Many benefits are offered only to senior employees, but why? Extending certain perks to a wider audience can make HR and financial sense through improved ease of access, worksite marketing and economies of scale. Emma Page reports.
In its Comprehensive Spending Review, the Government made it clear that it will be looking to individuals to become responsible for their own welfare and protection, and it is increasingly pushing financial protection responsibility towards employers as well as employees. Yet only one private-sector employee in 10 in the UK is covered by income protection (IP) provided by an employer.
Insurers are aiming to grow the UK group-risk market by making IP, life and critical illness insurance cover more accessible to all workers. Unum's Foundation level of IP cover pays up to 60% of an individual's salary, to a maximum of £350,000, and offers a range of deferred periods and benefit terms from six months to a maximum retirement age of 70. This budget-conscious approach aims to open up the benefit to all employees, rather than being limited to high earners. The annual premium per employee on a Foundation plan starts from about £200, depending on the profile of the company being insured. At the other end of the spectrum, the company's classic product costs typically between £300 and £400 per year. This is marketed as a benefit to attract and retain senior staff and will pay out up to 80% of a salary. Compared on a like-for-like basis, Foundation is about 60% of the cost of a full-coverage, classic group income protection (GIP) scheme.
Group income protection premiums
GIP premiums are costed on a unit rate for a group of employees, calculated on gender, age, salary and so on. Caroline Shepherd, corporate account manager at Jelf, explains how it doesn't make any sense to limit benefits to a certain sector of staff when extending a policy to all could save a business money. "I had a small client, with a workforce of around 50, who had a GIP policy that only covered senior staff, but quotes showed that it would cost the same, or less, to insure everybody." This is because senior staff have a higher average salary and tend to be in their 40s and 50s. Extending the benefit to all staff lowers the average age and average salary.
"All employers want to squeeze more out of their staff, at all levels. Giving wider access to benefits can make sound financial sense when salaries are static," Shepherd adds.
Jelf finds that when it comes to welfare benefits, employers are becoming increasingly uncomfortable about treating individuals differently, on principle. "No sensible CEO is going to value the life of a postboy any less than a senior manager, so you get a situation in which the employer ends up paying long-term sick pay for an employee that isn't covered by the GIP scheme. Many employers, especially smaller companies in which the staff all know each other, don't stick to policy in these situations, to their credit, but to the detriment of their financial health," says Shepherd.
BDO offers IP to junior staff, because its competitors do so. Benefits manager Carlie Bryan agrees that it is often cheaper, as well as more democratic, to offer certain benefits to everybody. "Historically, organisations have gone the extra mile to puff up senior managers and look after them, but I'd say explore the alternatives. We think the 'fat cats' need to have more, but lower down the ranks people still need to have protection in place, and employers need to get them back to work completely recovered.
"Opening up a benefit like IP to all staff offers a better spread of risk. Senior staff will populate a certain demographic but opening it up encompasses good and bad risk elements. If your staff are not happy or healthy they won't be productive, so it makes sense to invest in them. With the withdrawal of state sickness benefits we have seen a shift toward the employer taking responsibility for peoples' health and wellbeing. We have a duty of care towards our staff."
Help with recruitment
At entry level, it helps with recruitment, adds Bryan: "People are not getting pay rises, so to get them in the door, benefits packages are becoming the deciding factor and a key employer-branding tool. Of course, you get some people who say 'if I can earn £100,000, I want to have it in my salary', but that 'loadsamoney' attitude is on the wane now."
Unum HR director Linda Smith agrees that restricting key benefits to top-level employees is a false economy: "Employers are keen to retain and protect the employees they consider most valuable to their business - in most cases, this is agreed to be people at the more senior levels. But a business simply cannot survive without its frontline staff and it is vital to protect both the company bank balance and individual employees at all levels from the consequences of long-term illness.
"In the current economic climate, extending IP to more staff makes sound business sense for both companies and their employees. For employers, it insures against the costs of long-term sickness absence, reduces cost volatility and offers effective rehabilitation and return-to-work programmes, helping the business to manage sickness absence."
As well as relieving businesses of the cost of sick pay, IP also provides indirect benefits. Savings are made in the cost of hiring and paying replacement staff, because employees who fall ill have a greater chance of returning to the workplace with help from rehabilitation professionals, while expensive absence management and red tape is outsourced to the insurer.
"Employee benefits are also a valuable retention tool, and employers may need to offer their benefits more broadly if they want to keep pace with competitors," adds Smith. "At a time when employers can't offer substantial pay rises, employee benefits become an even more valuable part of an employee's overall package, a fact many employers have recognised - 51% of finance directors told us they offer staff as much as they need to keep competitive. To continue to recruit, motivate and retain talented employees in this climate, employers must step up to the mark and make sure their benefits package meets the needs of today's staff."
The Benefits Overhaul 2012 series continues in early September and will look at paternity pay and leave.