Should you cut your employee benefits program?

Reducing your employee benefit costs without impacting your EVP is a delicate balance, says Stuart Whitbread from Aon

BY Stuart Whitbread, Aon 12 Oct 2020

Given the chaos surrounding COVID-19, many employers are understandably reviewing their employee-related expenses in an effort to contain costs during this unpredictable period. But it’s critical to first determine what cost savings will mean in the short and long term – and the potential loss to the organisation in other ways.

Direct salary costs are usually one of the first touchpoints that an organisation will leverage to contain costs, whether that be through reducing headcount, standing down employees, or temporary salary reductions. However, employee benefits programs are frequently viewed as a “softer” approach in comparison, and a less controversial means of reducing overall spend.

Reducing benefit costs without reducing the employee value proposition is a delicate balance – but it is achievable, and there are several considerations employers should bear in mind before making these decisions.

Which benefits do we have to keep?

As a first step, you must fully understand which benefits you have an obligation to provide. Do you have benefits which have been written into employment contracts or an enterprise agreement? If you do, then these benefits are best avoided for any reductions in the short term as they will involve more complex legal advice before changes can be made. Even in some cases where the benefit is not mandated and is a discretionary spend by an employer, employees may view benefits as an entitlement, in part fuelled by how they have been communicated and administered in the past. In these circumstances due consideration must be given to how much these benefits can be amended, and how any changes are communicated to staff.

Balancing cost savings with employee perception

Once you have taken the view that your organisation can amend its benefits program, the decision must also be balanced with how these changes may be perceived by your employees. Employers often make major reductions to their benefits by either removing a single benefit altogether or reducing key components of the benefit design. Where this occurs, it can have a negative impact on employee engagement and employee perception of how they are valued and protected by their employer. In a worst-case scenario, if employee benefits are impacted to the extent they are no longer in line with peer organisations, this may result in loss of key talent to a competitor and difficulty attracting talent in the future when the economy improves.

To combat this, we strongly recommend that you undertake a benchmarking exercise to understand what benefits are provided by not only peers in your industry, but also those industries where you may seek to attract talent in the future.

Identifying opportunities to improve your benefits program with alternative benefits

Any time you consider making changes to your benefits program is an opportunity to review your employee strategy and communicate a positive message to employees. At present, the workplace is changing at a rapid rate. Employers are focusing on safety, wellbeing, virtual benefits and communication more than ever before. Employee expectations are shifting to flexibility and working from home arrangements, in light of increased health risks of attending the traditional workplace.

The opportunity exists for you to redesign your benefits program to reconsider high cost, legacy benefits with enhanced wellbeing, flexibility and working from home arrangements. When designing a new benefits package, employers should engage with their workforce to understand what they value and overlay this with the organisation’s desired culture.