Sunday, 13 November 2011

Designing and developing flexible benefits schemes: key factors, legal aspects and the importance of communication

In order to design and develop consistent and effective flexible benefits or cafeteria benefits schemes, as they are also called and known, employers need to carry out a series of activities and gather some information whose importance could be crucial for the success of the overall project.

As suggested by Lovewell (2011) one of the first steps which should be carried out is profiling the whole workforce. This investigation will surely reveal to be useful both during the designing stage, in order to help and determine the most appropriate benefits to be included in the benefits’ catalogue and during the implementation stage, in order to identify the most effective and suitable communication method and approach in order to catch staff’s attention.

Another initial important decision employers have to take when designing a flexible benefits scheme is to determine the overall approach to the scheme, i.e. fully flexible, partially flexible or “parfully”, i.e. an approach in between the fully and partially flexible approaches. To this extent, employers should consider elements such as the total number of employees and how varied is the composition of their workforce.
Employers should then determine, if applicable, which benefits have to be considered “core”, i.e. which cannot be flexed and which benefits have to be considered “non-core” and can, consequently, be object of individuals’ choice.

Once “non-core” benefits have been indentified, the limit to their flexibility or inflexibility needs also to be determined accordingly.

In those cases in which a parfully approach has been identified as the most suitable for the organisation, the first thing to do is to design and develop the different benefits’ groups or “menus.”

Companies should also take decisions in respect of the opportunity or otherwise to state the economic value they associate with each specific benefit. Since associating a specific cash value to each benefit could make think individuals that they are paying for that benefit, employers could rather consider associating each benefit with a number of points (CIPD, 2010). Moreover, firms resorting to parfully schemes should remember that whatever the system in place, cash- or points-based, in the end the overall value of each package has to be the same.
Once the scheme has been designed and drawn up, it has to be presented to the people concerned. It is of paramount importance that the scheme has to be fully and clearly understood by the entire workforce. An ad hoc communication programme is definitely important and will surely turn to be useful and cost-effective. The profiling activity, carried out before the scheme designing process, will definitely help to determine the most suitable communication approach.
As suggested by the CIPD (2010) it is also of paramount importance that individuals concerned understand the implications of their choices. To this extent employers have to put in place methods making straightforward for individuals confirming their choices and, eventually, making future changes.

Businesses should also make it clear how many times, the frequency and at what moment individuals can change the benefits they have chosen. Usually, this opportunity is given once a year, employers can, nonetheless, decide, as normally happens, to allow individuals to modify their preferences at any time when particular events occur, such as: marriage or divorce, birth or adoption, a relative’s dead, long-term sickness absence, promotions and other such important events (CIPD, 2010).

 Another important decision employers need to take with reference to the implementation of a cafeteria benefits scheme concerns the format of the benefits catalogue: paper-based or online? Whilst the traditional paper format would be helpful in those organisations where not everybody works on a computer, this method implies higher costs of reprinting the catalogue every time a modification is implemented (CIPD, 2010).

Key factors for a successful scheme implementation
Although the phases during which flexible and voluntary schemes are designed and developed are definitely important for their successful implementation, consistent and effective flexible benefits schemes also require a good deal of attention as for what actually concerns their maintenance.

As the external environment is subject to constant changes, needs and preferences of individuals, which are deeply affected by those changes, are subject to change accordingly. Social factors, technological factors and even political factors can, in fact, all contribute to influence individuals’ mindset and push them to differently value the same benefit over the time.

Flexible benefits schemes need, then, to be constantly reviewed and kept up to date, with specific reference to the range and variety of the benefits offered. Inasmuch as assessing and reviewing preferences expressed by employees, by means of monitoring their demand, can enable employers to eliminate from the catalogue the undesired items, it could turn to definitely be less straightforward, on the other hand, to find out which new items eventually include. Staff’s surveys, focus groups and other two-way communication channel approaches could clearly help. At Aviva, for instance, before launching the “My Aviva Extras” scheme, the group HR Director held frequent web conversations with employees in order to find out which benefits they valued the most: needless to say, the scheme resulted in a great success.

As for the range of benefits which can be included in a flexible benefits programme the list could really be rather long. In general, the most popular benefits included in flexible benefits programmes seem to be: childcare vouchers, bike loans, mobile phones, car parking, health screening, work-related training, travel to work and meals or food vouchers (Employee Benefits, 2011). More recently, and thanks to the agreements cut by some employers with collective buying communities, also staff discounts on household bills are taking off. Organisations the like of Network Retail and Athos Origin have, by means of such agreements, already offered to their staff discounts on life essentials like food or fuel (Hemsley, 2011).

