United Kingdom
[Updated 3/5/25] The UK has a tradition of strong state provisions concerning eldercare and incapacity in terms of support and access to healthcare. However, over the decades, the cost of such provisions to the state has been increasing while utilization has been growing. In real terms, the value of these benefits to individuals has been reduced, increasing the need for private support to supplement the state provisions.
There are very few mandated benefits in the United Kingdom. Employers choose benefit provision based on competitive market practice and doing the ‘right’ thing. Surprisingly, the cost of benefits provision is very competitive. Employers providing a full range of relatively competitive benefits typically spend about 14% of payroll.
Pension provision is an essential employee benefit and the most significant expense for most employers. Young employees have traditionally shown little interest in saving in their pension provision, and this has led the state to mandate employers to enroll their employees into a pension scheme automatically. Private medical insurance is also an important benefit to employees, as are incapacity benefits.
Mandatory employee benefits in the UK include pension, holiday pay, maternity/paternity pay (companies often exceed the statutory limit as part of a comprehensive benefits offer), and sick pay. Supplementary employee benefits in the UK include Group Life Assurance, Group Income Protection (incapacity), Critical Illness Insurance, Private Medical Insurance, Dental Insurance, Health Cash Plan, Employee Assistance Programs, and virtual GP services. Benefits sometimes available to employees to purchase at their own cost include cars, bicycles, optical insurance, and gym memberships.
Mandatory Employee Benefits in the United Kingdom
Workplace Pension
Pensions are a mandatory benefit in the UK and are subject to legislation. Employers must comply with legislation and auto-enroll eligible employees into an appropriate pension. Pensions auto-enrolment includes employers being 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.’ The employer must pay at least 3% of this. However, pensions are considered a key benefit in the UK, and many employers contribute above the minimum level.
Employees can contribute more, but in the UK, they become less tax-efficient once contributions exceed certain levels.
Healthcare
In the UK, the National Health Service (NHS) is a state-funded healthcare system that everyone living in the UK can use without paying the full cost of the services provided. This includes
- Access to a doctor for medical advice, diagnosis, or treatment
- Treatment at a hospital for those who are unwell or injured
- Emergency help from healthcare professionals for those with serious or life-threatening injuries or health problems
The NHS is ‘publicly funded,’ with the cost of provision funded through UK residents paying tax. The NHS is experiencing high service demand, resulting in long waiting times. As a result, increasing numbers of employers are considering funding healthcare through insurance arrangements to give employees access to healthcare advice and treatment when needed most and limit the impact on employees’ productivity.
Holiday Pay
Most workers who work a 5-day week are legally entitled to receive at least 28 days of 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, and typically will, include public holidays as part of statutory annual leave.
It is common for UK employers to provide more paid holidays than the statutory minimum. Also, some 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
Complete rules can be found here.
Sick Pay
The state requires employers to provide a minimum level of Statutory Sick Pay for up to 28 weeks of absence. However, some employers increase this; a common approach is to pay full salary for an initial period, and reduce the payment amounts thereafter.
Supplementary Employee Benefits
Employer-Sponsored Retirement
When designing a UK pension scheme, either to meet or exceed the minimum auto-enrolment requirements, care needs to be taken in five main areas:
- Contributions – what level of contributions will be competitive and attract the right talent?
- Contribution method – the most tax-efficient method of deducting contributions is Salary Exchange (also known as Salary Sacrifice), as it gives maximum relief in terms of tax and national insurance to the employee and employer.
- Carrier selection – selecting the best supplier based on proposition, delivery, terms, employee engagement support, and financial strength.
- Default fund – The pension provider will offer a specific default fund for enrolment, which is run under strict criteria. However, some employers may prefer to select an alternative default fund for enrolment based on their considerations and requirements relating to performance, environmental, and social governance.
- Employee support – how is the scheme communicated, and what specialist support are they provided?
Group Life Assurance
Group Life Assurance is the most common insured employee benefit in the UK. The benefit provides a lump sum payment to surviving beneficiaries in the event of the employee’s death. These policies can be established from 3 employees upwards and must be set up under an appropriate trust; otherwise, substantial tax charges can apply when benefits are paid. Employers may need to register the policy with HMRC depending on the type of policy and trust selected.
Other than policies covering less than 20 employees, premiums are usually based on the same premium rate regardless of employee age, gender, and benefit amount. For policies covering less than 20 employees, premiums are generally based on the specifics of each employee.
