What are Employee Benefits?22nd April 2015
This article explains the key employee benefits in the UK. Although the range of benefits is very diverse and different people prefer different perks, the benefits making the most difference are those aimed at providing protection in situations when the employee is unable to work, such as old age, illness, injury or death.
Rather than relying solely on the relatively limited state pension, most people in the UK prefer to put money aside and save for retirement. Employers offer different pension schemes, which many job seekers consider the second most important attribute of a potential job, right after salary.
Typically a small portion of an employee’s pay is automatically put into the pension scheme every payday, together with a contribution from the employer and, figuratively, another small contribution from the government in the form of tax relief. Once the person reaches a certain age (e.g. 55 years) she can take money out of the pension scheme, either as lump sum (part or all of it tax-free) or as regular income.
All UK employers will be required by law to automatically enroll their staff into a workplace pension and pay their contribution starting from April 2017. This obligation, which is called automatic enrollment, is already in place for larger companies.
Besides pension schemes some companies, especially those with publicly traded shares, offer various share incentives, giving employees a certain number of free shares every year or matching shares which employees normally buy with the same amount of free shares. The amount of shares an employee can get in this way is usually limited and depends on the position or on the number of years the person has worked for the company.
When employees can’t work due to illness or injury, they are entitled to receive a certain fixed amount (currently £87.55) every week for up to 28 weeks (with the exception of the first 4 days). This is called Statutory Sick Pay. It is paid and taxed in the same way as the person’s regular wage or salary.
Some employers offer higher amounts or extend the period beyond the required 28 weeks. This is called Occupational Sick Pay.
Income Protection is a kind of insurance that pays out when the person is unable to work due to illness or injury, typically 50-80% of income, depending on the particular plan. Unlike Sick Pay, it protects from loss of income in case of long-term illness and the payouts continue until retirement age, death or return to work (although there are also cheaper short-term versions, limiting the payout period to a certain number of years). The payouts usually start after 3 or 6 months off work, in time to replace the Sick Pay income.
You can buy Income Protection independently from an insurance company, but getting it through your employer (it is called Group Income Protection) is normally cheaper and more advantageous.
Private Medical Insurance
Unlike Sick Pay and Income Protection, Private Medical Insurance is designed to pay for the cost of treatment rather than to replace lost income. Coverage varies across employers. Some companies provide their employees with specific medical insurance such as dental or vision plans.
Life Insurance pays out a lump sum to the employee’s family in case of death. Like Income Protection and Private Medical Insurance, you can get it independently on the market, but it is often cheaper through your employer, although you might be less flexible in terms of selecting plans with suitable conditions and coverage.