Employee Benefits Scheme UK: The Essential Guide Your HR Team Needs

37 min to read

30 January 2026

Recent studies show that only 12% of employees feel truly happy with their current rewards. This makes employee benefits schemes a vital part of UK businesses today. The numbers paint a clear picture - more than a third of employees would switch jobs for better benefits. Almost half of them see benefits as their top priority when selecting an employer.

Your organisation faces a steep cost when losing employees who earn over £25k - up to £30,000 per person. These numbers make employee benefits a key factor in both hiring and keeping talent. A well-designed benefits package helps attract top talent and boost wellbeing. It also promotes desired behaviours, achievements, values, and skills. The trend is clear - 39% of employers plan to increase their benefits budget next year. This shows how detailed employee benefits programmes have become essential.

This piece walks you through everything your HR team should know about creating and running employee benefits programmes in the UK. You'll find information about various benefit types and tax implications. The goal is to help you build a programme that makes both your workforce and budget happy.

What is an employee benefits scheme in the UK?

An employee benefits scheme in the UK includes all the extra perks and non-wage compensations that employees get beyond their basic salary. These packages have grown from simple perks into sophisticated offerings that support an employee's life and wellbeing.

Definition and purpose

Employee benefits schemes are extra perks that companies give their employees on top of regular salaries [1]. They're ways employers can reward their staff's hard work and show appreciation for their contribution [2]. The packages can include healthcare plans, flexible work options, and retirement benefits.

These schemes serve two main goals. They help companies attract top talent and keep their best people longer [2]. The packages are a great way to get better overall work conditions and boost employee satisfaction and loyalty [1].

A good benefits package helps create a stronger workplace culture [1]. It can reduce absenteeism and lead to better productivity and work quality. The right benefits strategy isn't just nice to have anymore - it's vital for modern businesses [3].

How it is different from salary

Unlike a regular paycheck, employee benefits are often hidden forms of extra income [4]. They create value through security, convenience, and chances that simple pay raises can't match.

To cite an instance, see this scenario: You get two job offers with identical pay, but one includes a detailed healthcare package while the other doesn't – it's an easy choice [2]. This shows how benefits can tip the scales when salaries match up.

Latest research shows cash matters more in today's economy. A stark 'comfort gap' of over £11,000 exists between average salaries and what workers need. Many employees now put pay first [4]. In spite of that, benefits remain vital, especially ones that support financial security.

These schemes often bring more long-term value than simple pay raises. Here's why:
Pension schemes come with tax benefits and employer contributions that can double your investment [4]
Health insurance lets you access expensive but high-quality health services like private consultations and treatments [4]

Income protection covers 80% of your salary if you can't work for six months or more [4]

UK employees value these benefits highly - 66% say their benefits package matters as much as or more than their basic salary [5]. About 14% would pick better benefits over a pay raise, showing they value certain perks more than cash [5].

Why it matters for HR teams

HR teams now see benefits packages as a key strategic tool. A survey of 300 UK HR decision-makers revealed that 46% thought offering good benefits should be their top priority [6]. This ranked above paying fair wages, which only 42% saw as most important [6].

HR teams are taking a fresh look at what employees want in a job market shaped by post-pandemic pressures and higher expectations. With 72% of workers either job hunting or open to moves, keeping talent requires solid strategies [4].

Benefits give employers more flexibility than salaries. They can adapt to employee needs while managing costs [6]. HR departments can prove their worth by connecting these benefits to real business results [3].

"Experience tells us that job seekers have become progressively more discerning, especially since the pandemic. They look beyond the headline salary when weighing up employment opportunities, and they want to feel fairly rewarded for the value they bring to an organisation. Personalised benefits are an essential part of that" [6].

Companies that let employees pick their own benefits see better staff retention [6]. This personalised approach has become key to creating effective benefits schemes in the UK.

Types of employee benefits available in the UK

UK employers give their staff more than just a salary. The benefits range from healthcare to money incentives. These perks make up detailed packages that help companies attract talent and build loyalty. Here's a look at what's available in today's job market.

Health and wellness benefits

Health benefits are the most valued perks UK employees want. Private Medical Insurance (PMI) has become a sought-after benefit. It lets employees skip long NHS waiting lists for consultations, diagnostics and treatments. NHS waiting times are at record highs, which makes PMI one of the most appreciated workplace benefits [2].