Group Income Protection (Long-Term Disability / Incapacity Benefit)
Group Income Protection, also known as long-term disability and incapacity policies, can be established from 3 employees upwards and is easier to set up than Group Life Assurance because no trust is required.
The benefit is based on a percentage of salary and, subject to the policy terms and conditions being met, can be paid until state pension age. Some policies have a limited payment term, where the benefit is only paid for 2, 3, or 5 years; such policies are less expensive whilst still providing a generous benefit.
Cover will not apply to any employee not ‘actively at work’ when the policy commences. Claimants typically remain employed, meaning the employer’s pension and national insurance contributions are still made.
Critical Illness Insurance (CIC)
Critical Illness insurance provides a lump sum payment on the diagnosis of a critical illness covered under the policy, such as cancer, heart attack, or stroke. Most policies cover in the region of 30 critical illnesses, although most claims arise from a small number of critical illnesses. Often, the benefit is made available for employees to select at their own cost. Some employers provide employer-funded critical illness insurance to their most senior employees.
Private Medical Insurance (PMI)
Private medical insurance supplements primary care offered by the NHS. It is primarily designed to cover acute illnesses and not chronic conditions or emergency care.
Smaller schemes often have a restriction applied whereby cover for pre-existing conditions is excluded. Generally, insurers will quote on a Medical History Disregarded (MHD) basis for a minimum of 20 employees. Employer-funded cover is subject to Benefit in Kind (‘P11D’) taxation, and most employer schemes are “fully insured” with premiums set annually. For larger employers, typically with over 1,000 employees, alternative funding options are available; these can be more cost-effective and give more control over design.
Dental Insurance
Dental insurance policies are straightforward to set up in the UK, and the minimum number of employees required for a policy is usually two. 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
The Health Cash Plans support the coverage or contribution to everyday healthcare costs that Private Medical Insurance does not always cover. Usually, an employee will pay the benefit-cost and make claims directly with the insurer. The minimum number of employees for a corporate policy is 3. Monthly costs can range from £5 to £50 per member, depending on the level of cover required.
Employee Assistance Program and Virtual GP Services
Many employers make an Employee Assistance Program (EAP) available; these are often included free of charge within other insurance benefits, such as Group Life Assurance and Group Income Protection.
Online virtual GP services have become popular; these enable convenient access to healthcare advice and support more quickly than accessing primary care through the NHS. Similar to EAPs, virtual GP services are often included free of charge within other insurance benefits, such as Group Life Assurance and Group Income Protection.
Employee Perks
Company Cars
Employees can be provided with company-financed cars and/or fuel or a car allowance in lieu. Due to significant tax charges, company cars have become less popular. Incentives, however, are made for eco-friendly vehicles.
We are seeing a trend of larger employers offering access to electric vehicles on an employee-paid basis, as part of flexible benefit arrangements.
Season Ticket Loan
Season ticket loans are typical, particularly with employers with many employees who commute by public transport. An employer will loan the employee money to buy a discounted annual season ticket and reclaim the loan monthly directly from the employee’s salary.
Tax-free Childcare and Childcare Vouchers
The government’s tax-free childcare program replaced Childcare Vouchers in 2018. Vouchers are no longer available unless an employee is already enrolled in an employer’s scheme. The tax-free childcare program offers up to £2,000 a year per child towards childcare costs, including nursery, childminder, and wrap-around care. Learn more
Bike to Work
Bike to work is intended to encourage commuting by bicycle by offering a tax-efficient bicycle purchase. Employees can save up to 43% of tax on purchasing a bicycle. In summary, the employer buys the bike, and the employee rents it for a specified period with the option to buy it at a reduced rate at the end of the rental term.
Gym Membership
Where an employer operates a flexible benefits arrangement, gym membership will often be offered. Membership will be at a discounted rate and paid directly from salary. In addition to gym membership, we are seeing an increase in the implementation of wellbeing allowances that enable employees to fund most sports activities.
Workplace Canteens
Workplace canteens are amongst larger employers; often, these are highly valued and enable employees to eat at discounted prices.
Related Government Websites
Jobcentre Plus of the Department for Work and Pensions
This information about employee benefits in the UK is provided by Howden, Asinta’s employee benefits consulting partner in the UK.