Employee benefits guide: what are employee benefits and why do they matter?

Employee benefits have become an increasingly important part of the world of work. For employers, they can play a role in attracting and retaining people, supporting employee wellbeing and creating a positive workplace culture. For employees, the right benefits can provide valuable support alongside their salary.

From pensions and private medical insurance to flexible working, wellbeing support and company perks, there are many different types of employee benefits to consider.

What are employee benefits?

Employee benefits are the additional rewards, support and services an employee receives from their employer alongside their salary.

They can include benefits that are required by law, as well as additional workplace benefits that an employer chooses to offer. Some employee benefits are provided to everyone, while others may be available depending on factors such as role, seniority or length of service.

Employee benefits can take many forms, including financial, health, wellbeing and lifestyle benefits.

The right combination can form part of a wider employee benefits package designed to support people at different stages of their working lives.

Why are employee benefits important?

Salary remains a fundamentally important part of an employment package, but is not the only factor people consider when choosing where to work.

A well-designed benefits package can provide support in areas that matter to employees both inside and outside of work. This could include helping people save for retirement, access healthcare, manage their finances or balance work with their personal lives.

There are also benefits to working for an organisation that takes a thoughtful approach to employee benefits. For employers, a strong benefits offering can help to demonstrate they value their people and understand the different priorities employees may have.

So the advantages of employee benefits can extend beyond individual perks, contributing to employee engagement, wellbeing, recruitment and retention, as well as the overall employment experience.

What are the different types of employee benefits?

The right mix of benefits will depend on the needs of the workforce, the organisation and its objectives.

The best-known types are:

Pension scheme

Workplace pensions are one of the most established, if not the original employee benefit. Employers are required to meet certain workplace pension obligations but some organisations choose to offer benefits above and beyond the minimum requirements.

This could include enhanced employer contributions – the company pays more in to a pension – or salary sacrifice, where the employee agrees to give up part of their pre-tax salary in return for benefits, where appropriate.

Pensions remain an important part of an employee benefits package because they support longer-term financial wellbeing and help employees plan for life after work.

Health and wellbeing

Employee health benefits can provide practical support when people need it most.

Private medical insurance, health cash plans, dental cover, eye-testing and optical health benefits and employee assistance programmes may be included within a workplace benefits package.

Wellbeing support can also extend beyond physical health. Mental health resources, counselling services, wellbeing platforms and access to specialist help can all form part of a broader approach to employee wellbeing.

Financial wellbeing

Financial wellbeing benefits can help employees feel more confident about managing their money and planning for the future. Depending on the organisation, this could include:

Financial education
Guidance
Workplace savings
Pension support
Access to financial advice

Financial wellbeing is increasingly becoming an important consideration when employers review their employee benefit schemes

Flexible working

Flexible working can be attractive for employees looking for greater choice over how and where they work.

Depending on the role and organisation, they could include:

Hybrid working
Flexible hours
Compressed hours
Other forms of flexibility

While flexible working may not traditionally have been viewed as an employee benefit, it increasingly plays a more visible role in the overall employee experience.

Family and lifestyle

Employees have different responsibilities outside of work, so family and lifestyle benefits can prove both useful and valuable.

Policies such as enhanced parental leave, support for carers, childcare-related benefits, additional annual leave and others designed to help people balance work with their personal commitments can mean a great deal to people facing challenges in their lives away from work.

Employee perks and discounts

Company perks provide additional value and help make an employee benefits package even more engaging.

These might include:

Retail discounts
Gym membership
Travel benefits
Cycle-to-work schemes
Technology offers
Access to other lifestyle discounts

Discounts and offers for employees can be useful, but they are generally most effective when they sit alongside benefits that provide meaningful long-term value.

What benefits for employees are worth considering?

There is no single list of the best employee benefits in the UK. What employees value can vary considerably depending on their circumstances, financial position and how old they are. Someone in their 20s is unlikely to view a pension with the same priority as a colleague in their 50s.

