Strategies for a competitive and cost-effective employee benefits package

Published: 31 October 2024 | Paula Flores, HR data insights analyst at Brightmine

Employee benefits have evolved significantly over the past few years, going beyond basic offerings such as health insurance and annual leave. Today, they can range from perks like wellness programmes to complex offerings such as matching contribution pension schemes. But with budgets stretched and costs rising, how do you make your organisation’s money go further — and make sure employees really feel the benefit?

A well-rounded benefits package is essential for any organisation looking to stay ahead in today’s competitive labour market. Research shows the increasing impact of a strong benefits package, even at the recruitment stage of the employee life cycle. In a recent study, more than half of respondents agreed with the statement that “they would likely accept a job offer with slightly lower compensation but a more robust benefits package”.

Despite this, many organisations, particularly at the senior leadership level, fail to fully understand the value of a strong benefits package as part of an organisation’s total reward strategy. As such, responsibility often falls on HR professionals to make a compelling business case, showing not only the value of offering a good package but also its return on investment (ROI). A survey by Innecto Reward Consulting found that 56% of HR professionals believe their organisations need to better understand the ROI from their current benefits offering.

So how do you create a competitive and cost-effective employee benefits package?

Set objectives to align with business goals

An essential first step is to set clear objectives, which need to be aligned with the organisation’s overall business goals. For example, a well-structured benefits package can improve staff retention: employees are less likely to leave if they feel supported and valued. This is especially critical in sectors facing skills shortages and high competition for talent. Similarly, for candidate attraction, offering strong benefits shows prospective hires that the organisation is committed to their wellbeing and performance. Happy and supported employees are often more engaged and productive, leading to lower absenteeism and higher workplace satisfaction.

Make sure you have a competitive offer: Doing more with less

In the Brightmine (formerly XpertHR) employee benefits 2024 study, respondents mentioned that one of their main business priorities was reviewing their organisation’s benefits offering in order to achieve a more competitive reward package.

In practice, a “competitive benefits strategy” will mean different things to different organisations. Generally, it entails offering support in all aspects of an employee’s life — work-life balance; physical, mental and financial wellbeing; and even impact on society, e.g., volunteering days.

1. PMIs, EAPs and more

One of the main challenges HR professionals face in offering competitive compensation packages is the rising cost of benefits, especially providers’ fees. For example, the median cost of single-cover private medical insurance (PMI) has risen from £700 to £741.45 in just a year. As costs increase, many organisations are re-evaluating their provider contracts and the fees charged on a more regular basis. In a competitive marketplace, it’s essential to keep options open and consider different providers to secure the best deals. Additionally, some organisations are adjusting their offerings, moving away from comprehensive PMI policies and exploring more affordable options like healthcare cash plans, which can provide coverage to a larger portion of the workforce at a lower cost.

Participants in a recent focus group conducted by Brightmine and Innecto also suggested that a deep review of benefits’ policies can unveil cost-saving opportunities. For instance, PMI policies often include additional perks such as gym membership discounts or access to Employee Assistance Programmes (EAPs) and counselling services. By taking advantage of these built-in benefits, companies can eliminate the need to purchase services separately and so streamline costs.

2. Salary-sacrifice schemes and strategic partnerships

Salary-sacrifice schemes are another effective way to help employees stretch their compensation further. By allowing employees to benefit from tax savings, they offer flexibility in shaping individual remuneration packages. For employers, this approach can translate into indirect cost savings while providing a wider range of benefits to staff.

Organisations are also in a position to negotiate cost-saving partnerships with other businesses. Collaborations of this kind can lead to benefits that directly pass savings onto employees, from discounted meals at local restaurants and coffee shops to more substantial deals, such as corporate discounts on products and services. As an example, securing corporate rates for a health cash plan or insurance, even without a direct contribution from the organisation, can provide significant savings to employees compared to what they would otherwise pay.

3. Improved flexible working arrangements

Flexible working arrangements have become one of the most desired employee benefits. Flexibility accommodates the needs of a diverse workforce, such as caregivers, parents and those who simply prefer a different working pattern. For many employees, the ability to adjust their work schedules is as valuable as, if not more valuable than, traditional benefits like healthcare or gym memberships.

To find out the kinds of benefits organisations offer, check out our Benefits A to Z.

One size does not fit all

With a generationally diverse workforce — from Baby Boomers to Generation Z — sharing the workplace, a “one-size-fits-all” approach to benefits is no longer appropriate. Hence the increasing popularity of flexible and voluntary benefits schemes.

A flexible benefits scheme allows employees to shape a package that contains the benefits most relevant to their current situation and lifestyle, changing them as their needs change. Examples include:

• Increasing pension contributions.
• Introducing holiday buying and selling schemes.
• Going beyond statutory limits for sickness or maternity and paternity pay.
• Establishing or increasing private medical insurance and/or income protection or health cash plans.
• Putting in place electric vehicle schemes on a salary-sacrifice basis.

See the most commonly offered benefits and benchmark your organisation’s offering.

Then there are “non-cash benefits” which may help employees live better and/or maintain their appeal as a caring employer. These include birthday days off, duvet days and hampers at Christmas.

Bridge the engagement gap

Organisations need to communicate the range of benefits available to employees in a clear and effective way since a well-defined offer will only be as successful as the employee engagement it achieves. According to an Innecto study, 82.5% of respondents reported that at least half their employees are not engaged with their benefits offer. More worryingly, the proportion increases when it comes to managers. So, even if organisations are looking to provide their employees with the best packages they can offer, the message might not always be reaching its intended audience. In fact, in the same study, 32% of respondents stated that most employees do not understand what their organisation offers in terms of benefits, which represents a missed opportunity for both employees and employers.

Communicate effectively

Participants in the focus group pointed out that a one-size-fits-all approach to communicating benefits was doomed to fail. Communication strategies need to encompass deskless as well as office-based workers. A variety of touch points is crucial.

Also fundamental is to consider the full range of the employee work cycle. Informing applicants in job adverts and during interviews is as important as embedding the communication into the onboarding stage for new starters and regularly highlighting benefits to existing employees.

In the Brightmine study, three-quarters of organisations use onboarding programmes to communicate their benefits, while more than six in 10 use emails and intranet pages.

Yet, communication is a two-way street, implying that organisations also need to gain insight into their employees’ needs in order to provide the best and most useful benefits. In our study, the top three ways employers decide which benefits to offer are:

• Benchmarking against industry standards.
• Engagement surveys.
• Exit interviews.

Other ways to increase engagement mentioned by participants in our focus group were face-to-face events — an initiative that is particularly well received by frontline staff. Organising a benefits fair also proved effective (albeit time-consuming to organise). A good idea is inviting the organisation’s providers to come in and talk about their offerings.

In a nutshell, defining, refining and communicating an organisation’s benefits package is crucial. The right strategy will not only attract talent but ensure a happier and more productive workforce. As important as defining the package is measuring its uptake and engagement, in order to understand the value it provides employees as well as its business ROI.