Employee Assistance Programmes (EAPs) provide mental health support through 24/7 confidential counselling and therapy sessions. These programmes now include meditation apps and stress management tools. Mental health support isn't just nice to have anymore - it's essential. This is especially true since stress, depression and anxiety lead to 16.4 million lost working days in recent years [2].

Other health benefits include dental insurance for checkups and treatments, vision care, health cash plans for daily healthcare costs, and wellness programmes like gym membership discounts [7][7].

Financial and insurance benefits

Money worries top the list of concerns for UK employees. Research shows financial stress is the biggest worry for working adults in the United Kingdom [2].

Group Life Assurance is the most common insured employee benefit in the UK. It pays a lump sum to beneficiaries if an employee dies [7]. Critical Illness insurance works similarly - it pays out when someone is diagnosed with serious conditions like cancer or heart attack [7].

Income Protection (also called long-term disability or incapacity policies) helps with financial security. It provides about 80% of salary if someone can't work for long periods [7][8]. UK employers also often offer season ticket loans for commuters and childcare support schemes [7].

Work-life balance perks

Drewberry's 2023 Employee Benefits and Workplace Satisfaction survey found that work-life balance makes 66% of UK workers happy at work [2]. After salary, people look for work-from-home options and a good work environment when choosing jobs [2].

Flexible working arrangements let employees choose when and where they work through:

Hybrid work models
Flexible start and finish times
Compressed hours
Fully remote options

These arrangements don't cost anything but UK employees value them more than a pay rise [2]. About 90% of employees with flexible work say it's the biggest factor in their wellbeing [2].

Learning and development

Companies that prioritise learning and development (L&D) are 92% more likely to create new ideas and adapt to change [1]. The Work Institute found that lack of career development was why most employees (19.6%) left their jobs [1].

Job-related training helps improve wellbeing and gives economical performance improvements [1]. People who get more than 24 hours of yearly job training report better life satisfaction. This is especially true for younger people and those in deprived areas [1].

L&D budgets let employees spend on courses, certifications or training for their career growth. LinkedIn's research shows that learning helps people feel more connected and purposeful, which makes them more engaged [2].

Equity and bonus schemes

Share schemes let employees own part of their company. This creates ownership and lines up employee interests with company goals [9]. The UK has four main tax-advantaged share schemes: Enterprise Management Incentives (EMI), Company Share Option Plan (CSOP), Share Incentive Plan (SIP), and Save As You Earn (SAYE) [10][11].

Small businesses often use EMI schemes. These let companies offer share options worth up to £250,000 over three years [11]. Employees don't pay income tax or national insurance under certain conditions. Companies might also get Corporation Tax relief [11].

Bonuses add to basic wages. They usually depend on company performance, individual achievements, or specific events like year-end rewards [4]. While not required by law, bonus schemes help keep staff motivated, recognise good work, and retain experienced employees [4].

Mandatory employee benefits in the UK

UK employers must provide certain employee benefits by law, while others remain optional to attract talent. These mandatory benefits are the foundations of employee compensation packages. Let's get into the three vital mandatory benefits that every UK employer needs to provide.

Workplace pension

The Pensions Act 2008 requires all UK employers to provide a workplace pension scheme and contribute to it [5]. This 'automatic enrolment' system means employers must sign up eligible employees to their pension scheme automatically.

Your employees qualify for automatic enrolment if they:

Are classified as a 'worker'
Are aged between 22 and State Pension age
Earn at least £10,000 per year
Usually work in the UK [12]

Employers need to pay at least the minimum percentage to the pension scheme by the 22nd of each month typically [13]. They don't have to contribute if an employee's earnings are £520 or less monthly, £120 or less weekly, or £480 or less over four weeks [13].

Employees can opt out of the scheme, but employers can't encourage or force them to do so [13]. The employer must re-enrol opted-out employees at least every three years if they still qualify [13].

Statutory sick pay

Employees who are too ill to work can get Statutory Sick Pay (SSP) of £118.75 per week [6]. Employers must pay this benefit for up to 28 weeks [6].

Employees qualify for SSP if they:
Have been sick for at least four days in a row (including non-working days)
Earn at least £125 per week before tax on average
Have told their employer within any set deadline (or within seven days)
Are employed for tax purposes [3]

SSP isn't paid during the first three qualifying days, which we call 'waiting days' [3]. After this time, employees get SSP for their normal working days [3]. Employers can offer more through a company sick pay scheme, but they can't pay less than the statutory amount [6].

Employees need to provide a fit note (or 'sick note') from a registered healthcare professional if they're sick for more than seven calendar days [3]. Employers should be understanding if there's a delay in getting this documentation.

