Working for an SME used to mean having limited benefit options. Owain Thomas explores why that is changing and what opportunities are now open to employers
Small and medium sized enterprises (SMEs) are the lifeblood of the UK economy. They account for 99.9% of all private sector businesses and employ 15.7 million people, approximately 60% of all private sector employment.
Furthermore, according to the latest data from the Department for Business, Energy & Industrial Strategy, SMEs' combined annual turnover was £1.8 trillion, or 47% of all private sector turnover.
Yet for many years, for one reason or another, they have been locked out of offering the full range of workplace benefits which have customarily been available to larger firms.
This has been changing and the last year or so has seen a particularly rapid expansion of interest from SMEs and availability from benefits providers.
As Benefex director of ecosystems Gethin Nadin explains, pensions auto enrolment reaching the SME sector has been important in this growth.
"Yes, it's a factor," he says. "SMEs have to provide a benefit they may have never had before and have to ensure they communicate and engage with their employees when doing so.
"As a result they are doing some of the work that would need to be done for a benefit scheme anyway. So some are looking into it and providers are often able to add benefits when doing pensions," he adds.
However, it is not the sole driver.
Smaller employers are increasingly aware of the need to attract and retain a skilled, motivated workforce, especially where they may not be able to compete with larger businesses on pay or business profile.
In this regard workplace benefits, when correctly tailored and communicated to employees, can make a significant difference.
And as Nadin explains, the explosion in startup firms has seen further interest.
"In the last year we've seen a massive spike in interest from SMEs and that's partly because we've got these new technology businesses appearing," he continues.
"Some firms are going from no employees to 300 staff in two years. They are going from no benefits requirements to complex requirements in a very short time.
"But how can they develop a solution now that will stand the test of time when they may have added another 100 people in a couple of years?" he adds.
Typically the options for most SMEs have been limited to shopping discounts, cash back schemes and perhaps salary sacrifice.
But now the answer to that question, in some quarters at least, has been to introduce a flexible benefits package.
"If SME employers don't think clearly as to what kind of benefits scheme they are going to offer then they've lost the case. As big employers are offering better benefits its becoming harder for SMEs to attract the skilled people they need, and we know there's a skills shortage for SMEs around the country," Nadin adds.
One of the issues preventing SMEs from seriously considering workplace benefits is they may just not have the HR function to do so - something which it is important to account for.
Jelf Employee Benefits head of benefits strategy Steve Herbert explains smaller firms have never had it so good in the benefits arena.
"I genuinely think that if a smaller employer has the appetite, budget and understanding of what's available then they can pretty much have whatever bigger employers have - so that has changed quite significantly from the past," he says.
"The however is that if we look at employers with fewer than 100 employees, they typically have zero HR capability.
"So although they theoretically have access to the world now, and some do take advantage of that, smaller employers really don't have the understanding of what's available, how it can help the business or how it would actually embed within the organisation," he adds.
Another obstacle for SMEs can be the cost of introducing a benefit scheme. But as research frequently shows [see box for results], employees do appreciate benefits provided by their employer.
Indeed, in a study conducted by group risk provider Ellipse, almost two thirds (63%) of the 1005 SME employees polled said they felt workplace benefits were either a valuable or extremely valuable part of their employment package.
However, employers should be careful when considering introducing a scheme as one in five employees said none of the seven options would be most valuable to them, indicating the need to understand the workforce as fully as possible (see table below).
When Ellipse asked 500 SME business leaders what benefits they offered, 43% offered nothing beyond the pension scheme.
Understandably given SMEs tight budgets, the actual and perceived cost were the main reasons for not offering benefits.
Grid spokeswoman Katharine Moxham notes that when cost is put forward as an issue, employers are really saying they do not understand the value of the service.
"The value is there to be had and it is important that it is communicated," Moxham says.
One of the ways of bringing down cost to employers is improving the technology used to implement benefits schemes and opening it up to smaller firms.
As Ellipse CEO Lee Lovett explains, combining this with greater flexibility by insurers has really opened up possibilities.
"The entry level of flexible benefit schemes was big firms of at least 500 employees," he says.
"The number of lives that insurers require as a minimum has reduced a lot and so smaller firms can benefit from that as the technology now makes it cost effective.
"Yes, some benefits might look expensive for SMEs starting with a blank sheet of paper but once a basic level of group life is in place they can look to extend benefits," he suggests.
Another way of making benefit schemes more accessible is by changing the route employers take when purchasing a scheme. Many are concerned about the need for regulated financial advice and its associated cost.
A new distribution mechanism
But as Lovett contends advice is not always necessary and businesses could soon find themselves buying schemes from unexpected sources.
"There are payroll and accountancy providers already in discussions with SMEs about supplying benefit schemes and we have looked at working with these," he continues.
