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Hi, I'm GM Dre Call. I'm a director with Zette's Wealth Management, and I'm joined by my colleague, Lenard Burnley, who is the head of employee benefits for Zette's Wealth Management. Hi, Len.
Hello. So, starting our discussion today, which is about employee benefits, why don't you start by telling us a little bit about employee benefits and why they're useful?
Yeah, so employee benefits essentially are ways that employers can remunerate employees via alternative arrangements within their business. So, typical examples of workplace employee benefits are things like your workplace pension, your group life insurance on behalf of your employees, group criticalness, group income protection, private medical insurance that you can put in place for your employees. Um, and the reason why employee benefits are so sought after these days is because they're a highly efficient, tax-efficient way of delivering what is essentially a benefit employees would have to pay for out their own pocket via an organization, and it's tax-relievable.
And do you find that you're getting a lot more demand for it in the current climate?
Yeah, there's a, there's a huge demand. Um, we're in a very competitive labor market, a lot of movement of employees between organizations. So, employees are constantly trying to think of ways whereby they can innovate and deliver great benefit programs to keep employees who they already have, attract talent, um, and accurately reward people. Um, one of the big things we're seeing at the minute is a real change in private medical insurance, and it has been the case for a couple of years. Um, because of NHS wait times, private medical insurance has become incredibly in-demand. With a lot of employers approaching our team internally to essentially say, "Can we look at getting the scheme set up to protect our employees?"
What are the benefits to optimizing your employee benefits package?
There are two main benefits to actual optimization of a benefits program within an organization. The first one is going to be, um, cost-oriented. So, as an organization, you may have a benefit spend that you're willing to use every single, um, accounting year on behalf of your employees. So, it's really important that you make sure that that benefit spend is utilized as effectively as it possibly can be on behalf of your employees to ensure that you're getting the maximum return based on what you're actually spending your money on as an organization, especially in times right now where employers, more than ever, are keeping an eye on cost. The second really good thing about optimization is it's often a call to arms to have a conversation with employees around the benefits you offer, how they're ultimately structured, and then just that really open dialogue with employees of saying, "Listen, we have a huge number of things that we can do for you guys as employees. Um, these are the things we're thinking, but actually, what do you think? What would you value as an employee? What's really going to make you get up in the morning and think, 'Actually, you know what, I'm really well rewarded at my current employer because they listen to me and they value my opinion'?" So, just helping with engagement across the organization through something that they have to do anyway.
Yes, brilliant. How do you decide which benefits best fit your business?
It's, so it's a really good question. I, I think there's a really good consulting piece that needs to happen internally within the business. Now, if you're a large business and you have a benefit and rewards team or a really knowledgeable, um, HR team, you can obviously do this yourself. Um, if you're a smaller organization, or even if you're a large organization, you want consultation and help, you reach out to a professional intermediary like ourselves. But the, the big thing around how you, how you optimize a benefits package is fundamentally one of consultation, of understanding what the unique needs of the organization are, what the demographics are, what the potential budget is for a benefits program, and ultimately, what your key objectives are as an organization. What fundamentally are you trying to achieve on behalf of your employees and on behalf of your business? Um, and then taking those objectives forward to the market and sourcing the relevant benefits.
Len, what are the difference between contractual and non-contractual employee benefits?
Recently, I just had this conversation with a colleague and our HR consultancy team. So, contractual benefits are benefits that are either mandatory by law, e.g., workplace pension, um, legislation via automatic enrollment. But there also, um, there's also a potential, and a lot of employers don't realize this, that they make benefits contractual when they put them into contracts of employment. So, for example, if an employer says, "We're going to provide group life insurance at three times salary," for employees within their contract of employment, they have made that a contractual benefit, and in order to vary or remove that benefit, there needs to be employee consultation. Non-contractual benefits are simply benefits where there's no contractual obligation to provide them. So, for example, you might provide that same life insurance benefit, but you might not state it in the contract of employment. Um, and there's also a third type of benefit, which is actually voluntary benefits. And voluntary benefits are typically, um, benefits which you can set up on behalf of your organization to give your employees access to them. And generally, the reason they're voluntary is employees can choose whether they want to join them. And because they've been set up by the employer, there's often a commercial discount attached to the benefit, meaning that if you applied for the benefit within your organization, you're typically going to get a stronger rate as an employee than you would if you went out to the market and sourced that benefit as an individual.