National Insurance contributions

National Insurance contributions (NICs) are the UK's second-biggest tax. They will bring in about £170 billion in 2024-25, which is roughly one-sixth of all tax revenue [14]. These contributions help fund state benefits, mainly the state pension.

Employers must take employee NICs from wages and pay employer NICs as well. From April 2025, employee NICs will be:
0% on earnings below £242 weekly (£1,048 monthly)
8% on earnings between £242.01 and £967 weekly (£1,048.01 and £4,189 monthly)
2% on earnings above £967 weekly (£4,189 monthly) [15]

Employers pay 15% on employee earnings above £96 weekly (£417 monthly) [15]. The connection between NICs paid and benefits received has become nowhere near as strong over time [14].

Employers also need to pay Class 1A and 1B contributions at 15% from April 2025 on expenses and benefits they give to employees [15].

These three mandatory benefits are just the starting point for UK employee benefits schemes. Many organisations build more detailed packages on top of these basics to stay competitive when hiring talent.

What do UK employees actually want from benefits?

Your workforce's values should guide your benefits package design. New research shows clear patterns in what UK employees want from their benefits.

Top 10 most in-demand benefits

UK employees consistently value benefits that support work-life balance and financial security:

Work-life balance - 90% of respondents rank this as their top priority [8]
Flexible working hours - 87% of employees value this highly [8]
Healthcare benefits - 21% of employees say healthcare plans give them the most value [7]
Pension schemes - 20% of workers find pensions most valuable [7]
Mental health support - 74% of organisations see this as a high priority [8]
Hybrid working arrangements - About 95% of employers now let staff work hybrid [16]
Private health insurance - This benefit matters more as NHS waiting times hit record highs [17]
Holiday trading options - Staff can buy or sell annual leave [18]
Financial wellbeing support - This helps during the cost-of-living crisis [7]
Learning and development opportunities - Younger employees value this most [7]

The research shows employees now prefer benefits that boost their financial wellbeing, health, and work-life balance over simple perks like ping pong tables and free snacks [7].

Trends from recent surveys

Benefits research reveals some interesting trends. Companies now focus more on recruiting talent and managing costs than employee retention, which was the top priority in 2022 [8].

Technology plays a bigger role in benefits delivery. Half of all organisations use online benefits platforms, and another 21% plan to add one within three years [8]. Companies use technology more to get staff involved.

Virtual GP services have grown popular. About 88% of companies offer this benefit [16]. This is the highest score among all benefits in recent surveys, showing a big change in how UK employees get medical care.

How priorities vary by age and role

Different groups want different benefits. Young employees (Gen Z and Millennials) care more about sustainability, mental health support, and learning opportunities [7].

Parents and caregivers value childcare vouchers, flexible work, and better parental leave [7]. Employees close to retirement focus on pension improvements and health insurance [7].

HR teams face both challenges and opportunities. About 44% of employers give similar benefits to everyone, whatever their age, lifestyle or risk profile. Yet 76% say staff ask for more targeted perks [19]. Most employers (70%) say personalised benefits would be too complex to set up [19].

Smart organisations know personalisation is vital. Terry Gostelow, principal strategy consultant at Aon, puts it well:

"Employers are increasingly aware of the changing expectations of employees... This shift is indicative of a broader trend where businesses are understanding the value of their people as their greatest asset" [8].

How much do employee benefits cost employers?

UK companies spend different amounts on employee benefits schemes. They usually allocate 1.25 to 1.4 times each employee's base salary or add 20-50% to salary costs [2]. A standard measure suggests putting about 32% of salary costs toward benefits [2].

Factors that affect cost

The cost of setting up employee benefits packages depends on your workforce and what you offer. Here are the main factors that determine costs:

Company size and demographics: Large groups usually get better rates for insurance-based benefits [20]. Worker age profiles affect premiums by a lot. Older workforces mean higher costs for health-related benefits.
Benefit selection and coverage levels: Your choice of benefits and their coverage directly affects the price. Group Life Insurance costs change based on whether you pick 2x or 4x salary coverage [1]. Income Protection costs also vary if you choose coverage until retirement age or for five years [1].
Industry sector: Some sectors pay higher premium rates because of their claims history and risk levels [20].
Salary levels: Insurance-based benefits often scale with salaries since payouts are calculated as salary multiples [20].

Small and medium businesses might pay £2 to £11 per employee monthly. Complete packages can cost more than these figures [2].

