United Kingdom

The most important benefit to employees and the biggest expense for employers is pension provision. Young employees have traditionally shown little interest in saving for the future. This led the government to compel  employers to provide pensions through the Auto Enrolment scheme. Private medical insurance comes in at a close second in importance, with Medical and Disability following it.

Asinta Partner
Adam J. Riley

Howden Employee Benefits & Wellbeing

More Info

There are very few mandated benefits in the United Kingdom. Employers make choices about benefit provision based on competitive market practice and doing the “right” thing. Surprisingly, the cost of benefits provision is very competitive.

Mandatory employee benefits in the UK include retirement, healthcare, holiday pay, Maternity/paternity pay and sick pay. Supplementary employee benefits in the UK include life assurance, income protection (long-term disability) GIP, critical illness insurance, private medical insurance, dental insurance, health cash plan, employee assistance programs and virtual GP services, and employer sponsored retirement. Employee perks include company cars, season-ticket loans, childcare vouchers, biking to work, gymnasiums, and workplace canteens.

Mandatory Employee Benefits in the United Kingdom

Pension

A mandatory benefit in the UK subject to legislation. Employers must comply with legislation and auto enroll eligible employees into an appropriate pension. Pensions Auto-Enrollment means employers are required to provide a minimum level of pension provision for employees. The minimum contribution rate for workplace pension schemes is currently 8% of ‘qualifying earnings’ (as defined in legislation). At least 3% of this must be paid by the employer. However, pensions are considered a key benefit in the UK and many employers contribute significantly above the minimum level.

Employees are able to contribute more, but in the UK there are maximum annual allowances which must be considered.

When designing a UK pension scheme care needs to be taken in five main areas:

  1. Contributions – what level of contributions will be competitive and attract the right talent?
  2. Contribution method – the most tax efficient method of deducting contributions is Salary Exchange (also known as Salary Sacrifice) as it gives maximum reliefs in terms of tax and national insurance, to the employee and employer.
  3. Carrier selection – selecting the best supplier based on proposition delivery, terms, employee engagement support and financial strength.
  4. Default fund – The pension provider will offer a specific default fund for enrolment which is run under strict governance criteria. However, some employers may prefer to select an alternative default fund for enrolment, based on their own considerations and requirements relating to performance, environmental and social governance.
  5. Employee support – how is the scheme communicated and what specialist support are they provided with?

Healthcare

In the UK, the National Health Service (NHS) is the Government-funded healthcare system that everyone living in the UK can use without being asked to pay the full cost of the service. This includes

  • visiting a doctor for medical advice, diagnosis or treatment
  • treatment at a hospital if you are unwell or injured
  • Getting emergency help from healthcare professionals working in the ambulance services if you have serious or life-threatening injuries or health problems – this might include being transported to hospital

The NHS is ‘publicly funded’, with most of the money collected through UK residents paying tax. In light of the current pressures on the NHS and increased waiting times, increasing numbers of employers are now considering private healthcare options to ensure that employees can get fast access to healthcare advice and treatment when they need it most.

Holiday Pay

All workers who work a 5-day week are legally entitled to receive at least 28 days’ paid annual leave a year. This is the equivalent of 5.6 weeks of holiday (known as statutory leave entitlement or annual leave). An employer can include public holidays as part of statutory annual leave.

It is common for UK employers to provide greater paid holidays than the statutory minimum. In addition, many employers will offer employees the option of increasing their holiday entitlement by ‘buying’ extra days as part of a flexible benefits arrangement.

Maternity/Paternity Pay

Full rules can be found here.

Sick Pay

The government requires employers to provide a minimum level of Statutory Sick Pay – however most employers voluntarily top up this minimum benefit by offering contractual sick pay benefits. A common approach here is to pay some sick pay (2 – 4 weeks for example) at full pay and then reduce payments. Some industries are very generous whereas other sectors provide no supplemental sick pay.

