UK small and medium-sized enterprises (SMEs) are taking steps to revamp employee benefits packages in response to economic challenges, workforce health concerns, and talent retention pressures.
According to the Employee Benefit Trends in UK SMEs report from Howden Employee Benefits, in partnership with YouGov, 77 percent of SMEs are planning changes to their benefits offerings.
This shift comes at a critical time as sickness absence rates reach a 15-year high, with 104.9 million workdays lost in 2023 due to long-term health condition – leading to a growing emphasis on flexible and preventative health and wellbeing benefits. Economic pressures, including the cost-of-living crisis and rising employer National Insurance contributions (NICs), are influencing many SMEs’ decisions.
While cost-effective options like salary sacrifice schemes could provide financial relief, only 53 percent of SMEs currently offer Private Medical Insurance (PMI), and fewer than half provide mental health support.
Gaps in Benefits Provision
Many jobseekers prioritise pensions, healthcare, and mental health support when evaluating potential employers, making these areas a focus for businesses looking to attract and retain top talent.
While 85 percent of SMEs provide workplace pensions, 15 percent appear to be non-compliant with pension legislation, exposing themselves to potential penalties. Mental health support is available at only 49 percent of SMEs, and PMI is offered by 53 percent.
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 as well as talent retention.
“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.”
Nearly half of SMEs (47 percent) are prioritising flexible benefits packages that allow employees to customise offerings to meet their individual needs. In addition, 46 percent of SMEs are expanding mental health support, and 43 percent are enhancing access to PMI. These measures aim to provide employees with faster access to healthcare and better support for mental wellbeing.
Focus on Pensions and Lifestyle Benefits
Strengthening pensions is a key priority for many SMEs, with 40 percent planning to increase contributions to improve employee retirement security.
The financial challenges faced by SMEs are also driving interest in Salary Sacrifice schemes. These schemes offer a cost-effective solution for pension contributions, enabling employers to save 15 percent on NICs. Such measures provide tax-efficient benefits for both businesses and employees, addressing economic constraints without compromising support for the workforce.
Beyond pensions, lifestyle benefits are also gaining traction, with 38 percent considering gym memberships or lifestyle discounts. Critical Illness Insurance and Group Life Assurance are also being explored by 36 percent and 31 percent of SMEs, respectively, reflecting a broader commitment to supporting employee health and financial resilience.
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.”