Cost-saving strategies

The National Insurance increase from 13.8% to 15% [21] has pushed employers to find ways to manage benefit costs:

Salary sacrifice arrangements are one of the best ways to save money. Employees can exchange part of their salary for benefits before tax and NI. This creates up to 15% savings in employer NI contributions [21]. Popular choices include pension contributions, cycle-to-work schemes, electric vehicle leasing, and holiday trading [22].

Regular benefit audits help find services that aren't used much. Research shows 56% of employers got better terms from vendor contracts to save money [23]. About 37% have combined different services into packages from single vendors [23].

You can restructure benefits instead of removing them. This means limiting health conditions in medical schemes or adding payment term limits for income protection [22]. Employees prefer reduced benefits over losing them completely [22].

Tax breaks for work-related training, trivial benefits, and remote working support can improve your offering without big cost increases [22].

Using a benefits calculator

Benefits calculators help estimate setup costs. You'll need to provide:

Company headcount
Employee average age brackets
Desired benefits selection
Coverage levels for each benefit [1]

These calculators show per-person and total company costs, broken down monthly and yearly [1]. They cover main benefits like private medical insurance, life insurance, income protection, and wellness allowances, plus flexible benefits budgets [1].

Note that calculators give estimates, not final quotes [1]. Getting exact figures from benefits specialists makes sense, especially with recent changes to employer National Insurance contributions and pension rules [10].

Advanced calculators include recent tax year updates and factor in salary sacrifice arrangements. They show both employer costs and employee net take-home amounts [4].

Tax implications of employee benefits schemes

The right tax strategy for employee benefits is a vital part of maximising their value. Companies and their staff can gain the most important advantages with proper planning, but poor decisions might lead to unexpected tax bills.

Tax-free benefits

UK companies can offer several tax-exempt benefits that are economical solutions for compensation packages. Here are the tax-free perks available:

Workplace meals in staff canteens and hot drinks at work
Mobile phones (all but one of these phones per employee)
Workplace parking spaces
Health screenings and medical check-ups (up to one each per year)
Sports facilities provided by employers

Annual parties costing £150 or less per head that are open to all employees [11]

Pensions advice up to £500, workplace nurseries, and medical treatment abroad for employees who fall ill during overseas work assignments are also tax-exempt [9]. On top of that, cycle-to-work schemes, childcare support, and work-related training stay free from taxation, which makes them attractive options.

Salary sacrifice schemes

Employees can trade part of their cash pay for non-cash benefits through salary sacrifice arrangements, which could lower the tax burden for everyone involved. These schemes let employees accept a lower gross salary in exchange for benefits like pension contributions or childcare vouchers.

Each benefit has its own tax implications. The core team at HMRC doesn't need reports on certain salary sacrifice arrangements:

Pension scheme contributions
Employer-provided pensions advice
Workplace nurseries
Childcare vouchers (for schemes started before 4 October 2018)
Bicycles and cycling safety equipment [24]

Keep in mind that from April 2029, only the first £2,000 per year of pension contributions made through salary sacrifice will be exempt from National Insurance contributions. Any amount above £2,000 will attract both employer and employee NICs [25].

Companies must ensure these arrangements don't reduce earnings below National Minimum Wage rates, so they need to put caps on deductions [24].

Trivial benefits and exemptions

Trivial benefits give employers a simple way to offer small perks without tax consequences. A benefit qualifies as "trivial" when it meets these requirements:

Cost £50 or less per employee (including VAT)
Not be cash or a cash voucher
Not be a contractual entitlement
Not be provided as a reward for work performance [26]

Birthday gifts like flowers or chocolates, seasonal gifts such as Easter eggs or wine, celebratory meals under £50 per head, and occasional food trucks fit into this category [12].

Employees can receive multiple trivial benefits throughout the year if each stays under the £50 limit. Directors of "close" companies (limited companies run by five or fewer shareholders) have a £300 annual cap on trivial benefits [26].

The entire amount becomes taxable if a benefit exceeds the £50 limit—not just the portion above £50 [5]. Benefits that employees expect regularly, like weekly pizza Fridays, might not qualify for this exemption [12].

How to implement an employee benefits programme

A well-planned and executed employee benefits programme delivers maximum value to your organisation. Your investment success depends on these five essential stages.

Step 1: Define your budget

Start by choosing the right budgeting method that fits your current needs. Zero-based budgeting works best for new programmes because it analyses every benefit cost aspect [30]. Incremental budgeting helps optimise existing benefits based on past results [30]. Remember to add a contingency fund for unexpected costs and prepare a detailed breakdown to get approval [30].

