Identifying and managing risks

Introducing a new benefits structure into an organisation presents a number of risks and this fact sheet identifies these and suggests some ways of managing these.

Salary sacrifice

One popular way of delivering a modern employee benefit package is to use salary sacrifice as a mechanism to optimise the tax treatment of an employee benefit package for both employees and the employer. However, there are risks associated with this as the Inland Revenue can deem these an ineffective if they are not administered correctly.

To remove this risk, it is vital that you clearly understand the salary sacrifice concept and that it is implemented correctly. See our fact sheet on the subject for more information.

Also, make sure that, following launch, the plan rules are submitted to the Inland Revenue for approval. They will not approve a salary sacrifice plan before launch as it is not a Revenue area of responsibility and it is more about making sure employment law is correctly applied.

Alternatively (and often more relevant where there are larger groups of employees), a trial can be established with a group of employees to test that the design is effective before rolling it out the entire employee population.

One final thought. Consider a tax investigation insurance contract. Although not widely used, these provide a financial benefit in the event of a problem and, especially for smaller firms who cannot afford the services of high-end tax and legal advisers, it may make sense to consider this as an option.

Group risk

One of the advantages with a flexible benefit plan is that each employee can shape the level of some or all of the benefits. This also leads to risks associated with making sure that the employee preferences match the insured amounts. It is important to remember that an employee is normally entitled to a level of benefit from the employer irrespective of if the employer has arranged the right level of cover. Ensure that your risks are reduced or eliminated by providing clear and accurate terms on your employee literature or online system.

Understand the underwriting basis of your arrangements so that those who do not get full cover immediately will know that this is the case and align your processes to ensure applications are properly followed up.

Firstly, a good plan design can eliminate much of the potential for problems. A simple, pragmatic set of benefits is less likely to cause administrative complexities.

Secondly, try and opt for benefits that do not need paper application forms. This will reduce the administrative steps and lead to less potential for the employee choices not matching the insured amounts.

Employment contracts

The introduction of flexible benefits is likely to constitute a change in the employees' terms and conditions of employment. Unless there is an express contractual right to vary the terms and conditions, a contract can only be changed by mutual consent.

Any change which is imposed by the employer in the absence of the agreement of employees is likely to be a breach of contract entitling the employees to seek damages or, where the breach is fundamental, to resign and claim unfair constructive dismissal. In practice, an employee is only likely to object to a change in terms and conditions and take action if the change is to their detriment.

To reduce the risks associated with this aspect, contracts should be checked and employees consulted. This process should be carefully documented and employee consent be obtained (this can be by opt in or opt out).
Finally, depending on your circumstances, seriously consider taking some advice.


Communication

Poor communication can lead to a range of problems, from employee apathy to outright dissatisfaction and challenges to the changes being introduced. The best way of avoiding these risks is to ensure the communication is well planned and delivered. See our fact sheet on employee communication for more information.

Administrative

We have already touched on this issue under the section on risks associated with insurance cover. However, our definition of administrative risk is related to the wider plan and the risks associated with poor or inaccurate plan administration. This can cause problems in several areas but we have highlighted 3 that seem to cause the most problems for the unwary.

Firstly, supplier information and data issues. All benefit suppliers require information to provide the right benefits for the right employees. Poor administration may mean the supplier relationships are damaged or worse the wrong benefits provided. The other problem is the internal resource drain associated with sorting out problems. Good internal structures and process management is a good way of avoiding problems or consider outsourcing the administration to a service provider.

Secondly, payroll cut off dates will determine the monthly plan cycle and we hardly need explain the problems of not meeting deadlines. Again, a structured approach to data processing and a good, simple plan design should mean you are able to provide the right data at the right time each month.

Thirdly, consider the issues related to administrative queries beyond the basic setting up of benefits. A flex plan is likely to have more benefits, different types of benefits and more administrative events. Some benefits require delivery and if you are offering to act as a central hub to manage all of these, consider the risks associated with the fulfilment throughout the process.

Summary

Benefit administration systems provide an excellent and cost effective way of operating this type of plan but make sure that you have the internal resource levels and capabilities to operate the plan otherwise some of these issues might turn around and bite.

Links & Information

 

Print this page
Call Back
Email Us

Register for our benefits bulletin.

Call us on 0871 664400 Request Demo

Please contact us for a full demonstration of all our products or click on the link above for a demo of a typical online employee enrolment system.

Other relevant links:

What is flex?
An introduction to flexible benefits.

Implementing a new employee benefits scheme
Practical tips.

Salary sacrifice
The concepts, benefits and issues.

The tax treatment of benefits
Possible tax advantages of benefits.

Tax credits
Tax credits and their effect on flex schemes.

Paperless employee benefits application
Eliminate paper forms with a modern benefits scheme.

Healthcare schemes and flexible benefits
Incorporating medical insurance in a flex scheme.

Employee communication
How to be effective.

Identifying and managing risks
How to ensure things do not go wrong.

Employment law and flex
Issues for contracts of employment.

Employee discounts - what's the big "deal"
Voluntary employee benefits; deals and discounts.

Environmentally sensitive employee benefits
Developing an environmentally sensitive employee benefit package.

Helping employees get healthier
Making a real difference.

 
legal |  scheduled maintenance |  privacy policy |  login ©2006-07 Redbourne