Long service awards (LSAs) remain one of the most popular benefits companies offer their employees. In fact, the latest research from the Chartered Institute of Personnel and Development into reward strategies found that more than a third (36%) of organisations provide benefits that are tied to the amount of time an individual has worked for their employer.
“It’s been an established part of UK business for years,” says Martin Cooper, marketing manager at LSA consultants Cottrills.
Traditionally, an award for long service took the form of the proverbial carriage clock or gold watch awarded after 25 years’ service. It was an effective way for employers to recognise good service – its emotive value on the part of the employee far outstripping the actual monetary cost of the item to the employer.
This has also always been one of the most equalitarian benefits available in the workplace. From the boardroom to the shop floor, everyone usually gets the same award for long service, regardless of how much they earn.
But times change. Today long service awards are more likely to take the form of gift vouchers for high-definition TVs and digital cameras and as work patterns have altered, so have organisations’ approach to when long service awards are awarded.
With a job for life being a rarity these days, companies are increasingly offering long service awards after five or 10 years and then at incremental periods after that.
In industry sectors where high employee turnover is a real problem, such as retail or hospitality, some employers are even awarding long service awards after just a couple of years to help with staff motivation and retention.
“These awards are not so much for long service anymore, but as a reward for loyalty,” says Cooper.
In recent months, employers have also had to revisit their long service awards as part of their process of auditing policies and benefits in preparation for forthcoming age discrimination legislation, due to come into force this October.
The spotlight has fallen on long service awards in particular because the regulations state that “any contractual benefit which is subject to an employee reaching a certain age or which increases with length of service is potentially age discriminatory”.
However, there are several important exemptions to this point that mean the majority of long service awards will be allowed to continue.
The first exemption, likely to be known as ‘the five-year exception’, states that any length-of-service award given in the first five years of employment is exempt from age discrimination regulations.
For benefits that accrue over longer than five years, there is a separate exception which requires employers to demonstrate that the reason for having a benefit dependant on length of service is to either ‘reward loyalty’, ‘encourage motivation’ or ‘recognise the experience of workers’.
It is the new wording of this second exemption that has pleasantly surprised HR professionals and lawyers alike, as it applies less onerous exemptions relating to service-related benefits compared with last year’s consultation paper.
This change is widely thought to reflect the DTI’s concerns that employers would avoid offering long service awards altogether, had the terms on which they could keep their long-service scheme been too burdensome.
“When the draft came out there was a sigh of relief,” says Aine McRory, head of employment law at law firm Cobbetts.
“There was a lot of hype and scaremongering, but now we have a better idea of the devil in the detail.”
The relaxation of the wording for the second exemption, she says, makes it reasonably straightforward to justify long service awards. “We are advising our clients not to do away with LSAs, but to sit down and make a business case for them,” she explains.
Building a business case
At building supplies company Wickes, the group head of strategic reward, Sara Davies, is also confident that the final regulations means the company’s long service awards will remain untouched.
She says: “Prior to the final draft, I thought we would have to get rid of everything. But now I know it’s about reviewing what you have and creating a business case for what you do.”
Wickes’ long service award scheme is run by Cottrills, with service awards of varying values going to employees who have remained at the company for five, 10, 15 years and so on.
Davies says the long service award is a key point in the company’s plan to recognise loyalty, and to encourage staff retention.
“Inherently this type of scheme is about recognition and staff morale,” she says. “These things have got to be good for business.”
But, says Alison Loveday, head of the employment department at law firm Berg Legal, it is not enough to simply assume your LSA is good for business and satisfies the points in the second exemption, however obvious it might be that long service awards ‘reward loyalty’, ‘encourage motivation’ or ‘recognise the experience of workers’.
What employers must do, she says, is clearly show they have thought about how their long service award might be affected by the age discrimination regulations and come up with some evidence that demonstrates they have gone through this procedure.
“It is important you record your decision-making process,” says Loveday.
If challenged, employers will be required to produce supporting evidence to prove they have considered the effect of their employment policies.
“Mere assertions will not be sufficient to defend a claim for age discrimination at a tribunal, and the outcome could be an unlimited compensatory award,” she says.
To support a decision to continue with LSAs, Loveday suggests organisations consider conducting an employee survey for views on this benefit, seeking feedback during the course of exit interviews and monitoring staff retention statistics.
McRory recommends another route to take, obtaining feedback from employee committees. “Rather than set up new processes, take advantage of the staff councils you already have in place,” she says.
Back at Wickes, Davies acknowledges that the company must carry out a formal assessment of its LSA scheme, no matter how confident it is that it will comply with the age discrimination legislation.
“There’s still work to be done in this area to fully understand how our benefits have an impact on the workforce,” she says. “In terms of a business case, in the first instance, we intend to look at our labour turnover statistics.”
Let the exemptions be your rule
Long service awards (LSAs) that reward service beyond five years are exempt if you can show they ‘reward loyalty’, ‘encourage motivation’ or ‘recognise the experience of workers’.
Don’t simply assume your LSA satisfies these criteria.
Demonstrate that you have actively thought through how your LSA complies with age discrimination regulations.
Staff surveys, employee committees, and exit interviews are all ways of building a business case for your LSA.