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Flexible Benefits

There is no standard definition of what Flexible Benefits are. Even the name used varies e.g. flexible benefits, flex, cafeteria benefits, self-service benefits, etc. However, the principle is clear. In a flexible benefits plan, employees have some discretion to vary the mix of their remuneration package, within certain parameters. Example of changes would include:

• Declining a particular benefit and taking a cash alternative (e.g. turning down a company car).
• Opting for a lower level of benefit (e.g. taking private medical insurance for self only, not family).
• Opting for a higher level of benefit (e.g. purchasing additional holiday).
• Requesting a benefit not currently provided but made available under the plan (e.g. childcare vouchers, dental insurance).

Varying packages in this way may involve trading value between different benefits and/or between benefits and cash. Any changes are made within the parameters set out by the employer.

Plan Architecture

There are various ways that a flexible benefits plan can be structured. Some differences are substantial and others are of more consequence in terms of communication and/or administration. The key objective is to find a design which meets the business need, is attractive to employees, can be understood by them and which you have the resources to operate.

Below, we outline the main approaches:

Individual plans operating independently

Under this approach there are a series of flexible benefits which operate independently and where the choices in each benefit impact cash earnings only. For example, a company may choose to operate:

• A flexible holiday plan with choices made at the beginning of the holiday year.
• A private healthcare scheme under which employees choose the level of cover annually.
• A flexible pension scheme with choices made annually.
• A flexible car scheme with choices made on recruitment / replacement.

This approach is simple and pragmatic and is relatively easy to introduce and administer. The disadvantage is that impact may be limited, as employees may not consider that they belong to a flexible benefits plan. However, the impact can be enhanced by use of communications and branding.

Individual plans as part of an overall architecture

This approach is similar to that described above, in that each benefit operates independently with the impact of trading up/down being reflected in the individual's cash remuneration. However, in this model there is a unified approach to communication and to making choices under the plan. This approach is likely to require more implementation effort than independent plans but may have a higher level of impact.

Flex Fund

Under this approach an employee has a fund of money to spend on benefits. This is sometimes described as a cafeteria approach and is often the type of scheme that people envisage when talking about flexible benefits. The fund may comprise:

• Total remuneration;
• A percentage of salary; or
• A specific fund related to grade.

The fund may be presented as pounds or points. The choice will depend on the ease of communication, the emphasis of the plan and the degree of pricing flexibility required.

Generally, 'core' compulsory benefits (e.g. life assurance, a minimum number of day's holiday) need to be maintained. These can be provided independently or may have to be purchased from the fund.

In addition, under this approach, a decision needs to be taken whether any 'surplus' in the fund not spent on benefits can be taken as cash.