The complete guide to employee benefits

Employee benefits are a useful tool for businesses. As well as helping you to attract the top talent in your industry, the right company perks package can engage existing staff and encourage them to stay at your organisation. Recent research found that 94% of business owners believe better company benefits improve retention rates.

This guide takes a deep dive into employee benefits. Join us as we explain everything you need to know about company perks, including the different types, the tax considerations, the importance of creating the ideal benefits package, and the best benefits that you can offer to your staff.

What are employee benefits?

Employee benefits are any form of compensation that staff members receive outside of their base salaries. This includes a diverse range of intangible perks like flexible working hours, as well as more tangible gains such as performance-based bonuses and a company car.

Employee benefits examples

Anything that goes beyond an employee’s base wage can be considered a perk. As such, there are plenty of examples of employee benefits, including:

• Sales commission, bonuses, and staff awards;
• Involvement in profit-sharing and stock schemes (e.g. the John Lewis Partnership);
• Company cars and cash allowance towards travel;
• Company phones, laptops, and other tech;
• Free or subsidised accommodation;
• Internal staff discounts and discount schemes for other stores;
• Staff training;
• Occupational sick pay;
• Private medical insurance;
• Contributions towards eye care and dental bills;  
• Employee assistance plans;
• Gym membership allowances;
• Workplace pensions;
• Flexible working hours;
• The option to work remotely;
• Additional holidays and time off;
• Free or subsidised childcare;
• Free refreshments at work such as drinks and a fruit bowl;
• Free or subsidised meals at work;
• Office perks such as ping pong tables and breakout rooms.

Types of company benefits

As you may have gathered already, employee perks can include a diverse range of things.  Broadly speaking, these can be categorised into the following types:

• Healthcare and risk benefits;
• Additional compensation;
• Time off and workplace flexibility;
• Allowances and discounts;
• Workplace-oriented benefits (e.g. free refreshments).

Why employee benefits are important

Alongside staff retention, talent attraction is one of the top reasons to invest in employee benefits. Research from Glassdoor shows that prospective applicants value job perks: when asked about the factors that they consider in job ads, 63% of respondents cited benefits as one of their key criteria (just behind salary at 67%). 

Benefits are also key to making people feel valued and creating a culture that they love working in. As a direct result of this, a well-matched benefits package can foster greater engagement at work, increase productivity, and improve the performance of an organisation.

Whilst it might sound counterintuitive, offering the right company perks can actually prove to be a cost-cutting move. The Harvard Business Review reported on a survey that found 80% of employees would take new benefits over a pay rise. With a balanced approach and judicious selection of the right perks, your benefits scheme can curb rising staff wages.

The best company perks to offer

So, we know that the perks a business offers can have a big effect on its existing staff and recruitment process. That said, not all benefits are worth investing in. The key lies in creating a benefits package that employees in your organisation really care about.

To give you a general idea of the best employee benefits you can provide, we’ve pulled together a list of the most sought-after perks below. It’s worth noting that the benefits which employees are looking for have changed significantly in light of the pandemic, with a heightened focus on issues such as flexible working and mental health.

Based on a range of recent surveys carried out in the UK, the most attractive company perks include things like:

• Flexible work hours and remote or hybrid working;
• Improved parental leave and pay;
• Additional annual leave or the option to buy and sell days of annual leave;
• Bonus and profit-share options;
• Increased employer pensions contributions;
• Health and life insurance;
• Free eye tests and dental care;
• Free counselling or employee assistance service;
• Paid sick leave;
• Training and development, with a particular focus on mental health and resilience;
• Free refreshments;
• Games at work (e.g. ping pong and table football);
• Casual dress code;
• Help with debt management.

This list provides a useful starting point for when you come to plan your employee benefit scheme, but it’s vital that you run these ideas past your own staff before making any investments. Try conducting a job perks survey of your own. The easiest and most effective option is to ask employees to rank a list of benefits in order of importance – you’ll gain greater insights if you also give them the option to add any ideas of their own.

Are employee benefits taxable?

