of introducing these schemes is, nonetheless, typically
represented by the circumstance that they require a good deal of efforts and resources
to be designed, implemented and kept up-to-date. As suggested by Furnes (2006),
“Executive boards normally have two main reservations about flex:
administration and cost.” The findings of a relatively recent investigation (Towers
Watson, 2010), notwithstanding, revealed a remarkable difference in the employer
appreciation of the costs associated with these programmes implementation
according to the circumstance that employers operate a flexible benefits scheme
already or are just planning on its introduction. The rate of respondents
citing cost as the major obstacle to flexible benefits schemes implementation
was in fact 76 percent amongst those who did not run any programme, whereas a
considerably lower 56 percent of respondents with a plan to introduce these
cited cost as a main barrier.
In addition to the direct costs, running these
schemes also involves and requires a remarkable administrative workload. Individual
preferences in fact not only need to be managed separately in the first
instance, but also on the occasion of the subsequent modifications of the
scheme. Organizations habitually review their benefits
catalogue once a year, but this may not invariably be deemed satisfactory. The
findings of an investigation conducted by Capgemini UK over 1,300 Generation Y
employees revealed that these do not indeed deem “flexible” a scheme enabling
them to review their choices once a year. Brown (2011) suggests that organizations
should be able to run flexible schemes enabling individuals to review their
choices at any time. Whether on the one hand the adoption of such an approach would
clearly help organizations to let appear these schemes much more attractive to
staff, on the other hand it would at the same time place a considerable burden
on employees. The expected result would be thus achieved for a price.
In addition to the additional administrative work carried out
internally, organizations may also need to seek external fiscal advice to come
up with tax-sound programmes. Amongst all of the costs associated with flexible
benefits schemes design and implementation, nonetheless, this is not really the
cost which employers should aim at cutting. Despite this clearly contributes to
increase the overall costs associated with the introduction of these
arrangements, the frequent changes occurring in the fiscal regulations need to
be appropriately monitored and duly considered in order to eventually adjust the
programmes accordingly and take advantages of all of the opportunities offered
by the fiscal law development. Consultancies help may prove to be crucial and
well worth the expense so that organizations do not having this type of
competency internally should not hesitate to seek external advice and hang the
related cost.
The impact made by the cost is indeed
different when benefits are provided to employees in the form of salary
sacrifice. As suggested by Eaton (2006), in this case a “well-run programme
should be cost neutral, allowing you to spend more money on your employees than
on administration.” As a general rule, employers should invariably strive to develop
programmes enabling these to maintain a balance between the benefits they provide
at their full cost and those offered in the form of salary sacrifice.
Technological advances have during the last
decade enabled employer to curb the impact of the costs associated with the
development and execution of flexible and voluntary benefits schemes, providing
momentum to the development of these programmes. Whilst in the early 1990s
these schemes caused severe headaches to employers for the administrative burden
they entailed, nowadays the largest part of the tasks necessary to introduce and
operate these arrangements is computer-based.
The overall cost of implementation of flexible
benefits programmes essentially depends on some specific variables:
- Complexity of the scheme;
- Business size;
- The number of benefits to be included in
the programme;
- The extent of the eventual contractor and
consultancy support (Barton, 2010); employers can in fact decide to totally
design the programme internally or to seek external advice.
In those cases in which employers decide to
benefit of external support there are some additional costs which they need to
be ready to pay:
- Consultancy fees for planning, developing
and communicating the scheme (usually calculated on a daily rate basis);
- Consultancy cost for the system and
service implementation (one-off cost);
- Technology licence (annual fees).
The expense associated with the design and
implementation of the overall system, by contrast, is not habitually linked to
or influenced by any variable and can be hence considered as a fixed cost (Barton,
2010).
Waller (2010) warns
of the risks associated with system customization, data work, interfaces and with
other problems typically emerging during the development of these arrangements
and the identification of their real objectives. Agreeing from the outset a
fixed price with providers enables employers to prevent subsequent problems and
later disappointment. Prior to get in contact with the service provider employers
should clearly identify the way they want the scheme to work and being operated.
Informed employers, that is to say employers who have a good knowledge and
understanding of the systems available and of their tools functionalities, are
unlikely to face unwanted and unexpected problems along the way.
Staff data
administration represents an additional important and costly part of flexible
and cafeteria benefits plans development. In order to control the cost
associated with this aspect employers should establish a direct and firm link
between HR and payroll database and staff benefits communication portal
(Morris, 2010).
The remarkable impact of the costs associated
with the development and implementation of these benefits arrangements is
rather evident, insofar as those who hold the organization’s purse strings are
more often than not extremely tentative about their introduction. The
development of tax-efficient plans including benefits offered by means of
salary sacrifice can definitely contribute to render these programmes
considerably less expensive. This approach may in fact enable both employers
and employees to benefit of fiscal advantages in terms of National Insurance
contributions.
Employers would benefit
of a NI contribution decrease as a consequence of the reduced amount of the
gross salary paid to employees, whereas employees would in turn pay a reduced sum
of NI contributions in that these would not pay any contribution for the salary
sacrificed (Barton, 2010).
It actually depends
on how organizations develop their schemes. Employers can save some money at worst
or finance the overall schemes by NI savings at best.
These benefits arrangements
definitely represent rather complex systems and require a considerable amount
of efforts; during their development and implementation unexpected events might
always happen. As suggested by Morgan (2010), employers should hence invariably
be prepared to “expect the unexpected” and be ready to allow extra budged and
extra time in the case events should take an unexpected turn.
The remarkable
impact made by the cost of designing and implementing flexible benefits schemes
has been recently curbed thanks to the latest technological advances. These
plans remain notwithstanding very demanding, but savvy and tax-efficient
schemes can enable employers to reduce, whether not completely eliminate, the costs
normally associated with them. The efforts and costs typically required by these
arrangements should ultimately be assessed duly taking into consideration the
objectives of the scheme and the benefits it is intended to provide to the organization.
Whether the attainment of these objectives can effectually help a company to
achieve its reward strategy and hence the overall HR and business strategies,
these would definitely be well worth the efforts they require.
These programmes have
to be considered as an integral part of total reward packages and not just as per
se programmes or even worse as a fad or something to develop and introduce into
an organization just because competitors do. Should that be the case, they would
soon prove not to be worth the efforts they require to be designed and
implemented and would be consequently promptly withdrawn by employers.
