AS EMPLOYERS CONTINUE TO BATTLE with the ever-increasing challenge of maintaining and increasing employee commitment, it is essential that they demonstrate just how and what they invest in their people. More often than not, many employers spend a great deal of money in providing employee benefits, yet often their staff can feel undervalued. So why is this? Whilst there may be many reasons for this, a common cause appears to be due to poor communication of the benefits in place, leading to a poor perception of the value. It is no good spend-ing a great deal of money in providing the benefits if the people that they are intended for don’t understand what’s in place or what’s in it for them. The results of the 2002 UK@Work study suggest that for the third consecutive year employee commitment across the UK workforce has declined for the third consecutive year and highlighted the impact that benefits have on employees, with poor perceived value in terms of rewarding effort being a primary cause of reduced commitment.
Craig Lydiate, co-writer of the report, states that the key features of the UK@Work study relating to benefits are:
30% of employees report that their benefits package does not meet their needs or their family’s needs;
87% of employees agree that having a choice of benefits is at least “somewhat” important to them;
Of those employees that have a flexible benefits plan, more than two-thirds believe that their benefits expectations are met.
Whilst this survey was not specific to the Pharmaceutical Industry, it’s worth employers noting the key features.
It’s very easy to underestimate the real value of the benefits we are often provided with and sometimes it is only when we leave that we realise that actually what we had was in fact very good. The dilemma for both employers and employees alike is whether or not they are both satisfied that the benefits provided achieve the desired goal. The pro-vision of employee benefits can sometimes be so good that they become restrictive as employees may feel that they can’t afford to leave, often referred to as “Golden Handcuffs”.
Historically, the main areas of focus for employee benefits were on the big three; pensions cars and holidays. Nowadays the focus is not necessarily on what is provided but more about how they are provided and can be summarised as:
Traditional tending to be the more standard and the same is provided to everyone within the company
Flexible which allow for increasing and decreasing the levels of cover
Voluntary whereby reduced premiums have been negotiated by employers for their people and normally result in their employers approaching the benefits providers directly
To help you assess whether or not what you may have is truly a benefit to you, we have set out to explain what benefits are available and so you can determine their value to you and in many cases to your family. So come with us now on a whistle stop tour of what may be on offer in the following charts.
| whats in place | what they are | points worth noting |
| Pensions | In a previous article in PF we covered this topic so we won’t go into too much detail here other to clarify the various types: | It’s not always about what you contribute but more importantly the level of contributions that your employer is able to make to your fund free of tax. This can be a significant financial benefit, which should not be over-looked. |
| Occupational Schemes | Employers are not obliged to operate these schemes. Where they do they are either Defined Benefits Schemes or Defined Contribution Schemes or a combination of both. Defined Benefit schemes means that the pension payable is related to the employee’s salary. In most cases, such schemes are based on the employee’s salary shortly before retiring or ceasing to become a member. Under defined contribution schemes (also known as Money Purchase Schemes) the pension is based on the amount of contributions attributable to the employee when he or she retires. | Employee’s can contribute up to 15% of earnings Pension is limited to two-thirds’ final salary after either 10years or 20 years depending on date of joining. Can provide for up to two-thirds’ of members maximum pension. A lump sum can be payable of up to one and a half times final salary (after 20 years service) Death in Service benefits can be up to four times salary plus refund of employees’ contributions In addition employees may contribute additional voluntary contributions (AVC’s) to top up their pension funds |
| Personal Stakeholder Schemes | Personal Pensions are always based on the money purchase principle. Such schemes are now a mandatory provision where an employer has 5 employees or more and does not operate an occupational pension scheme. | Employee’s earning less than £30,000 pa, can obtain tax relief on contributions of up to £3600pa |
| Insurance based schemes | Many different insurance schemes or available the main ones are as follows: | The main plus point of these types of benefits are that they provide for peace of mind and a significant financial saving. |
| Life Assurance Schemes | These can provide for anything between two-times and four-times your annual salary and are payable to your next of kin or nominated individual in the event of your death. | This is a tax-free benefit that naturally is of greater financial benefit to your family. You can make a saving asyou will not need to spend extra money on the life insurance element of some mortgages, as you’ll have this provided to you free by your employer. |
| Long Term Disability Insurance or Critical Illness Insurance | These schemes normally kick in after a qualifying period and can pay you up to 75% of your base salary less the state disability allowance and last for the duration of your illness. | This really is an excellent benefit that is often taken for granted as naturally we hope that we will never need it. Try purchasing your own personal equivalent and you’ll get a great idea of just how much this is worth to you. |
