What are the legal requirements for employee benefits in the UK?

Employee benefits are often talked about as a way to attract and retain people. Private medical insurance, enhanced pensions and wellbeing support can all help an employer stand out.

But not everything sits in the ‘nice to have’ category.

UK employers also have legal responsibilities around areas such as holiday, workplace pensions and statutory leave and pay. Understanding where the legal minimum ends and your wider benefits strategy begins is an important part of getting your overall package right. 

What employee benefits are required by UK law?

The benefits an employee is entitled to will depend on factors such as their employment status, earnings and individual circumstances.  

However, there are several areas every employer should understand. 

Paid holiday

Almost all workers are legally entitled to 5.6 weeks of paid holiday each year.  

For someone working five days a week, that's usually 28 days. Bank holidays can be included within this entitlement rather than being offered on top.  

Part-time workers are also entitled to at least 5.6 weeks of paid holiday, although this will amount to fewer days. Different rules apply when calculating entitlement for irregular-hours and part-year workers.  

Employers can, of course, choose to offer more holiday than the statutory minimum. 

Workplace pensions

Employers must provide a workplace pension scheme and automatically enrol eligible employees.  

Generally, employees must be automatically enrolled if they're classed as a worker, are aged between 22 and State Pension age, earn at least £10,000 a year and usually work in the UK.

Employers also need to make minimum contributions for eligible employees. The minimum employer contribution is generally 3% of qualifying earnings, although the way contributions are calculated will depend on the pension scheme.  

But compliance doesn't have to be where the pension conversation ends.

A workplace pension can form the foundation of a much broader financial wellbeing strategy.  

An employee benefits advisor can help connect pension provision with other areas such as financial education, retirement planning, workplace savings and debt management support.  

Salary sacrifice may also form part of the approach. Under a pension salary sacrifice arrangement, an employee agrees to give up part of their salary and the employer pays it into their pension instead. Depending on the circumstances and HMRC rules, this can reduce National Insurance costs.

Bringing these areas together can also make the experience simpler for employees.

Rather than pensions and financial wellbeing being treated as separate initiatives, communications can help employees understand how the different elements work together and the overall value of the support available to them.  

Regular reviews are important too. They can help employers check their pension remains compliant, competitive and cost-effective as legislation, the workforce and the wider market change.

Family-related leave and pay

Employers also need to understand their responsibilities when employees have or adopt children.  

Depending on eligibility and individual circumstances, statutory rights can include maternity, paternity and adoption leave and pay, as well as Shared Parental Leave and Pay.

There are also statutory provisions covering areas such as parental bereavement and neonatal care.

Eligibility, length of leave and the amount of statutory pay aren't the same across every type of leave, so employers need to check the relevant rules rather than applying one approach across the board.  

Businesses can choose to offer enhanced family benefits above these statutory requirements as part of their wider employee benefits package. 

Statutory Sick Pay

Eligible employees may also be entitled to Statutory Sick Pay when they're unable to work because of illness.

Employers need to make sure their absence and payroll processes reflect the current statutory requirements.  

Some businesses choose to provide occupational or company sick pay above the statutory entitlement. Where enhanced sick pay is offered, the terms should be clearly communicated so employees understand what they're entitled to. 

How are employee benefits taxed?

Providing a benefit doesn't necessarily mean an employee receives it tax-free.

This is an area where employers need to understand both the benefit they're providing and how HMRC treats it.

Many employer-provided benefits, that give an employee a personal financial advantage, can be treated as benefits in kind.

Private medical insurance is one common example. Other examples can include company cars, low-interest loans and certain accommodation.

Where a benefit is taxable, employers may have reporting responsibilities and could also need to pay employer National Insurance on its value.

Not every benefit is treated in the same way.

Employer pension contributions, for example, are generally not treated as a taxable benefit for employees. Pension salary sacrifice can also create National Insurance savings in some circumstances, subject to the relevant HMRC rules.

That's why tax needs to be considered when benefits are designed, rather than after they've already been introduced. 

What is changing for benefits in kind?

Employers also need to prepare for changes to the way certain benefits in kind are reported.  

From April 2027, mandatory real-time payrolling is being introduced in phases.  

The first phase covers company cars, car fuel, vans, van fuel and employer-provided medical benefits. Employers will need to report the relevant taxable values through payroll so that Income Tax and Class 1A National Insurance can be dealt with in real time.  

Mandatory payrolling is then due to extend to most other benefits in kind from April 2028, with some exceptions.  

This is a significant change for employers currently relying on year-end reporting for affected benefits.

Payroll, HR and benefits teams should understand which benefits are affected and make sure their processes and systems are ready for the change.  

You can also read Howden's guide to which employee benefits are taxable in the UK? for more information.  

Tax rules can be complicated and change over time. Employers should regularly review their arrangements and seek appropriate benefits and tax advice where needed. 

What's the difference between contractual and discretionary benefits?

Another important consideration is whether a benefit is contractual or discretionary.  

A contractual benefit forms part of an employee's terms and conditions. This could be written into the employment contract or incorporated through another document or policy.  

That matters because employers can't necessarily change or remove a contractual benefit whenever they want.  

Discretionary benefits generally give the employer greater flexibility. But simply describing something as ‘discretionary’ doesn't mean an employer should change it without considering the wider employment law implications and how the benefit has been provided in practice.

Clear wording matters.  

Employees should understand what they're entitled to, whether there are eligibility requirements and whether a benefit forms part of their contractual package.  

Employers considering changes to contractual benefits should take appropriate legal advice. 

How does the Equality Act apply to employee benefits?

Benefits also need to be considered alongside an employer's wider equality obligations.  

The Equality Act 2010 protects people against discrimination in employment. That means employers need to think carefully about eligibility criteria and how benefits are offered across their workforce.  

Offering different benefits isn't automatically unlawful. There may be legitimate reasons why benefits differ between employees.  

However, employers should consider whether eligibility rules or benefit changes could directly or indirectly disadvantage employees because of a protected characteristic.  

This is particularly important when introducing, changing or removing benefits.  

Clear policies and consistent decision-making can help employers understand why different groups receive particular benefits and reduce the risk of unintended unfairness. 

How can employers stay on top of their employee benefits responsibilities?

Meeting the legal minimum is essential. But it shouldn't be the only time you look at your employee benefits.  

Regular reviews can help you check that statutory requirements are being met while also asking a wider question: are your benefits still working for your people and your business?  

Look at your pensions. Review how benefits are taxed. Check your policies and eligibility criteria. And make sure employees actually understand what they're entitled to.

From there, you can look at how statutory and additional benefits fit together as one overall employee proposition.

Compliance first. Then value. 

Need help reviewing your employee benefits?

Howden Employee Benefits can help you review your existing provision, understand where improvements could be made and build a benefits strategy that works alongside your wider business goals.  

Talk to Howden Employee Benefits about getting more from your employee benefits strategy. 

Howden Employee Benefits & Wellbeing Limited is part of the Howden Group. Registered in England and Wales under company number 2248238, with its registered office at One Creechurch Place, London EC3A 5AF. Authorised and regulated by the Financial Conduct Authority (Financial Services Register No. 312841).    The Financial Services Register can be accessed through www.fca.org.uk