For one employee, private medical insurance may be a priority. For another, flexible working and additional holiday could tick the box.

Employers who are tempted should be cautious about simply copying another organisation’s employee benefit packages. Given that no two workforces are the same, the most effective approach is to understand what employees actually need and value.

What should an employee benefits package include?

A good package should closely reflect the needs of the people it is designed to support.

Rather than focusing solely on how many benefits are available, employers should consider the overall value and relevance of their offering. How do they do that? By communicating with their people, making sure it is a two-way conversation.

A package could include a combination of:

Workplace pension benefits
Private medical insurance
Health cash plans
Employee assistance programmes
Mental health and wellbeing support
Financial wellbeing resources
Life assurance
Income protection
Flexible working
Additional annual leave
Family-friendly benefits
Workplace savings
Employee discounts
Lifestyle benefits
Financial education and employee benefits advice

Not every organisation will need all of these benefits. The aim should be to create an offering that chimes with the workforce and supports the organisation’s wider people strategy.

Employers should look beyond the benefits themselves if they’re reviewing what’s on offer to their people

Questions worth considering:

1. Do employees actually understand their benefits?

Even the most comprehensive employee benefit plan will have limited value if employees do not know what is available to them or what it can do for them.

Clear, two-way communication should be an important part of any benefits programme.

2. Are the benefits relevant to different employees?

Workforces are made up of people with different needs and priorities.

A benefits package that works well for one group may not be as valuable to another. Employers should consider whether or not their employee benefit schemes offer enough choice and flexibility to meet a range of circumstances

3. Are benefits easy to access?

Staff should be able to understand what they are entitled to and how to access it without it being needlessly complicated.

Online benefits platforms, clear guidance and regular communications all help make programmes easier to navigate.

4. Do employees understand the value?

Employees do not always recognise the full value of their benefits, particularly when benefits are provided automatically or are not included in regular communications.

Employers can help by explaining what each benefit provides and, where appropriate, showing the overall value of the employee’s package.

5. Do the benefits support the wider people strategy?

Employee benefits should not exist in isolation.

They can support wider objectives around recruitment, retention, wellbeing, financial resilience, diversity and inclusion and employee engagement. Ultimately, this can add up to greater productivity to drive profit and prosperity.

A clear link between benefits and the wider people strategy can make it easier to understand why each benefit is being offered.

6. Do employers necessarily understand the value of benefits?

Not all organisations understand closely what tailored benefits can bring. Done the right way, they can add up to more than they seem, the whole can be greater than the sum of its parts.

Employee expectations change and so do the needs of the workforce so employers should regularly review their benefits to understand what is working, what is being used and where there may be gaps.

Employee feedback and engagement data can help employers understand which benefits are valued and where changes may be needed.

It’s also worth considering whether or not employees know how to make the most of the benefits already available to them. Improving communication and providing clear, accessible information can sometimes be just as relevant as introducing another benefit.

If you don’t know by now, choosing and managing employee benefits can be complex, with providers to consider, costs to manage, regulations to understand and, at the centre, employee needs to take into account.

Employee benefits consulting helps employers take a more structured approach to reviewing their strategy and what it means to their people.

The focus should not simply be on finding the biggest or most attractive package. It should be about creating a strategy that’s a win-win for staff and the organisation.

Building better workplace benefits

A well-designed programme can boost people’s health, financial wellbeing, families and longer-term financial security. It can also help employers create a workplace where people feel supported and valued.

There is no one-size-fits-all approach The best employee benefits are those that reflect the needs of the labour force and are communicated clearly, so employees understand what is available and why it matters.

For employers, the starting point should be simple: understand your people, listen to what they need and build from there.

Looking to review your employee benefits? Understanding what your people value is the first step towards creating a benefits strategy that works for both your employees and your organisation.

Please note:

This article is for general information only and does not constitute advice.

All information is correct at the time of writing and is subject to change in the future. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, cashflow planning, tax planning, trusts, Lasting Powers of Attorney, or will writing.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

The tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.