Flexible benefits schemes ― an overview

So how does Flex work?

Under a Flex arrangement each employee is essentially given a degree of control over how and on what their personal remuneration ‘budget’ provided by their employer is being spent.

Employees in a non-Flex environment will talk about their remuneration on a salary + pension + benefits (if applicable) basis. In the Flex arena, each element of the remuneration package is valued, including non-cash elements such as holidays, to form part of the overall budget or ‘total’ remuneration figure (sometimes referred to as ‘total reward’). In this manner, employees begin to understand the true value of their remuneration package, which can be a valuable recruitment and retention tool in itself.

Having agreed a budget, the employer can decide on the degree of flexibility and the choices on which an employee may spend their budget. A number of employers currently offer a ‘full’ Flex scheme for staff, ie where employees can select from a sometimes very extensive range of benefits and choose the package which most suits their personal lifestyles. However, Flex is not an ‘all or nothing’ option. In fact, a degree of flexibility can be offered to staff, without any additional cost, or even with reduced costs. Flex can also be introduced on a gradual or selective basis.

Whether or not a formal flex scheme is implemented, there are, in principle, two basic approaches to the provision of non-cash benefits:

1. A)

   benefits may be provided, but in return, the employee accepts a reduction in gross pay so that the employer is able to fund those benefits without increasing its costs (and the benefits may of course be structured so as to minimise tax and / or NIC, see the Optional remuneration arrangements guidance note), or

2. B)

   benefits that may be provided in addition to gross pay, but perhaps funded at least in part by an employee contribution made out of net pay (ie after deduction of tax and NIC)

In general,