Step 2: Survey your team

Get insights from your employees through anonymous surveys, focus groups, or casual conversations [31]. This research shows what your workforce truly values—80% of employees would rather have extra benefits than a pay raise [32]. Your staff's age makes a difference too. Younger team members often value different perks than those close to retirement [15].

Step 3: Choose providers or platforms

Look for providers who have worked with businesses like yours [14]. Meet their team in person by visiting their offices [33]. Test any platform thoroughly before you commit. An accessible interface encourages more employees to participate, which boosts your return on investment [14].

Step 4: Communicate and launch

Create a multi-channel communication strategy that uses emails, presentations, posters, and digital tools [34]. Launch timing matters. Avoid busy periods like financial year-end [34]. Your message needs at least three repetitions. Research shows people need to hear information several times before it sticks [35].

Step 5: Monitor and adapt

Set up regular reporting cycles to track engagement metrics and costs [36]. Quick feedback comes from automated surveys that measure your programme's success [37]. Data should guide your changes. Benefits with low uptake might need better promotion or replacement [38].

Conclusion

Employee benefits schemes are powerful tools that go beyond simple perks to attract and retain top talent in today's competitive job market. This piece shows how a well-laid-out benefits package can reduce turnover costs by a lot while boosting employee satisfaction and wellbeing.

UK employees value benefits that make real improvements to their lives. Work-life balance options, healthcare coverage, and financial wellbeing support rank higher than office gimmicks or free snacks. Your benefits strategy should go beyond simple offerings to address what matters most to your workforce.

Without doubt, a benefits scheme that works needs you to think over both mandatory elements like pensions and optional perks for your unique workforce. Personalisation has become a vital factor as different demographic groups show distinct priorities. While 44% of employers still offer similar benefits whatever the age or lifestyle, smart organisations see the competitive edge in targeted offerings.

Tax implications help maximise value. Smart use of salary sacrifice arrangements, tax-free benefits, and trivial benefits exemptions can create substantial advantages for your organisation and employees. These approaches are a great way to get more value amid rising employment costs, including the upcoming National Insurance increase to 15%.

Your benefits programme needs a well-laid-out approach - from setting budgets and surveying staff to choosing providers and communicating clearly. Your investment will deliver the best returns when you monitor regularly and adapt based on engagement metrics.

Note that employee benefits showcase your organisation's values and steadfast dedication to staff wellbeing. A thoughtful scheme that arranges both employee needs and business objectives will help build a more engaged, productive, and loyal workforce to move your company forward.

FAQs

Q1. What are the most valued employee benefits in the UK?

The most valued employee benefits in the UK include flexible working hours, healthcare benefits, pension schemes, mental health support, and work-life balance initiatives. Recent surveys show that employees prioritise benefits that meaningfully improve their financial wellbeing, health, and work-life balance over superficial office perks.

Q2. How much do employee benefits typically cost employers?

Employee benefits typically cost employers between 20-50% of an employee's base salary. However, the exact cost varies depending on factors such as company size, benefit selection, industry sector, and salary levels. Small to medium businesses might spend anywhere from £2 to £11 per employee per month for basic packages, with costs potentially higher for more comprehensive offerings.

Q3. Are there any tax-free employee benefits in the UK?

Yes, several employee benefits in the UK are tax-exempt. These include workplace meals, mobile phones (limited to one per employee), workplace parking spaces, annual health screenings, sports facilities provided by employers, and annual parties costing £150 or less per head. Additionally, cycle-to-work schemes, childcare support, and work-related training are also tax-free.

Q4. What is a salary sacrifice scheme and how does it work?

A salary sacrifice scheme allows employees to exchange part of their cash pay for non-cash benefits, potentially reducing both the employer's and employee's tax burden. Common examples include pension contributions, childcare vouchers, and cycle-to-work schemes. The employee agrees to a reduction in gross salary in return for these benefits, which can result in tax savings for both parties.

Q5. How can employers implement an effective employee benefits programme?

To implement an effective employee benefits programme, employers should follow these steps: 1) Define a budget, 2) Survey employees to understand their preferences, 3) Choose appropriate providers or platforms, 4) Communicate the programme effectively to staff, and 5) Continuously monitor and adapt the programme based on engagement metrics and feedback. It's crucial to align the benefits with both employee needs and business objectives for optimal results.