Compensation packages give firms a competitive edge in staff retention and enhance efficiency IT APPEARS THE concept of flexible employee benefit plans that allow staff to select the items which best suit their individual needs has finally found acceptance in Hong Kong. Employers realise that such plans can offer competitive advantages and potential efficiencies, even though implementation may involve addressing a number of legal and contractual issues. Black Mountain, the human resources services firm, conducted interviews with approximately 50 HR managers working for multinationals and other organisations, and found that about 24 per cent of employers offered flexible benefit packages. This represents an increase of 60 per cent from 2002, while more than a third of the companies surveyed were considering introducing the practice before 2008. In employment contract terminology, anything an employer provides beyond salary or bonus is defined as a benefit. Those mandated by law, such as Mandatory Provident Fund contributions, are statutory, while a large degree of discretion can be applied in awarding other voluntary benefits. In certain cases, benefits can total as much as 20 per cent of the remuneration paid to an employee, and the work required in administration can be significant. Therefore, if efficiencies can be achieved at the same time as individuals get the extras they most value, all parties come out ahead. For example, given the choice, a younger employee in his or her mid-20s might prefer membership of a trendy gym, while someone in their mid-40s with three children would opt for additional disability, life or medical cover, which is the most popular of the options commonly offered in Hong Kong. 'The solution can be found in giving employees what they want with flexible benefits, which also allow the company to maintain the same level of expenditure,' said Graham Corner, Black Mountain's managing director. When used strategically, customised compensation packages can give companies a competitive edge in retaining staff and also offer employees the possibility of greater tax efficiency. However, they can make life more difficult for insurers and for underwriting, because the concept of group insurance is not based on choice. 'At the outset, implementing a flexible benefits package requires a lot of effort to provide sufficient information for employees to make the right choices,' Mr Corner said. 'Some costs for insurance and initial administration might go up, so it is most important for the company to decide what they want to achieve through introducing the programme; flexible benefits are not merely to give employees what they want.' The first step, according to Mr Corner, should be a feasibility study listing current benefits and those which are normally 'negotiable'. This exercise should also identify which benefits cannot be touched, either because they are statutory or reflect the core values of the organisation. The complete list should then be reviewed to consider potential barriers presented by administration, costs, legal and taxation issues, or even IT systems. Once this is done, the employer can decide on a reasonable list of optional benefits and the range of available choices for each. They should also consider expanding the benefits to include spouses, partners and family members. The next step is to set up an implementation plan involving key stakeholders. They should assign responsibilities and agree on a realistic timetable. The efficient administration of such a programme depends on employees having easy access to a computer. 'For employers, implementing a flexible benefits package for more than 20 employees, is impractical unless it is online,' Mr Corner said. 'HR information systems have improved, but you also need to make the application process simple for employees, with all information easily available.' Legal issues, especially those related to the terms of employment contracts, can present a potential minefield when implementing a new scheme with flexible benefits. Russell Bennett, consultant, Tanner De Witt Solicitors, said: 'A serious risk is constructive dismissal, where an employee can resign, but can end up in effect being legally dismissed by the company because a new benefit constitutes a breach of the employment contract. 'In this scenario, the employee may be able to leave with immediate effect with certain entitlements while voiding the business protection clauses of the original contract agreement.' According to Mr Russell, other potential pitfalls requiring protective contract terms are the cost of payment in lieu of notice, the risk of concessionary benefits becoming contractual, and the Employment Ordinance, especially as it applies to holidays, rest days and leave pay. To guard against such risks, employers need to reserve the contractual right to unilaterally change the structure of the benefits package. Win-win solution needs careful planning Flexible benefits packages are a growing trend in Hong Kong. These schemes can be an important tool for attracting and retaining employees. The first stage of planning should be a feasibility study and comparison. Schemes must take account of administration, costs, legal and taxation issues. Using IT is essential for smooth implementation, especially for larger organisations.