When employee benefits and salary exchange appear to go hand in hand, can you elaborate a little bit more on that for me?
Yeah, of course. So, obviously, sourcing employee benefits and having the right benefits in your organization is one thing. Making sure those benefits are, um, attractive from a tax relief point of view is another thing. So, what salary exchange fundamentally is, is it's a way of providing certain benefits, subject to UK tax law, um, and making them relievable from a National Insurance point of view. Um, so a really good example is workplace pensions. If you operate a workplace pension scheme and collect your employees' portion of the workplace pension contribution via pension salary exchange, what you're essentially doing is changing the mechanism by which the pension contribution is collected, and you're doing it in a way that ultimately makes it tax-relievable from a National Insurance perspective for both the employer and employee, saving money on both sides.
We always like saving money, don't we? No harm in that. When could a salary exchange be used?
There's a huge amount of legislation around, um, salary exchange and how it can be used with benefits, but I won't go into that today. I, I think I'll cover the three main things that we see as an organization. Um, the first one is pension contributions. Pension contributions can be collected via a pension salary exchange arrangement. The other two that we typically see are cycle-to-work schemes and, um, low-emission vehicles or electric car schemes. Um, those under the current UK rules are absolutely relievable under the pensions, under the salary exchange rules.
There's been a lot in the press lately, um, with regards to paying for nursery care fees. How does that work in terms of salary exchange?
So, there was legislation. My, and my colleague, Claire Williams, and our employment tax team has written, um, a really good article on this recently. But there is a way for, um, organizations to essentially collect via salary exchange, um, fees for professional nursery care. However, there's a huge amount of legislation, um, and specific rules that make that specific transaction viable under a salary exchange arrangement. What I would always say is, um, commercially marketed nursery schemes need to be approached with caution, and you should always look into the fine print. And if you have any queries as an organization around whether a nursery arrangement using salary exchange is viable, you should always seek professional advice.
I think that's great advice because it's, it's such a high expense. I, speaking firsthand, I know just how expensive private nursery care can be when you're, you're, when you're looking after your children. So, you don't want any, any problems to come up across the board from that one, do you? So, yeah.
Are there any tax implications of using a salary exchange scheme?
It's hugely tax-advantageous. Um, ultimately, the, the key thing about salary exchange is making sure that you have the, um, contract of employment amendment correct, and you make sure that that's agreed and signed, and that you have that documented. Um, but no, they're, they're a great arrangement. They're highly efficient. HMRC allows them to exist in order to promote certain types of benefits, i.e., um, pension contributions. There's a huge pension deficit in the UK. Um, you know, using salary exchange is wonderful because it means that actually, it makes pension saving even more tax-relievable and even more efficient, uh, which is obviously on the government's agenda right now. Um, and obviously, the low-emission car schemes are obviously also on the government's green agenda, which is very much why they are tax-relievable as well. You know, there's an awful lot of strategy around this from a government point of view, and if something's tax-relievable, it's generally because the government are trying to make it, you know, part and parcel of the normal UK economy.
Electric vehicles for a business fleet are a really common talking point right now. Um, are they a beneficial thing to have?
Yeah, they're absolutely amazing, um, especially if you can get, if you can get the admin resource within the business to get the scheme set up because they're, they're free to an employer. There's obviously a fair amount of admin that goes into them. You know, there's a lot of consultations that go in with your electric vehicle, uh, provider of choice, um, and you need to make sure that you have your Ts and Cs agreed and your commercial agreements agreed with them. But from an employee perspective, they're incredibly tax-efficient, and from an employer perspective, they're an amazing benefit to have. They just take a little while to get set up. Um, our specialist team at Zette deals with electric vehicle setup all the time. We are specialist providers that we work with in order to accomplish this on behalf of clients.
