Half of companies see employee benefits as a pressing financial challenge

Half of the companies in the UK see employee benefits costs as a top financial challenge, according to a new study. Respondents also told a poll by Gallagher that they were struggling with appealing to a diverse workforce with different preferences.

Over the last decade, employers have consistently complained about a talent-crunch – with premium skills becoming increasingly difficult to source. In the late 2010s, high employment meant finding talent became difficult – while in the post-lockdown months, the ‘great resignation’ saw many workers re-evaluate careers they had been told were ‘essential’ during the pandemic, but which they did not feel valued in to that end.

In both cases, employers made a pointed effort to highlight their benefits packages. At least, in certain regards. While bosses regularly made a song and dance around staff wellbeing (gym vouchers and mental health apps) and workplace enrichment (the infamous office ping-pong table) – they subtly steered conversation away from the idea that pay was connected to attracting in-demand skills.

Now, several years of relentless inflation, and falling employment have disciplined the workforce, to the extent business leaders are comfortable discussing this more openly again. A poll of 236 organisations across the UK has found that a growing cohort of bosses are now readily complaining about paying their staff for supplying their labour.

Looking back on 2024, 51% of respondents told Gallagher’s benefits and HR consulting team that benefits had been a key financial challenge in 2024 – making it the top-ranked concern for the year. And while that was lower than the 60% who said as much for 2023, that still saw it far more of a ‘concern’ than appealing to a diverse workforce’ at 42%, and ‘communication’ on 31%.

At the same time, with the minimum wage rising to £12.21 per hour (still beneath the £12.60 rate calculated by the Living Wage Foundation for the cost of living outside London), a growing portion of business leaders are railing against the decision. The minimum wage increase was cited by 10.5% of respondents as a ‘pain point’, up from 2.9% in 2023.

Return on investment

Steve Threader, managing director for employee benefits consulting with Gallagher’s benefits and HR consulting wing, said, “ROI on employee benefits is top of mind for benefits professionals and C-Suite. In the long term, investment into preventative healthcare, such as targeted health screening and wellbeing support… are going to help drive down long-terms costs. In the short-term, some employers are still failing to take advantage of salary sacrifice savings, specifically within pension schemes, to provide immediate cost saving to both themselves and their employees.”

According to the experts, there are still a host of other benefits, “from discount schemes to gym membership”, that may help employees save on everyday spending. In the end, this could be used to help employers develop a “cost-management strategy that best suits the individual needs of an organisation at a set point in time”. In what might be music to some employers’ ears, many of these are not cost-intensive, either.

With multiple studies having found that remote work does not come with the forfeit in productivity many firms feared pre-pandemic, flexible working arrangements are increasingly popular as a method of offering value to employees with lower direct costs. An 89.9% majority of firms offered some form of hybrid working, while in the past 12-18 months, 61.3% of companies rolled out flexible working arrangements to support recruitment and retention efforts.

At the same time, 53% of UK companies offered condensed working weeks, and 21% offered 4-day working weeks. This is all despite more than a third of respondents naming ‘adapting strategy in the context of a changing landscape’ as the single biggest cultural challenge facing their firm, indicating that some cultural transitions are smoother than others.

Sarah Jefferys, head of reward consulting with Gallagher in the UK, added, “The onus is on benefits professionals to understand what people really want. In some cases, a condensed work week may suit a workplace well, but like any benefit, its relevance to the workplace must be assessed and evaluated on a case-by-case basis. Condensed working works best when employees are working set hours or have set tasks, so both the employer and employees can clearly identify the benefit to each other. The key to getting good engagement and positive ROI on benefits hinges on employers communicating the options available and being open to adjusting strategies to meet the shifting needs of employees.”