One of the most important aspects, arguably the most important aspect, to be duly kept into consideration is the fiscal aspect, i.e. the taxation regime in force for the different benefits which a business is planning to include in the scheme. The benefits included in the same programme are not all obviously subject to the same kind of taxation and it is also very important to be knowledgeable of which transactions can or has to be done via payroll, the advice and help of a fiscal expert are clearly necessary.

If accurately devised also contributions to an existing pension scheme can be offered to staff in the salary sacrifice forms in order staff having tax and NI advantages (Employee Benefits, 2011).

Legal aspects
One of the legal issues employers might easily incur in launching flexible benefits programmes relates to benefits accessibility. Ensuring benefits accessibility means that all of the benefits included in the catalogue can be equally accessed by all of the individuals composing the organisation’s workforce. In the event a particular benefit, such as, for instance, an insurance product or healthcare provision, could not be accessed by elder staff, this circumstance could be tantamount as, and provide scope for, discrimination claims (CIPD, 2010).

When designing and developing cafeteria benefits schemes, employers should also pay extra care to the age discrimination legislation in force and remember to monitor its future developments. To this extent, Naftalin (2006) expresses some concerns over the benefits and loyalty payments which increase with length of service. Such a mechanism, in fact, could provide room for indirect age discrimination claims, namely against younger employees. Another pitfall to avoid in terms of age discrimination legislation is associated with private medical insurance. Cover is, in fact, based on tables drawn up on the basis of age groups, in such circumstances employers should ensure that these tables have been prepared by actuaries and that the right age ranges have been included (Hutchinson, 2006).

Businesses introducing flexible benefits schemes should pay extra care also when updating terms and conditions of their contracts of employment. In order to avoid that employers should have to pay dismissed/resigned staff bills, in fact, contracts of employment have to clearly state that benefits provisions end with contracts’ termination (Furness, 2006). This is important both in those cases in which a benefit is provided to individuals on loan and when a voluntary benefit is provided with a salary sacrifice. In both cases employers should make clear, in the written contract of employment, that in such and similar circumstances is the employee and not the employer who is liable for the related cost associated with the benefits.

It must be said that flexible benefits schemes might produce far-reaching legal consequences, insofar as some of these could not even be actually expected. Also during procedures of staff transfer from an organisation to another, where the Transfer of Undertakings - Protection of Employment (TUPE) - regulation applies, benefits programmes have to be duly taken into consideration. TUPE regulation, in fact, states that employees transferred from an employer to another have to receive in the new organisation the same terms and conditions they received when working with the transferor (i.e. the previous employer) or, to put it in another way, transferred employees have to be entitled by the transferee to the same benefits they were entitled to when working with the transferor.
Employers should pay extra care to the legal aspects associated with flexible benefits schemes and should not hesitate to seek legal advice in order to avoid falling into the pitfalls linked to the programme.

As mentioned above, communication is of paramount importance for the successful implementation of the scheme. Individuals have to know the benefits on offer, the way the system works and the advantages it is intended to provide. Northgate-Arinso, for instance, in order to attain this objective, after having developed a cafeteria benefits scheme, developed a series of online micro websites in order to explain to their employees the real significance and value of the new programme (Hemsley, 2011).

Particularly important is also the kind of approach used to get the message across. The workforce profiling activity described above will surely turn to be very useful and effective to help in the process. Many organisations also provide individuals with total reward statement before launching the scheme in order to help staff to better understand the value of benefits (Furness, 2006). This approach has been adopted, for instance, at Panasonic Europe where in order to capture employee interest total reward statements have been used to illustrate people “what their benefits package is actually worth, alongside their basic salary (Mills, 2011).

Electing company champions can reveal to be a very effective way to spread information about cafeteria benefits schemes within the organisation. Basically the approach consists on training key employees on the benefits package mechanism and value in order them to explain these to their department’s colleagues. This approach is very likely to work in that information are spread by people that staff know and trust (Johnson, 2006).

Waller (2006) suggests that although a “phased process of communication and implementation can ignite employee interest”, today staff interest to benefits has declined and that is why employers are paying much more attention on generating awareness amongst staff before launching a scheme.

The implementation stage of a flexible benefits scheme is a very important phase and employers should take the right time this phase requires to be appropriately and effectively carried out. As suggested by Morgan (2010), in fact, rushing the implementation process means rushing in turn the communication process with the likely risk that staff will not understand the value of the employer’s proposition.

Longo, R., (2011), Designing and developing flexible benefits schemes: key factors, legal aspects and the importance of communication, HR Professionals, Milan [online].

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