That's fantastic. And it doesn't just go beyond the tax breaks as well, because there's also the ESG element that a lot of companies will be interested in about being able to move away to a low-carbon or a no-carbon footprint from having electric vehicles as well.
Absolutely.
Then, what are the main things that employers should be considering when they're reviewing their employee benefits package?
I, I think the main things that any organization needs to take into account is what's their spend on benefits and has it been well utilized? Um, what benefits do you have? Are they appropriate for the members and the demographics that you have? Are they being utilized? Are they engaging benefits? What's the take-up rate? You know, have you had any issues with the providers? Do you have existing broker relationships? Are you being well-served in those broker relationships? Do you understand exactly how your benefits work, and more importantly, do your staff understand exactly how your benefits work? And because of that, do they appreciate what you, as an organization, do on their behalf?
And imagine, for you, a lot of the professional expertise and experience that you bring to bear with this will be very helpful because you're so familiar with the marketplace and you're able to really discriminate a difference between where something's working well, where it might not be working as well, and that the benefit of your experience will help there, imagine.
Yeah, there's, there's not much our specialist team haven't seen internally within Zette from a benefits point of view.
MH. How does your team within Zette Wealth Management support employee benefits?
Yeah, so we're a whole-of-market, fully independent as a team. So, our, our approach is one of, um, being consultative. So, we'll always engage with employers, with, with the senior leadership teams, key stakeholders in the businesses. We'll have an initial scoping out conversation to understand that business, its unique needs, its unique objectives. We'll then do a review of any existing benefits that they have to understand what they have in place, how is it costed, what's the take-up rate, what's the engagement rate of the benefits. And then we'll provide some recommendations and thoughts to our clients around actually, what would we potentially suggest might change, or potentially what needs to stay the same. Um, and then ultimately, it's up to our clients around how they want to engage moving forward from there. You know, do they need any more professional expertise, or are they comfortable with what they've got and need nothing further?
So, what common themes are you seeing right now in the employee benefits arena for the organizations that you support?
Um, so for, for clients who are new to us, that come to us, um, seeking consultation, we're seeing a lot of clients who don't really understand how their workplace pensions work, um, where they're commercially priced in the marketplace, what value they're delivering on behalf of their employees. We also see from an insurance point of view, from a group life insurance perspective, um, that some of the schemes that have our clients have had historically set up, um, perhaps either directly with the brokers or via another, um, pro, via another benefits broker, maybe haven't been set up, um, exactly in the way that is akin to the way that those employees need the benefits set up from a technical perspective. We're also seeing a lot of HR teams go directly to, um, private medical insurance providers, which is quite interesting because private medical insurance is a benefit that ultimately, to have a broker attached to your private medical insurance scheme is free to you as an organization. It costs you no extra to have a professional intermediary attached to your private medical insurance scheme. And if you don't have a professional intermediary attached, you're having to find the resource within your own business to ultimately service that scheme, add new members, answer any employee queries. It's just a bit of a, it's just a bit of a misstep for an organization, you know, because they can get all this free support, and often they don't realize that it's there.
Yeah, I'd imagine experience from your team will be really helpful there as well, because if you're dealing with private health policies all the time, you'll be able to understand what would be a better fit for an organization rather than just coming cold at it.
Exactly. And, and just from a purely administrative perspective, we can take that away from HR teams who are already busy enough and who realistically don't want to be answering queries on private health insurance. Our specialist team will take that all, all in.
And generally, thank you very much for your time. That's really informative. If you would like to discuss anything with respect to employee benefits, please do speak with Len Burnley and his team at Zette Wealth Management Employee Benefits. Thank you.
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