A report by Howden Employee Benefits, in partnership with YouGov, reveals that 77% of UK small and medium-sized enterprises (SMEs) plan to update their employee benefits packages to attract and retain top talent, address workforce challenges, and tackle economic pressures.
This emphasis on enhancing benefits, including preventative health and wellbeing solutions, comes as sickness absence rates reach a 15-year high, with 104.9 million workdays lost in 2023 due to long-term health conditions.
While 85% of SMEs offer workplace pensions, the report indicates that 15% are failing to comply with pension legislation, risking potential fines. Additionally, only 53% provide Private Medical Insurance (PMI), and 49% offer mental health support.
Financial challenges, such as the cost-of-living crisis and increased employer National Insurance contributions (NICs), are identified as the primary workforce issue for 50% of SMEs. Salary sacrifice schemes, which save employers 15% on NICs for pension contributions, offer a cost-effective and tax-efficient solution to these pressures.
Flexible benefits are a priority for 47% of SMEs, enabling employees to customise packages to suit their individual needs—an increasingly important feature for multi-generational workforces.
Planned changes include expanding mental health support (46%), increasing access to PMI (43%), and boosting pension contributions (40%) to enhance employee retirement security and address pension gaps. Other initiatives involve adding gym memberships or lifestyle discounts (38%), exploring Critical Illness Insurance (36%), and introducing Group Life Assurance (31%).
With 29% of SMEs citing recruitment and retention as significant challenges, offering competitive benefits is now crucial for retaining top talent. The report highlights that jobseekers prioritise pensions, healthcare, and mental health support when choosing employers, suggesting that businesses are responding to employee needs by focusing on these key areas.
Cheryl Brenan, Managing Director, Howden Employee Benefits, said, “SMEs are navigating a perfect storm of rising costs, recruitment pressures, and increased employee demand for healthcare, particularly mental health support. However, the research shows that many businesses understand that offering comprehensive benefits can be a powerful tool to improve employee wellbeing, reduce absenteeism, drive productivity and strengthen recruitment and retention of talent.
“Now that SMEs face higher Employer National Insurance (NIC) contributions and increased tax bills further to the recent Budget, they can address both these challenges and the UK’s retirement shortfall by implementing salary sacrifice, if they don’t already. Employers can save 15% on Employer NICs on employees’ pension contributions, helping offset some additional costs whilst making a positive contribution to their employees’ retirement outcomes. Investing in the right benefits can lay the foundation for a more productive and resilient workforce.”
Mark Fosh, Executive Director of SME at Howden Employee Benefits, stated, “With 5.6 million SMEs at the heart of the UK economy, their success is vital. Despite rising operational costs and National Insurance contributions, SMEs still have practical options to address these challenges.
“By adopting salary sacrifice schemes and working with an employee benefits consultant to review and optimise their benefits packages, businesses can ensure they’re getting the best value for money while accessing additional value-added services. These steps can provide immediate financial relief, result in a better experience for employees and build a stronger, more engaged workforce.”
