Flexible benefits & COVID-19

Employers have obligations to provide certain benefits to employees, this will include pension and holiday.
 

Often employers will provide other benefits on an at least part company funded basis, such as healthcare, life assurance and disability. Beyond this, voluntary benefits might also be offered which can include benefits such as discounted gym membership, childcare vouchers and cycle to work. The list of benefits is endless and the extent to which employers fund, or part fund is a matter of choice. 

The particular circumstances of Covid-19 create a number of challenges to employers around these benefits and we have detailed below some of the typical questions we are being asked, by employers and individuals.

COVID-19 Flexible benefits FAQs

Most schemes allow for benefits to be re-selected on an annual basis or during the year at a lifestyle event. Although for auto enrolment pension purposes covid-19 is defined as a lifestyle event for many other benefits, it is not defined as such. Many, but not all, schemes do allow benefits to change if there is a significant change in earnings as a lifestyle event. Each benefit and your options therefore need to be looked at on a case by case basis, and will be dependent on the flexibility of the end provider.

For many non-insured benefits, providers are recognising the financial difficulties that employees are facing where they simply do not have the means to fund the cost of benefits. In many instances employees will not be able to access the service that has been purchased and so providers are being pragmatic about what they will allow. Whilst this is not a definitive list, from our conversations with providers we would typically expect the following responses, but you may need to check with your own providers:

  • Gym membership – no new cover will be Affected for the time being as currently there is no access to the benefit. Existing membership will be given an extension to cover, at the moment 3 months. The contract is typically paid up-front by the employer and fees are recouped from the member over the year. So the employer will have some freedom in how to treat payments.
  • Car parking – an extension will be applied – in other words payments will continue but the contract will be extended for a period of time to cover lockdown.
  • Cycle to work – these schemes are run by the employer so there will be a degree of freedom as to what action can be taken. For instance, a payment freeze could be applied. The benefit is not generally impacted and employers will have some discretion on how they treat payments.
  • Childcare Vouchers – normally these benefits are an anytime selection benefit so can be reduced or increased at any time. We understand that there should be no tax disadvantage if an employee comes out of the scheme as long as they re-join within 12 months.
  • Health Screens – the annual fee for the health screen is divided into monthly payments. The option to deselect will be dependent on whether the screen has or will take place before the end of the flex year. For employees who have not taken up the screen and do not intend to do so before the end of the flex year, the employer can allow the employee to deselect the benefit and refund any fees already paid by the employee. Screens which have already been undertaken or intended to be undertaken will be invoiced by the provider and so the Employer will need to continue to take deductions from pay to cover the full annual fee.

Many employees may be suffering financial hardship (on furlough, Job Retention Scheme, or reduced earnings), as a result of COVID-19. The expectation is that at some point in the future we will return to a new version of normal and salaries and earnings for many will return to pre-covid-19 levels. If a significant change in earnings is a lifestyle event, or the return to normal fulfils one of the other scheme specific lifestyle events, then we would expect the employee to have the option to re-select cover to pre-COVID-19 levels.But see below FAQ for insured benefits.

The issues with insured benefits are slightly different. Firstly insurers wish to protect themselves against anti selection (employees reducing cover and then increasing when they want to claim); and secondly premiums are based on cover being in place for a 12 month policy period. This creates different issues for the insurers. A couple of exceptions that may be treated differently are Dental insurance and Travel insurance. Although not the same with all providers, there is recognition that the unavailability of treatment, or the inability to travel, limits the value of the benefit. For Dental insurance we expect the provider to allow cover to be cancelled and re-instated once treatment becomes available. For Travel insurance, we expect the providers to allow employees a degree of flexibility around cancelling and implementing cover during this period. But again, approaches will vary by provider.

The default position with all at the moment is that if an employee reduces or de-selects a benefit as a result of COVID-19, then cover will only be able to be re-introduced or increased at annual enrolment or a lifestyle event. Even then this will be constrained by the number of effective lifestyle events in an annual cycle and the scheme rules around increases. So for example an employee who seeks to increase Life Assurance or Income Protection cover may be constrained to increase by a reduced amount at each valid lifestyle event and will potentially need to satisfy other requirements such as ‘Actively at Work’. For critical illness, a pre-existing condition clause will apply to any increases each time benefits are increased.

We continue to discuss with each provider how rules can be relaxed in these clearly unusual circumstances where employees will potentially be suffering financial hardship and have little recourse but to cancel or reduce cover for a finite period. The key message is that there is no one answer, each benefit needs to be looked at in isolation so please contact your consultant to discuss this further if you are seeking to offer your employees alternatives to their current cover or if you have specific concerns

Where there is some element of flexibility from providers, it is important to check with your flex platform administrator that any additional flexibility can be accommodated. Some specific benefits may need the platform provider to implement design changes to manage these circumstances. This could be allowing for additional lifestyle events, or potentially for some benefits a further enrolment period to be introduced. Not all platform providers will be as flexible as required on this.

For many benefits the advantages of salary sacrifice were removed a few years ago. But the advantages still remain for some; and for ease employers have sometimes kept salary sacrifice in place. As long as earnings are unchanged then there will be no changes to the process. If employers reduce salaries then obligations under salary sacrifice remain. The employee has given up a portion of their salary, in exchange for the employer providing the benefit. Any reduction in salary will not, of itself alter the employers obligation to provide the benefit.

The government has made clear that where a claim is made under the JRS it must be based on the salary after any salary sacrifice. In other words the payment from the government will be less than had salary sacrifice not applied, and the employer obligation to provide the benefit remains. It has also been made clear that the employer must pay all of the benefit to the employee and cannot make any further deductions in respect of salary sacrifice from this payment.

We hope you have found these FAQs useful. We will add to it as further questions are raised and answered. If you need any further clarification, please speak to your consultant for further guidance.

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All information is correct as of 18/05/20

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