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Guide to flexible benefits

Flexible benefits schemes can offer effective incentives that help your business to attract and retain talented employees. Carefully chosen, they can also play a key role in improving staff engagement, wellbeing, and loyalty. 

1.12.25

By Calum O'Donnell

Guide to flexible benefits

Given the advantages they can deliver, some employers are uncertain about what flexible benefits are, how they work, and whether it’s worth investing in them. This guide takes you through the essentials – from understanding and researching appropriate flexible benefits, through to setting up schemes that work for your business.

What are flexible benefits? 

Flexible benefits are workplace schemes that offer employees a range of perks, allowing them to choose the ones most valuable to them. This contrasts with a more traditional ‘one-size-fits-all’ benefits package, which offers the same benefits to all employees. 

Flexible benefits schemes can work in a number of ways. These include: 

  • Salary exchange schemes. For certain benefits, employees can ‘exchange’ part of their salary for a non-cash benefit, for example, for purchasing a bike through a bike-to-work scheme. The advantage is that the deduction is taken before Income Tax and National Insurance, thereby lowering both the employer’s and the employee’s tax bills. These savings can be used to help offset the cost of running the scheme. 

  • Benefit allowances. Employees are given a specified amount of their salary to ‘spend’ flexibly on a range of different benefits. Benefit allowance schemes may also fall under salary exchange, depending on the tax status of the offered benefits. 

  • Salary deduction. Depending on the tax status of a benefit, employees may need to pay for it via their net or gross salary. The rules depend on the benefit offered.  

The tax status of different benefits can be complex, so we recommend you seek expert tax advice when designing a flexible benefits scheme.  

Examples of flexible benefits 

There are many different benefits you can offer via a flexible benefits scheme. One major advantage is that you can tailor your scheme to your business's size, budget, and your employees' needs. Flexible benefits that are commonly offered include: 

  • Financial benefits – including pension top-ups, savings plans, or life insurance. 

  • Lifestyle perks – retail discount schemes, additional annual leave, or travel insurance. 

  • Transport and mobility – examples include company car or cycle-to-work schemes. 

  • Family-friendly options – such as childcare vouchers or parental leave support. 

This list is far from exhaustive. Many businesses have schemes with more unusual offerings. These include things like birthday leave or volunteering days. 

Is a flexible benefits scheme right for my business?  

Flexible benefits aren’t suitable for all businesses. Most providers will have limitations on employee numbers, which can mean that a scheme isn’t viable for your business. You may also find that the cost of the technology needed and the associated administrative costs of running a scheme, prove cost-prohibitive.  

This doesn’t mean that you can’t offer employee benefits, though, as you can still offer the benefits you want but on a standardised basis. For further advice on whether flexible benefits would work for your business, speak to our team or send us an email.

What are the advantages of flexible benefits? 

Putting a flexible benefits scheme in place can deliver positives to both you and your staff, including: 

  • Improved recruitment and retention 
    A strong benefits package helps attract top talent and encourages employees to stay with your business longer, reducing turnover and recruitment costs. 

  • Enhanced engagement and productivity 
    When staff feel valued and supported, they’re more motivated to perform well. Flexible benefits can increase engagement and reduce absenteeism, especially those that encourage staff to boost their physical and mental health. 

  • Cost-effectiveness 
    When you offer salary exchange benefits, employer National Insurance savings can help offset the cost of running the scheme.  

  • Support for diversity and inclusion 
    A flexible scheme recognises that employees have different needs. 

  • A boost to your reputation 
    A good benefits package reflects well on your organisation’s culture and reputation, in turn helping you to attract the best talent. 

There are also major benefits for employees. These include: 

  • Personalisation and choice 
    Staff can select benefits that suit them, rather than accepting a one-size-fits-all approach. 

  • Tax and National Insurance savings 
    Using salary exchange makes benefits more cost-effective for employees than purchasing them directly. 

  • Better work–life balance 
    Access to wellbeing and lifestyle benefits helps improve mental health and morale. 

  • Access to benefits they might not normally be able to afford  
    Through employer purchasing power and tax efficiencies, employees can access high-value benefits, such as private healthcare, at a much lower cost. 

Are there any disadvantages to flexible benefits? 

While flexible benefits schemes can deliver huge advantages, they’re not suitable for every business or every employee.  

For businesses, the main drawbacks are administration-related. Setting up and managing a scheme takes time, planning, and investment (even if it may pay for itself in the long term). You also need to keep on top of tax rules and benefit eligibility. These can change, so regular reviews are essential.   

Employees may also have misgivings about flexible benefits schemes. In some instances, benefits such as medical or life insurance may become more expensive as employees get older, reducing their take-home pay or leaving them with less in their ‘benefits allowance’ for other perks. Flexible benefits paid for through salary exchange will affect employees’ take-home pay and may impact their eligibility for other salary-based benefits, such as tax credits and maternity pay.   

How to set up a flexible benefits scheme 

If you plan to set up a flexible benefits scheme, it’s important to take the time to get it right. Steps to take include: 

  1. Decide what you want the scheme to achieve 
    It’s useful to define your objectives if you want to get the best value from your flexible benefits scheme. For example, do you want to boost retention, promote wellbeing, or become a more flexible employer, or a combination? 

  1. Talk to your employees 
    Ask staff which benefits matter most to them. This will help improve take-up and staff satisfaction. 

  1. Get expert help 
    If you work with an employee benefits expert, such as Alan Boswell Group, they can help advise you on how to put together a compliant scheme, as well as give you ideas and options. 

  1. Choose the right technology 
    Modern software allows employees to choose and manage their benefits, creating a package tailored to their needs. It also makes it simpler for you to manage the scheme.  

  1. Monitor your scheme 
    Once your scheme is up and running, be sure to regularly review participation and gather staff feedback to refine and improve it. 

Need help with a flexible benefits scheme?

If you’d like help with designing and introducing a flexible benefits scheme, talk to the employee benefits team or send us an email.

Speak to us:  01603 967967

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