Sunday, 20 November 2011

Are flexible and voluntary benefits schemes worth the cost and efforts they require to be designed and implemented?

The activities required to properly design, develop, implement and maintain flexible and voluntary benefits schemes are definitely quite demanding. The process necessary to introduce a new plan habitually requires between three and twelve months (Furness, 2006). It is thus absolutely comprehensible that employers prior to introduce these arrangements want to be sure that these will be valued and appreciated by their staff. This requirement assumes an even greater importance to employers by reason of the current economic scenario, dominated by a high degree of uncertainty. Organizations are constantly prompted to face growing economic hardships so that attaining an adequate ROI on every expense incurred and developing schemes which are worth the efforts required to introduce them definitely represent the prime objective employers need to meet (Lovewell, 2011).

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.
Longo, R., (2011), Are flexible and voluntary benefits schemes worth the cost and efforts they require to be designed and implemented?; Milan: HR Professionals [online].