"At the most basic level of group life coverage employers will need a bit of support and guidance and there is a question around whether that matches regulatory qualified advice.
"However, I suspect that for straight forward group life schemes, technical support alone might be enough," he adds.
It is also worth considering that benefit schemes can be a successful way to help retain and recruit staff. With some estimates putting the cost of replacing an employee at £30,000 over the first year, a benefit scheme could pay for itself with just one or two fewer leavers.
And where something like private medical insurance is concerned, it is no longer seen as just a perk for boardroom executives.
"Organisations have a different view of healthcare now," says Axa PPP head of SME acquisition Mike Davis.
"Smaller businesses are seeing it differently and buying it differently. It's now seen as a tool to help manage the workforce and keep those key workers in the office.
"It improves sickness absence and we've seen a growth in the use of remote GP services which helps people to see a GP quickly, rather than having to take time out of their day or wait for a booking," he adds.
As with the group risk market, PMI has also opened up to smaller workforces and smaller businesses are often quite surprised at the range of benefits available to them.
While using an intermediary is recommended by insurers, it is not necessary.
Charter Court Financial Services which has grown since 2008 to now employ 450 staff has generally chosen to use an adviser for its key benefits. [See case study]
"For the pension scheme and life insurance we appointed an adviser very early on," explains director of operations Mark Smith.
"A lot of what we do is off the back of a long-standing relationship with them. They also attend sites quarterly so if an employee wants to sit down and find out how their investment funds are performing they can."
And while the administration process has generally been straight forward, when it comes to salary sacrifice it has been more demanding.
So Smith has a warning for other employers: "We have struggled to get to grips with salary sacrifice and need our payroll to work.
"It's a very tedious process for administering the childcare vouchers. So before we take on more flexible benefits we need to have that process controlled and a new payroll provider in place."
This is particularly pertinent given the impending changes to salary sacrifice arrangements.
Many employers have built their entire benefits schemes on these offerings and may find themselves with tough decisions sooner rather than later.
Bearing all this in mind, one benefit has been proving increasingly popular that SMEs may wish to consider.
"Financial education in the workplace has a really crucial role to play," says Jelf's Herbert.
"If you run these programmes well, they can provide financial education for people at much less than the cost of increasing their salaries and will help them control their spending, lifestyle and reduce stress.
"It also gives the chance to hammer home the value and the reasons behind the rest of the benefits package," he concludes.
Being recognised as one of the three best places to work in the whole of the UK is a prize most people would associate with one of the country's biggest name organisations.
But this year, according to the Sunday Times, it belongs to a company which employs just over 400 people.
Charter Court Financial Services is a group of financial businesses based in Wolverhampton. Since being founded in 2008 the leadership team has made engaging staff and building a strong culture its key objective.
As director of operations Mark Smith explains, getting workplace benefits right is important. "We started on a firm basis and made sure we've got all the basics right," he says.
"There's a pensions scheme with up to 5% matching contributions, one third of staff have access to private healthcare, an employee assistance programme and a discount scheme.
"We do compare against our competitors regularly, but I don't think that's what the top 100 place is all about," he adds.
Indeed, it is the extra flourishes of the non-contractual benefits which really show the business cares about its employees.
One of the biggest ways it does this is by sharing the fruits of its success with them in many creative ways.
But, like many things in life, it seems the route to happiness is through the stomach.
"The company has been through a few milestones," Smith continues.
"At those stages we have shared the success and celebrate it with staff. When there was just 50 employees we poured champagne with them. Now we celebrate differently.
"We tend to feed people a lot. For example, at one point we were upgraded by the financial rating agency Fitch, so we came up with Fitch and Chips day," he adds.
A massive amount of effort is put in to connecting people to the leadership, through employee forums, representatives, quarterly question and answer sessions and intranet posts.
The company also takes pride in the type of people it hires, looking beyond their skills to see if they have a personality and attitude which will fit the culture it has created.
A learning week in May brings different people in every day to let employees learn other skills outside their jobs such as new languages and cooking demonstrations.
Staff also appreciate efforts to recognise and reflect the wider community.
"We have a very diverse community here so we find a way to celebrate events whenever we can - events that are important to people in these communities and our employees who live within them," continues Smith.
And all this brings its rewards, not just in the form of national prizes and awards, but in HR metrics and business performance.
"You do get material commercial benefits: once here people rarely leave and absence is low at less than 2%. If we don't have high turnover and absence it points to good engagement, and low attrition also means hanging on to core skills sets," Smith concludes.
This week's top stories included the Department for Work and Pensions issuing two separate consultations on the pensions dashboard and defined benefit consolidation.
A regime similar to that for defined contribution (DC) master trusts will be set up for regulating defined benefit (DB) consolidators under plans announced today.
Defined benefit (DB) superfunds that wish to enter the market must talk to The Pensions Regulator (TPR) about their plans before opening for business.