What is Flex?

Flexible Benefits or "flex" is a generic term for an employee reward system that allows, at least in part, some employee choice over the elements of their pay and benefits package. The term is used loosely and can mean completely different types of scheme to different companies and individuals. This fact sheet defines some terminology that we have developed within Redbourne to help our customers understand and articulate their requirements of a flex scheme.

Types of Scheme

We characterise flex into three broad types of scheme:

1. Employer Funded Flexible Benefit Plans are formal arrangements where staff are provided with a range of employer funded benefits (Core Benefits) and/or a separate benefit spending allowance (a Flex Allowance). Employees can purchase benefits of their choosing from a menu of benefits and options using their Flex Fund (comprising their Flex Allowance, downgraded Core Benefits, net pay deductions and any Salary Sacrifice - see below).
2. Employee Funded Flexible Benefit Plans are similar to 1. above but there is no separate employer provided Flex Allowance. Sometimes these schemes are called Total Reward schemes - the employer provides employees with their total reward value and the employees choose how much to take as salary and how much to spend on benefits.
3. Voluntary schemes offer access to discounts or special terms on a range of goods and services which are paid for directly by employees. Payments can be via payroll (as net pay deductions) or, more usually, direct from the employee's bank account to the provider.

We consider the first two as "real" flex and the third a type of incentive scheme that is mistakenly, and sometimes deliberately misleadingly, called a flex scheme. The first two involve considerably more commitment from the employer: contracts with benefit providers, scheme administration, employee communication. A strong employer commitment results in significant benefits to the organisation. In the third type of scheme there is usually no requirement to manage the benefit enrolment and payment but, although more simple to operate, they fail to offer the tax advantages of 1. or 2. and the employer risks "cheapening" their internal brand particularly if access is given to the employees for the purpose of worksite selling.

Salary Sacrifice

A key consideration in any flex scheme and a characteristic of most is the ability of an employee to sacrifice, or exchange, salary to spend on benefits. Employees that opt to exchange salary for benefits through the plan will obtain tax and National Insurance relief for exempt benefits that include pensions, childcare vouchers, computers, life cover, mobile phones and additional holiday days.  Other exempt and partially exempt benefits are also included in flex plans.

See our Salary Sacrifice fact sheet for more information.

Flex example

An example of the main steps in setting up and operating a scheme is given below:

1. Scheme design and implementation
   • A Feasibility Study looks at the business and financial case for introducing a new benefits plan.
   • After a decision is taken to proceed a Specification is produced defining the rules of the scheme (such as the number of days holiday that can be bought or sold), where an employee's Flex Fund comes from (perhaps the most difficult aspect of scheme design for an employer who is upgrading a fixed benefit scheme) and whether unused Flex Fund can be taken as cash.
   • Implementation of the new scheme including employee communication, setting up the necessary business processes and systems would then follow prior to the first enrolment period
2. Employee Enrolment (assumes a computer based system)
   • Employees get a chance to select or change their benefits based on an Event at least once a year during an annual enrolment, when they join the company or when a Lifestyle Event occurs such as the birth of a baby.
   • When the enrolment is opened employees choose their benefits. They select new benefits or enhance existing benefits and depending on the plan design, some benefits may be 'traded' for others. These can include pension contributions, holidays and lowering existing levels of life or private medical insurance cover
   • Employees may change their minds during the enrolment period but must submit their choices before the end of the period
3. Monthly Administration
   • Details of employees joining or leaving are added to the administration system and appropriate events are set
   • Benefit applications are progressed
   • Suppliers are paid
   • Payroll adjustments are processed

Summary

Flex is simply a term used to describe modern employee benefit arrangements that give the employee flexibility in the choice of their salary and benefit package. Often a key part of a flex scheme is the ability of the employee to exchange salary for further benefits realising tax and NI savings in the process.

Please contact us for more information.