For those surviving on low wages, it might seem obvious that they would welcome benefits. Vicki Arnstein asked four experts their thoughts, and found it is not an open and shut case.
The definition of low pay is difficult to pin down. According to The Institute for Public Policy Research, low pay equates to gross hourly earnings of less than 60% of gross hourly median full-time earnings.
Research has shown that £479 is the median weekly pay across the UK, with 60% of this figure totalling £287.40.
To some, the definition of low paid might mean earning on or below the national minimum wage (NMW) – currently £5.73 for those aged 22 and over.
Some organisations, such as trade unions, describe low pay as being below what they have calculated as an adequate ‘living wage’ – a figure that tends to be significantly higher than the NMW.
Whatever you consider the definition of low paid to be, the question is whether, as an employer, you should be providing additional benefits to these staff to top up their package, and whether you can increase recruitment and retention by doing so. We spoke to four benefits experts about how important they think benefits for lower-paid staff are.
Deborah Littman, national officer, Unison
Charles Cotton, adviser, reward,Chartered Instituteof Personnel and Development
Caroline O’Keeffe, marketing director, Thomsons Online Benefits
Andrew Woolnough, director, benefits management, Jelf Group
Q Do employers have a moral obligation to provide benefits to low-paid employees?
Littman: Employers have a moral obligation to give people an adequate wage and conditions. People do a job and ought to be adequately remunerated.
Cotton: I don’t think there is a moral obligation. What organisations have to ask is what they want to achieve and then translate that in terms of what values, behaviours, attitudes and performances it needs from its employees, then look in turn at how it recognises and rewards these.
O’Keeffe: There is no moral obligation to provide benefits, but all employers need to think about the best way to recruit, retain and motivate their employees. Benefits are a vital part of making themselves an attractive employer.
Woolnough: What increasingly comes up when I talk to HR directors are moral obligations around two things. The first is help with financial planning, and the second is pensions.
Q How much of a priority should providing benefits be?
Littman: Salary is the most important thing for people at the lowest end, but it is also important to focus on benefits. If you pay people an extra 10p an hour, what they can buy with that 10p is probably a lot less than what could be provided collectively via an employer. If I or my child is ill and I have to take paid time off that is going to cost me more than if there was an employer provision for sick pay.
Cotton: It depends on the needs of the organisation and its employees.
O’Keeffe: Why not give employees the choice? Flexible benefits enable the individual to decide for themselves what benefits best fit their personal circumstances.
Woolnough: Additional benefits are increasingly important with a lot of companies freezing pay this year.
Q What are the best options in terms of benefits as far as low-paid employees are concerned?
Littman: For most people things like voluntary benefits are way down the totem pole. An employer should look at the basics first. Sick pay is of enormous importance to anyone on low pay, then adequate holiday and a pension, if an employer can manage that. Beyond that, you need to talk to your staff.
Cotton: It depends on the individual. Some people may focus straight on pay. In the manufacturing environment, things like cash plans may be beneficial, but if you have fit young people in their early 20s, then perhaps less so.
O’Keeffe: Get out and talk to your people and see what would engage them. You may find they want traditional benefits, such as life cover and a pension, or they may prefer discounts at local suppliers.
Woolnough: Lower-paid people are screaming for short-term, quick win, make-your-money-go-further benefits. It could be something simple like shopping discounts or eye and dental cash plans.
Q What are the best options from the employer’s point of view?
Littman: There is a tendency to give people money and tell employees to buy what used to be provided. We have lots of [union] members who have problems with car-parking charges. They are low paid and have to pay £5 a day to park because there isn’t public transport, or they work shifts where buses don’t get them there on time. For that particular employer, providing parking would be a huge benefit.
Cotton: One thing may be voluntary benefits where you provide access to third-party goods and services at a discount. Being able to buy, for instance, £100 worth of Asda vouchers for £95 or discounted car or holiday insurance. But, if you are going to have recognition awards, there may be a tax implication. The last thing you want to do is give your employee a motivation award and them having to stump up tax, so take care with this.
O’Keeffe: Pensions and salary sacrifice benefits such as childcare vouchers and cycle-to-work schemes [are best from a tax perspective].
Woolnough: Employers are looking for anything that makes tax and national insurance savings. Bike-to-work schemes are one possibility, but the take-up is usually so minimal that the savings aren’t there. One option that is getting more publicity is salary sacrifice for cars, but that benefit isn’t really aimed at the lower paid.
Q Are there any benefits that aren’t appropriate for the low paid?
Littman: Nothing is inappropriate if people want it and it is offered, but if you offer things that aren’t wanted then in a sense it is a cost [to the employee], because they have a little less salary for something they don’t use. We have looked at salary sacrifice for the low paid, and the conclusion was ‘don’t do it’. It lowers basic pay, which lowers state benefits.
Cotton: Some employers offer flexibility around buying extra holiday, but you have to be a bit careful around whether buying extra holiday would put low-paid staff below the national minimum wage (NMW). This is important with childcare vouchers [and other salary sacrifice schemes] too.
O’Keeffe: Where employees earn on or near the NMW, you need to be careful when offering salary sacrifice – it must not bring the employee’s hourly wage below the minimum wage level.
Woolnough: Nothing is inappropriate, but what tends not to be suitable is how a company communicates a benefit. People don’t engage with pensions when every year they just get an A4 book with 30 pages of complex information. It is all about simplicity.
The low paid: facts and figures
There is no standard definition of low pay. The Institute for Public Policy Research defines it as gross hourly earnings of less than 60% of gross hourly median full-time earnings.
According to the Annual Survey of Hours & Earnings 2008, the median pay for full-time employees in the UK was £479 a week. The top 10% of earners earned more than £946 a week, while the bottom 10% earned less than £262. The highest earnings were in London, where the median pay was £613 a week, while the lowest were in Northern Ireland, at £418 a week.
The public service trade union Unison has calculated the minimum ‘living wage’ as £7.45 an hour, which is significantly higher than the current national minimum wage (NMW) of £5.73 (for those aged 22 and over). Deborah Littman, national officer at Unison, says: “The NMW is not developed in relation to any form of adequacy; it is developed in relation to what the economy will bear. We look at what people have to earn to have an adequate standard of living and, if you look at it that way, the NMW is way below what people need.”
Case study: Asda
Around 165,000 of Asda’s 172,000 employees are paid an hourly rate, but Caroline Massingham, the company’s people director, says it has always been important for the supermarket chain to pay above the minimum wage. “The minimum wage has just gone from £5.52 to £5.73 (for those aged 22 and over), and our lowest rate is £6.12, so we are well above that,” she says.
The company offers all staff voluntary benefits comprising of more than 100 negotiated discounts on things such as healthcare plans, gym memberships, days out, travel and airport parking. Staff are also offered childcare vouchers, 10% off their weekly shop and a range of flexible working benefits, including carers’ leave, grandparents’ leave, shift swap, IVF leave, and a half-day off for parents on their child’s first day at school.
“What these benefits do is save colleagues money and allow them to live better, irrespective of their weekly wage,” Massingham says. “We have a 19% labour turnover, and for a retailer the average is 42%. Also, 96% of colleagues say they enjoy their work – it isn’t always about hourly pay.”