Employee benefits are a hugely important element of the world of work. In negotiations and in day-to-day life, both employers and employees all too frequently focus solely on the salary being paid for the job at hand, rather than considering the total remuneration package on offer.

Every employee relies on employee benefits to some degree. Whether it is the company car you drive, the mobile phone you use, or the pension you are relying on, if you are employed by a business it is highly likely that you will be in receipt for some form of benefit.

Employers, meanwhile, use benefits as a way of enticing top quality employees, boosting morale and, sometimes, to minimise tax.

So what are employee benefits – and what do you need to know, either as an employer or an employee?

1. What are employee benefits?

When you take a job, one of your first concerns is likely to be the headline salary – that is, the amount you will be making each year. This is understandable; it is the figure that will probably have the biggest impact on your standard of living in the short term.

But it is only part of the picture. In most cases, employees will also be entitled to a range of benefits – either in addition to their salary or instead as part of it.

There is a range of different benefits that may be on offer, from the basics like a pension, to more esoteric examples like cycle to work schemes or gym membership.

2. Why would employers offer them?

Employers enjoy a range of potential advantages as a result of offering employee benefits. Perhaps the most important of these is the impact on workforce morale. Many employees feel more valued by their employer if they are provided with a good benefits package.

There are also some tax advantages associated with employee benefits. You should note, though, that tax on employee benefits is a complex area, as is discussed later.

3. What are the advantages for employees?

The advantages for employees depend in great part on the nature of the benefits on offer. To begin with you should understand the ‘salary sacrifice’ concept, on which many employee benefits work. This system means that you give up a portion of your salary in exchange for a benefit. If you are giving up some of your income, you need to be sure that you are getting a good deal. Flexible benefits are often a good option – but if you are giving up part of your salary in return for so-called ‘core’ benefits, you might not be getting the most for your money.

You should therefore make sure that you understand exactly what you are getting – and that you are prepared to negotiate with your employer to get the best deal.

4. What are the tax implications?

Tax on employee benefits is complex, and it is an area in which employers are constantly in disagreement with HMRC.

Most employee benefits are treated as part of the total remuneration package given to the employee. This basically means that they are taxed like salary. But there are some tax efficient benefits – and you may be able to reduce the tax impact by thinking about how those benefits are paid. For example, a mobile phone provided by an employer to an employee may be more tax effective if the bill is paid directly by the employer, rather than by the employee who is then reimbursed.

5. How do I start setting up a benefits scheme?

If you are considering setting up a benefits scheme, you should first consider your legal obligations. You may be required to offer certain benefits including, for example, a pension scheme. As a result of the controversial auto-enrolment rules, businesses of all sizes will soon be required to give access to an occupational pension.

You may also consider hiring an employee benefits consultant. This can be a complex area, and a professional consultant can help you determine what is best for you and your employees.

Flex schemes, whereby employees can pick and choose their benefits, are becoming increasingly popular. You should consider this type of scheme if you are unsure what sort of deal your employees would appreciate.

Finally, you should make sure that you compile an employee benefits publication that provides simple, clear guidance on the range of benefits on offer – and their tax implications.

6. Can I use benefits to reduce employee absence?

Many employers use employee benefits as a way of encouraging or discouraging certain behaviour amongst their staff. High absence levels affect many businesses, and this problem can prove expensive. Employee benefits can be a useful way of managing absence and improving your bottom line.

An occupational health programme is an excellent way of ensuring that your workforce’s wellbeing is high. You might also consider offering gym membership to encourage fitness and health.

It is also crucial that every company has a clear, codified absence policy setting out what are considered to be the reasonable reasons for a day off.

If yours is a large organisation, you may consider establishing a self-service absence system, which can reduce the burden on your HR department. You should also investigate ways of auditing your absence performance, in order to ensure that your efforts are working.

7. Is a company car a benefit?

Yes. In fact, company cars are amongst the most popular benefits provided to employees in the UK – but they are also amongst the most misunderstood.

If you are considering offering a company car scheme (or if you are in receipt of one), you should make sure that you understand the tax rules - including HMRC’s mileage allowance system.

As an employer, you should also consider whether it is more efficient to offer company car benefits, or to provide cash allowances to your employees. You may also think about outsourcing your company car benefits, as this can be an effective way of reducing the cost of the scheme.

8. Are there other travel-related benefits?

Travel-related employee benefits are becoming increasingly popular, thanks in part to increased awareness about the environmental (and health-related) benefits of cycling.

A cycle to work scheme can give employees the opportunity to buy bikes comparatively cheaply, while also providing them with a tax advantage. The scheme is sponsored by the government, and therefore receives favourable tax treatment – and helps your employees get and stay fit.

There is also a range of other transport and travel benefits that you might consider. The list is growing every day, as the government continues its green drive.

9. What about healthcare benefits?

Private medical insurance is another of the most popular employee benefits. In medium or large organisations it is now almost considered a given that a remuneration package will include private medical care.

If you are an employee, you may wish to read our article on making the most of your medical insurance. Given that these schemes often work on a salary sacrifice basis, it is important that you are getting your money’s worth.

As an employer, the range of healthcare benefits you might provide is staggering. In addition to a regular insurance policy, you might also consider paid eyesight tests or international insurance.

You should also think about group health insurance, which can help you minimise the cost of the benefit.

Finally, it is worth considering implementing an Employee Assistance Programme. Schemes of this sort can help to keep your workforce healthy – and, in the long run, can cut your costs.

10. How about pensions?

Pensions are perhaps the first thing that many employers and employees think of when they consider the topic of employee benefits. A pension is a benefit on which people rely – and it is therefore important, from both the employer and the employee’s perspective, that it is got right.

To begin with, you need to understand the terminology. Do you understand the difference between a final salary, money purchase, and stakeholder pension scheme? Your choice of pension type could have a major impact on the amount that you (or your employees) eventually have to retire on.

As an employee, you should again make sure that you are familiar with the salary sacrifice concept. As well as coming from your employer, pension contributions are also deducted directly from your pay packed – so you should make sure you know where your money is going.

If you are an employer, it is also important that you educate your employees about the nature of their pension, for example through a seminar or in a written publication.

Employee benefits are a major element of many remuneration packages. If you are an employer, you should seriously consider taking professional advice to help you make the right benefit choices.

If you are an employee, meanwhile, you should also seek help if you are confused about your rights or responsibilities. Personalised assistance is available for free from groups like the Citizens Advice Bureaux. Good luck!