 

Supplementary Employee Benefits

Life Assurance

These plans can be established from 3 employees upwards and need to be set up under an appropriate trust. Setting up the correct trust is vital otherwise substantial tax charges will apply. Depending upon the type of scheme and trust selected, employers will need to register the scheme with HMRC either at inception, or in the event of a claim. If a policy has fewer than, typically, 10 employees covered, the premiums may need to be set on an age rated basis. Otherwise the cost is on a flat rate basis.

Income Protection (Long-Term Disability) GIP

Income protection plans can be established from 3 employees upwards and are easier to set up than Life Assurance because no trust is required. Cover will not apply to any employee not actively at work when the policy commences. Claimants typically remain employed so employer’s pension contributions and National Insurance still apply. These elements can be insured, and employers will need to consider whether to include these costs.

Typically, benefits are funded by the employer, but in a flexible environment, they may be topped up by the employee. It is not tax efficient to salary sacrifice employee contributions as both premiums and benefits will be taxable.

Critical Illness Insurance

This type of insurance provides a lump sum payment on diagnosis of a specific condition, such as cancer, heart attack or stroke. Policies typically cover anything up to 30 or 40 conditions.

Private Medical Insurance (PMI)

With this insurance smaller schemes might have a restriction applied in respect of covering pre-existing conditions. Generally, insurers will quote on a Medical History Disregarded (MHD) basis for a minimum of 20 employees. However, it is possible that schemes can be set up on this basis from 1 employee upwards. Company paid premiums are subject to Benefit in Kind (‘P11D’) taxation, and most corporate schemes are “fully insured” with premiums set annually.

Dental Insurance

These policies are quite straightforward to set up in the UK and the minimum criteria is normally two employees. Policies can be set up on a company paid or employee paid basis, and monthly costs typically range from £10 to £50 per member depending on the level of cover required.

Health Cash Plan

This is a corporate policy to help cover or contribute to every day healthcare costs that aren’t always covered by Private Medical Insurance. The employee pays for the cost initially, and then claims back the cost subject to policy cover and limits. The minimum number of lives for a corporate policy is three employees, and monthly costs range from £5 to £50 per member depending on the level of cover required.

Employee Assistance Programs and Virtual GP Services

Most employers offer an EAP as a standalone benefit or included in the Income Protection benefit. Online virtual GP services have become increasingly popular as a convenient way for employees to access healthcare advice and support.

Employer-Sponsored Retirement

Implementation periods for retirement plans typically take between 1 and 3 months. This scheme must be available to employees from ‘day one’ of employment, so it must be ready and, for start-ups, in place ahead of the first employee joining date. Also, a UK bank account is mandatory for the processing of contributions.

 

Employee Perks

Company cars

Small numbers of employees can be provided with company financed cars and/or fuel, or a car allowance in lieu. Company cars are not as popular in recent years as the government taxes this benefit heavily. However, in a work environment where employees travel in business, you may see either company cars provided or car allowance paid.

Season Ticket Loan

Common for commuters. The employers loans the employee money to buy a discounted annual season ticket and reclaims the money every month from salary.

Childcare Vouchers

A government supported tax efficient childcare scheme. Various suppliers are available to administer these schemes on your behalf.

Bike to Work

Another taxi efficient scheme to encourage commuting by bicycle, it allows employees to purchase a bike tax free (up to a limit). Like childcare vouchers, various suppliers exist.

Gymnasiums

Very large employers at times provide ‘gym on site’ facilities whereas smaller employers may offer gym subsidies or access to a gym with lower corporate rates.

Workplace Canteens

Common with larger employers and can be highly valued. Food is provided at a discounted rate, this could include breakfast, lunch and dinner.

 

Related Government Websites

Jobcentre Plus of the Department for Work and Pensions

Department of Health

 

This information about employee benefits in the UK is provided by Howden, Asinta’s employee benefits consulting partner in the UK.

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