| Private Medical Insurance | These schemes normally apply from day one however; sometimes it can be that they apply on completion of a probationary period. The level and types of cover really do depend on what has been negotiated. Cover may be offered in a variety of ways; either free of charge to theemployee only, employee and spouse only or employee and family. Alternatively, in the case of flexible benefits it might be offered free to employees but with a reduced premium payable for spouse or family. | Even if you are only eligible for individual cover it will still be a huge saving if you have to pay for the additional spouse or family cover as the purchasing of private medical insurance directly can be a costly exercise. However, whilst the actual cost of treatment will be a significant saving, don’t forget that you will pay tax on the provision of this benefit. |
| Employee Share Schemes | Generally speaking there are four types of share scheme available to employees in the UK, all of which have tax benefits attached to them | If you can afford to save some money then these are excellent ways to take full advantage of the tax-free provisions and make your money work for you. |
| Company Share Options plans | Such schemes must be approved by the Inland Revenue and to qualify for tax relief. Under an approved scheme no income tax is payable either when the option is granted or exercised. Plans allow for employees at some future date to purchase shares in their company at the current price. | Options must be exercised between 3 and 10 years after it is granted. The maximum market value of shares over which an option can be granted is £30,000. The price paid for the shares must not be less than the market value of the shares when the option was granted. Shares often require their sale when the employment ends. |
| Savings Related Options Schemes | Often referred to as share-save schemes. These allow employees to be granted options to purchase shares at a future date and at a fixed price, normally not less than 80% of their then current value. At this time employees enter into a savings scheme, which they can use to purchase the shares when they exercise their options. Savings contracts are normally for either three, five or seven year periods. | Normally to be eligible for entry into such schemes employees must have completed at least fives years service with their employer. Schemes normally have a minimum monthly payment that should be made and the Inland Revenue will permit employees can make a monthly saving of up to £250. At the end of the three, five or seven year period, the savings attract a tax-free bonus will be payable as follows: |
| Profit Share Schemes | Profit-Share schemes effectively allow for the share to be held in trust for employees for a period of 3 years. Having done so they can then be sold free of tax | Whilst many schemes do still exist the government are phasing these out so no new schemes can now be registered |
| Share Incentive Plans | Share Incentive Plans, formerly known as All-employee share schemes enable employees to be given free shares in their company. In addition they can also buy additional shares and may be given up to two free “matching” shares. | Employers are allowed to give employees up to £3000 of free shares free of tax. Shares will remain free of tax provided that they are held for at least 5 years. Free or “matching” shares must be held for at least 3 years however, if the employee leaves, schemes can dictate that the shares can be forfeited. |
| Company Cars | Speak to anyone who has had a company car for years and they will often comment that the “benefit” of a company car is not such a “benefit.” | Whilst it is true that the taxation provisions have certainly become much more stringent over the past few years, it can still work our much cheaper than owning your own. Especially if you drive more than 18,000 business miles in a year. |
| Company Car | The taxation of company provided cars is assessed as a percentage of the list price and from the tax year 2002 / 2003 onwards the percentage of the list price depends on the level of carbon dioxide emissions and ranges from 15% to 35%. | When choosing a company car the best way to keep your tax liability down is to select cars that come with all the extras included in the list price. The other must is make sure you inform the Inland Revenue as soon as you acquire a new car or change your existing car. By telling them straight away you can ensure that your tax code is amended immediately and avoid a hefty tax bill at the end of the tax year. I didn’t one and ended up paying more in tax each month than I took home for a period of 6 months, it was a lesson I’ll never forget! |
| Holidays | The introductions of the Working Time Regulations (as amended) have in effect lessened the perceived benefit of paid holidays, as now it is an entitlement. | However, in order to stay ahead of the competition and to encourage the home work life balance, there is a shift towards higher allowances, which can be achieved through employee purchase schemes and trade offs between this and other benefits. |
| Holidays | There are too many variations of entitlements and how they operate to mention. | The greater the entitlement and flexibility will certainly enable you to balance the ever increasing demands of home and work. |
| Voluntary Benefits | Some companies supplement their existing benefits with an array of voluntary plans. In essence these are options, which don’t usually form part of the conventional benefits plan. Examples of the types of benefits that can be provided on a voluntary basis are: Health club Membership | Whilst such options are not usually funded by employers they are facilitated by them though, for example the making of payroll deductions to ease with individual administration. Many of these exist and are not widely publicised within companies so check out your staff notice boards and intranet sites to see what may be in place. |
Last but not least, don’t forget the good old staff canteen. Of all the benefits that may be on offer it has to be the one that comes under the most pressure!
Make sure that when you join a company you fully understand what’s on offer and any qualifying conditions that may be in place and join any deferred entry schemes at the earliest opportunity as your delay could result in you losing out.
So hopefully you’ll now have a better idea of what may be on offer and can now consider the perceived value to you. It is often not necessarily the cost of the provision, which determines it worth, but what they may be able to enable you and your family to do.
