The upsides (and downsides) of employee benefits – a race to the top

25 – 28 September 2023 is International Week of Happiness at Work. According to the initiative’s manifesto: “Happier employees are more involved, more productive, more cooperative, more creative, and more innovative. They are less likely to call in sick and there is a decreased chance they will experience a burnout.” 

One of the key ways in which employers can improve employee happiness, motivation and productivity is through a generous and well thought through benefits package. Benefits are also a crucial element in attracting and retaining talent. 

What employee benefits are employers offering?

Traditional benefits include health insurance, life assurance, company car allowance, enhanced pension contributions and holiday allowance.  

However, the employee benefits landscape is evolving rapidly to meet the changing demands of the modern workforce. Following the COVID-19 pandemic, employees are putting increased value on benefits that enhance family life, work-life balance and wellness. And the current so-called ‘cost of living crisis’ has prompted both employers and employees to place greater importance on benefits as wages struggle to keep pace with inflation. 

Employers are increasingly offering less traditional and more creative benefits to employees to stand out from the crowd in an intensely competitive jobs market. Examples include paid leave for menopause and menstruation (see our EmploymentLinks blog post), employer funded fertility treatment, relaxation treatments, personal training sessions, four-day working weeks without any reduction in pay (see our EmploymentLinks blog post), unlimited holiday (see our recent article published by techUK), contributions to the cost of home workstations, office-funded food and drinks, and even so-called ‘pawternity leave’ to care for pets.

Practical considerations

While non-traditional benefits can appear enticing from both employers’ and employees’ perspectives, their implementation can be problematic. 

Unlimited holiday is a prime example. On the one hand, this policy can improve employee satisfaction, motivation and well-being. It can also be an attractive benefit from a recruitment perspective. But in reality, employees may feel anxious about what the appropriate amount of holiday would be or be reluctant to take holiday for fear of being judged by colleagues as work shy. On the other hand, some employees could take excessive amounts of holiday, which would negatively affect productivity and cause employees to feel disgruntled where the policy is applied inconsistently. Where an unlimited holiday policy is in place, employers need to take an active role in ensuring that employees take sufficient holiday to satisfy statutory requirements, whilst also monitoring any misuse of the policy. 

Given the practical realities of offering novel benefits, employers should therefore give careful consideration as to why a benefit is being offered, whether it aligns with the company’s culture and values, whether employees will appreciate the benefit, and the impact that it is likely to have on the business. Employers may wish to seek employee input before committing to providing a benefit, for instance, via an employee survey.

The inflexibility of flexible (and other) benefits

It may be challenging for employers to alter or remove existing employee benefits, for instance, if they are looking to reduce costs. Some benefits may be clearly contractual (for instance, if they are referred to in an employee’s contract of employment) but other benefits can become an implied contractual term over time where there is an expectation that those benefits are provided to employees and are relied upon. 

Accordingly, when introducing new benefits, employers should make it clear to employees that the benefits are non-contractual and be mindful of the potential difficulties in revoking or downgrading the benefits in future - otherwise the employer could face claims for breach of contract, unlawful deduction of wages, and/or constructive dismissal. Even if an employer is legally able to remove benefits, doing so is likely to cause dissatisfaction amongst the workforce. 

Ironically, despite the fact that benefits may be introduced with the intention of improving employee engagement, if they are not implemented and monitored with care, employee relations and staff attrition issues may emerge. 

Other considerations

Once an employer has decided to introduce a new benefit, there are number of further things to consider, including:

  • ensuring that employee benefits are not applied in a discriminatory or unfair manner. For instance, the increasingly popular four-day working week concept should be accompanied by a commensurate pro-rated reduction for part-time employees.
  • in unionised workplaces, any changes to benefits may require negotiation with the relevant labour union.
  • if the benefits involve the processing of personal data (for example, financial data) or special category data (for example, health information), employers must comply with data protection laws, such as the UK GDPR, when handling employee data.
  • give consideration to any regulatory and tax requirements, for instance, for employee equity-based incentives.
  • if employees have transferred into a business under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), give consideration to the impact of misalignment of benefits between the business’ existing workforce and those provided to transferred employees. This is an issue particularly faced by acquisitive businesses, and any prospective M&A targets that are significantly inconsistent in their benefits offering may be less attractive to a potential buyer.

Innovative benefits have the ability to attract headlines and spark employee interest, but their superficial attractiveness can be at odds with the underlying complexity of implementation and continuation. If employee benefits are not handled with care, they also have the ability to create employee relations issues. Ultimately, there is great potential to promote happiness at work by introducing creative benefits, but they should be stress-tested to ensure they appropriately match employee needs and ideally implemented on a trial basis to check they are workable for the employer before being adopted permanently.