When getting to grips with the nitty gritty of employee benefits, a common question that crops up is whether they are taxable or not in the UK. It’s essential that you understand the tax implications before introducing a new benefit.

All additional compensation perks – i.e. those paid in cash such as bonuses – are taxed. These types of cash benefits are treated as earnings by HMRC, so employees will be taxed and pay National Insurance on them. Certain other benefits such as cars, living accommodation, and medical insurance are also taxable (more on these below).

Some employee perks are tax-free. Your staff won’t have to pay any tax on free meals and refreshments at work, company phones, or workplace parking.

Tax on company cars

The tax on company cars is based on the value of the car and the type of fuel it uses, with electric and hybrid cars taxed at a lower rate than petrol and diesel. If an employee only uses the vehicle part-time or pays towards the cost, this will likewise lower the taxable amount. 

Use the HMRC company car and fuel benefit calculator to estimate how much tax staff will have to pay.

Tax on accommodation

In situations where you provide free accommodation to employees, they may have to pay tax if the value of the property is more than £75,000. The tax obligations take into account the cost of the accommodation as well as: 

• Council Tax;
• Water and sewerage charges;
• Heating, lighting and cleaning costs;
• Repair, maintenance and decoration costs;
• The price of furniture;
• Staff costs including gardeners and cleaners.

Visit the Government’s ‘Expenses and benefits: accommodation’ page to learn more.

Tax on company medical insurance

If you’re planning to offer private medical insurance as part of your benefits package, bear in mind that your staff will pay tax on the cost of the insurance premiums. There are some exceptions to this, including:

• Medical insurance whilst abroad;
• Annual health checkups.

For more information and guidance, check out the gov.uk ‘Tax on company benefits’ page.

Tips on managing your company’s benefits

Conducting your initial research into company perks is only half the battle. Once you’ve gathered your employees’ views on the benefits they’re interested in and looked into the tax implications, there are a few more final points to consider before the implementation stage.

Strategic fit and organisational goals

How well do the proposed benefits fit with your existing HR and rewards strategy? Are you clear on the organisational goals that each company perk is designed to achieve? As part of your cost-benefit analysis during the decision-making stage, assign specific objectives to each of the potential new employee benefits and consider how well these align with your existing goals.

For example, bringing in a new training programme might help you to increase engagement whilst also equipping your teams with skills that will help the business to develop in key areas. On the other hand, a more flexible approach to working hours could be the key to upping employee loyalty and mitigating issues with staff churn.

Planning the introduction of a new benefit

Right from the outset, start thinking about how you might introduce a benefit and the resources that will be required (both human and financial).

Depending on the size and scale of the new company perk, you might need to pull together a small team of people who will take ownership of its implementation. Adopting a new approach to pensions could be the perfect means of motivating your mid-level managers, but this will take some careful planning – you’d need to consider whether there’s anyone in the business with the time and skills to oversee a project like this. 

Communicate!

With the people side of your plans taken care of, you can move on to the single-most important aspect of launching a new employee benefit: communication. Even the most attractive of perk schemes can fall flat on its face if no one in the company has heard about it. The last thing you want is to invest in a new service for your teams only for it to go under-utilised.

Make sure that the new benefit is signposted in all of the usual places well in advance of the launch. The more you shout about it, the better the uptake will be, so post announcements around the workplace as well as utilising your main digital communications channels. On top of this, don’t forget to highlight your updated benefits package on all new jobs listings! 

Assessing the impact

Once your new company perks have been rolled out, the final step is to assess the impact and feed this back into future HR and rewards decisions. You’ll initially just be looking to make sure that your staff are making use of the benefits (and this will be partly down to how well they’ve been communicated in the first place). 

At a more strategic level, there needs to be some way of measuring the extent to which your organisational goals have been achieved by the perks. If you set out to improve staff loyalty, you could investigate the effect of the new benefits on employee churn over time. Other objectives such as increasing engagement may be more difficult to assess, but you could achieve this by looking into the impact on productivity.

This guide has explained everything you need to know about employee benefits, from the perks that people care most about to the tax implications and implementation process.

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