Over three-quarters (77%) of UK small and medium-sized enterprises (SMEs) surveyed plan to revamp their employee benefits packages to attract and retain top talent, address workforce challenges and tackle economic pressures, according to Employee Benefit Trends in UK SMEs, a new report from Howden Employee Benefits, in partnership with YouGov.

SMEs focus on reviewing benefits, especially the potential inclusion of preventative health and wellbeing solutions, is particularly timely. Sickness absence rates have reached a 15-year high, with 104.9 million workdays lost in 2023 due to long-term health conditions[i].

Key Findings:

• Benefits Gaps: While 85% of SMEs offer some form of workplace pension, the findings suggest that 15% are failing to comply with pension legislation, exposing them to potential fines. Only 53% provide Private Medical Insurance (PMI) and 49% offer mental health support.
• Economic Strain: Half of SMEs [50%] report financial challenges as the biggest challenge impacting the workforce currently, with the cost-of-living crisis and rise in employer National Insurance contributions (NICs) announced in the Budget adding to these strains. Salary Sacrifice schemes, which allow employers to save 15% on NICs for pension contributions, are a cost-effective and tax efficient solution could address these challenges.
• Flexible Options on the Rise: 47% of SMEs are prioritising flexible benefits, giving employees more choice and the ability to select and customise packages to suit their individual needs—an increasingly vital factor for multi-generational workforces.

What benefit changes are SMEs planning?

• Healthcare and Wellbeing: 46% are expanding mental health support, and 43% are boosting access to PMI to provide faster access to healthcare solutions.
• Pension Improvements: 40% are enhancing pension contributions to strengthen employee retirement security and to help address current pension inadequacies.
• Lifestyle and Financial Perks: 38% are adding gym memberships or lifestyle discounts, while 36% are exploring Critical Illness Insurance, and 31% are considering Group Life Assurance.

Recruitment Challenges are driving change.

29% of SMEs admit that recruitment and retention are significant challenges and offering competitive benefits is now essential to retain top talent. The report also highlights that Jobseekers prioritise pensions, healthcare, and mental health support when choosing employers. This suggests that businesses are listening to the wants and needs of current and future employees with SMEs most likely to be planning changes to these three benefits.

Cheryl Brennan, 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 employee’s 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, said: “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.”

Download the full report here: Howden Employee Benefits.

Download the Infographic here: 3c8666a856.pdf