Almost three quarters (74%) of UK businesses with employees working abroad are providing cash lump sums instead of sourcing and funding employee benefits, putting their legal and ethical responsibilities at risk, according to research.
The research, conducted by Towergate Employee Benefits, reveals a widespread reliance on this approach. Companies offering lump sums do so with the intention of allowing employees to source their own health and wellbeing support, including private medical insurance and life insurance.
However, this method leaves businesses vulnerable if employees fail to use the money for its intended purpose.
Sarah Dennis, head of international at Towergate Employee Benefits, said, “Offering a cash lump sum to overseas employees is still quite common, and the problem is that employers can’t be sure the money is being spent in the right way. It is not unheard of for the globally mobile to use the money to help fund lifestyle choices rather than the insurances they need, and this is a choice that could have repercussions for the employer, as well as the employee themselves.”
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Failing to provide cover exposes employers to risk
Employers could face significant financial exposure if an employee working abroad requires medical treatment without adequate insurance. A procedure in a foreign country may cost tens of thousands of pounds. In cases where employees have not taken out life assurance, dependants could be left without financial support if the worst occurs.
Towergate stresses that companies have a duty of care that applies equally to employees based internationally. In some cases, employees working abroad may be at greater risk, especially if they do not have access to the same public services or healthcare support as nationals of the host country. Employers are expected to take these factors into account and ensure adequate provisions are in place.
While some businesses believe cash payments offer flexibility, this model also limits employer oversight. Without knowing whether employees are securing vital insurance products, companies risk being held liable for failing to support their staff properly. There is also concern that individuals may lack the necessary knowledge to select the right level of cover.
Knowledge gaps and lack of buying power
Towergate warns that employees without guidance may struggle to secure sufficient protection. Even when employees wish to purchase appropriate benefits on their own accord, a lack of expertise can result in incomplete cover. Additionally, when individuals purchase insurance independently, they forfeit the advantages of group purchasing, such as improved rates and more comprehensive policies.
Dennis added, “While a lump sum of cash may seem tempting for an employee, being provided with the benefits themselves is likely to be the best and most effective option. If the provision is carefully communicated, then employees should understand the true worth of what they are being offered.”
Company-provided international benefits packages often include access to global employee assistance programmes. These services can offer vital support such as counselling, legal advice and financial guidance to staff based overseas. These additional features are not typically included when employees purchase cover independently.
Smaller employers more likely to rely on cash allowances
The research found that company size and international footprint play a role in determining benefits strategy. Smaller employers with fewer than 250 staff are more likely to offer cash lump sums (76%) compared to larger organisations with 250 or more employees (68%).
The trend also shows that as the number of international staff increases, and as the number of countries in which a business operates expands, the likelihood of offering cash rather than structured benefits decreases.
Dennis commented, “It is understandable that smaller companies with only a few employees overseas in a small number of countries are more inclined to provide a cash lump sum than an employee benefits package, but this may be shortsighted.
“In the long run, taking the seemingly easier option of providing a cash lump sum could turn out to be very costly and complicated should something go wrong.”
