The value of rewards
12 April 2018
This article was featured in the May 2018 issue of the magazine.
Neil Tonks ChMCIPPdip, legislation manager at MHR, sets out the arguments for providing total reward statements
It’s a good bet that every one of your employees could quote their basic salary or wage to you. But how many could tell you the total value of their employment package? It’s an important question, especially in the current climate where it’s increasingly common for employees to be given benefits on top of their basic pay.
With the advent of automatic enrolment most employees have at least one additional benefit, in the shape of their employer’s pension contribution. By April 2019, this will often be up to 8% of the basic pay where the pension is operated on a salary sacrifice basis, but can be much more especially if a defined benefit pension scheme is offered. In these cases, an employer contribution of 20% or more is not uncommon, but employees are often totally unaware of this.
Many employees have additional benefits, in a huge variety of flavours – childcare vouchers, gym memberships, life insurance, critical illness cover, private healthcare, workplace car parking and so on.
Yet most employees don’t appreciate the true value of these things, especially where they’re provided as a standard part of their employment package rather than being selected as part of a flexible benefits package. Sometimes the value is invisible because it’s not on the payslip. In other cases, employees might see the value in a copy of their P11D return or as a ‘payrolled’ taxable benefit; but often these are seen in a negative way because they increase the tax which must be paid even though this is always far less than the actual value of the benefit.
...most employees don’t appreciate the true value of these things...
So, what’s the solution to this? How do you encourage your employees to appreciate that basic pay isn’t the only benefit they get from you, or the only cost of employing them? One way is to provide them with a total reward statement.
Put simply, this is a list of everything they get from you as part of the employment relationship, and the value of each item. It used to be a paper document, but these days it’s usually provided electronically. This gives you more flexibility and is always up to date – you probably don’t want the hassle of reissuing a paper statement every time something changes.
You can also take advantage of things which are easier to do online, such as providing a graphical summary like a pie chart to begin with and then allowing employees to ‘drill down’ to more detail of individual items if they wish to.
If it shows how total reward values change over time, the statement can also help employees to appreciate that their total package value might rise at a greater rate than their basic pay; for example, when employer pension contributions are increased.
There are several software packages on the market which provide total reward statements, often in conjunction with benefit management systems which can reduce the administration burden in dealing with the benefit providers (insurance companies etc).
If you don’t want that level of complexity, or the cost it involves, you should start by looking at what your current software can do, especially if it’s an integrated human resources and payroll system. Some of these, such as MHR’s iTrent product, have a reward statement built into them which can be deployed via the employee self-service module, which many of you will already be using for other purposes.
When implementing a total reward statement, you need to make sure you include all the benefits you provide, no matter how small the amounts involved or how few people get them. Employees won’t trust the statement if it’s incomplete or inaccurate.
You might have some scope for creativity with what you show. For example, if you provide car parking for your employees free of charge while local car parks charge £10 a day, there’s a case for saying this is a benefit to those employees who drive to work. Other things might appear without a cash value. For instance, if you provide a subsidised staff restaurant, this could be shown on the statement but it’s probably not practical to assign a value to individual employees as this depends entirely on how much use they make of it.
I’ve also heard of the employer’s National Insurance contributions being shown on total reward statements, but I admit I’m not sure about this one. It’s certainly a significant employment cost, but it doesn’t directly benefit the employees. It’s essentially a tax paid by employers.
No matter how it’s provided, a total reward statement can improve employee morale as it makes people realise that basic pay isn’t the be-all and end-all of the employment relationship.