How Much Do Employee Benefits Cost In The UK?

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17-03-2021

The cost of employee benefits depends largely on the package you want to offer. The term employee benefits is actually very broad, with multiple options under this umbrella. For example, it includes:

With all this to consider, it’s no wonder it’s hard to put a price on employee benefits! It’s made even more difficult by the fact that, often, the price of various benefits depends on the makeup of your workforce.

While there’s no simple formula to calculate how much employee benefits will cost your business, we’ve used our experience to pull together a rough idea. You can read more in this guide below.

How Much Do Insurance Benefits Cost Per Employee?

With insurance benefits, the cost of premiums comes down to various factors such as the size of your company and how much cover you want to offer.

The Cost of Group Life Insurance

What Is It?

Group Life Insurance — also known as Death in Service Cover — pays out a lump sum if an employee passes away while working for you. They don’t have to die during work hours or in the workplace to be eligible for a payout.

This lump sum is usually a multiple of an employee’s earnings and usually goes to their family, although it can also be paid to a charity of their choice.

For employers, HMRC usually allows premiums as a tax-deductible business expense.

What Affects the Cost of Group Life Insurance?

The cost of Group Life Insurance depends on both personal factors about your employees and the level of coverage you want your scheme to offer.

Details that affect the cost of Group Life Cover include:

  • Employees’ earnings / level of cover
    As the benefit is a multiple of each employee’s earnings this, plus the multiple you choose to provide, has a major impact on the cost of cover.
  • Cease age
    The age the policy stops covering workers. This is typically 65 / each employee’s state pension age, but can be up to 75. The higher the cease age, the greater the risk of employees dying during the scheme, which means higher premiums.
  • Your industry / job titles
    Some industries, and jobs within those industries (e.g. manual work / work at heights), are riskier than others. If lots of your employees do higher-risk activities each working day, you pay more for cover.
  • Employees’ ages
    Older employees are more likely to pass away, so the older your workforce, the higher the cost of cover.
  • Group size
    While there are more people to insure the bigger the group, insurers often offer discounts to companies with more employees due to economies of scale in covering larger groups.
  • Employees’ place of work
    Location matters because life expectancy differs across the UK. Employees living and working in some areas are less likely to die prematurely than those in other areas.

Example Premiums

In the table below, we provide Group Life Insurance premiums per employee for companies of various different sizes in various different industries. Each company also offers a different benefit with a different cease age.

Compare Group Life Insurance quotes from the top UK insurers ⟶

Employees

Benefit

Cost per Employee

Private Healthcare Provider

3,000

1 x salary to age 75

£3.16 per month

Grocery Delivery Service

700

4 x salary to age 65 / state pension age

£5.18 per month

Education Provider

340

4 x salary to age 75

£8.82 per month

Solicitors Firm

185

3 x salary to age 75

£3.45 per month

Knitwear Manufacturer

80

2 x salary to age 65 / state pension age

£9.22 per month

Golf Club

20

2 x salary to age 75

£5.46 per month

Tourism Board

10

3.5 x salary to state pension age

£15.72 per month

Engineering Firm

5

4 x salary to state pension age

£13.11 per month

Danielle Hines

As you’ll see, the cost of Group Life Insurance is relatively low. One company has a benefit of four times salary to age 75 for less than £10 per month per employee, making it one of the cheapest employee benefits available.

That’s why it’s usually the first insurance benefit our clients introduce.

Danielle Hines
Employee Benefits Consultant at Drewberry

The Cost of Group Income Protection

Group Income Protection — sometimes called Group Sick Pay Insurance — pays a monthly benefit if an employee is off sick. This benefit is a percentage of their gross income.

It’s essentially an extension of your company’s sick pay policy, covering any accident or sickness that stops an employee working for longer than the policy’s deferred period.

HMRC typically deems Group Income Protection premiums a business expense for employers. However, the insurer pays claims to the company and you distribute it to the employee (typically as you do their salary). At that point, the income is taxable for the employee.

What Affects the Cost of Group Income Protection?

As with Group Life Insurance, the cost of Group Income Protection depends both on personal factors about your employees and the benefit you want to offer.

The following points impact the cost of cover:

  • Level of cover
    You can cover between 50% and 80% of gross earnings. The bigger this percentage, the more cover costs.
  • Deferred period
    The time between an employee falling sick and the insurer paying out. Deferred periods start around 13 weeks. The longer the deferred period, the lower your premiums.
  • Length of payout
    You can either limit the payout, for example to 2 years, or have it pay out until retirement. The longer the payment period, the higher the premiums.
  • Employees’ ages
    The older your workforce the more cover costs as older workers are more likely to suffer illnesses and injures.
  • Industry and occupation
    Some industries involve more risk. For example, builders face higher risk of on-the-job injuries than desk workers. Industries with a higher claims risk attract higher premiums.
  • Include National Insurance and pension contributions
    You can opt to cover employer National Insurance contributions and employer / employee pension contributions on top of a percentage of earnings. Doing so will increase premiums.

Example Premiums

The table below features Group Income Protection premiums for companies of various sizes in various industries. Each company also has slightly different policy options that impact the cost of cover.

Compare Group Income Protection quotes from the top UK insurers ⟶

Private Education Provider (300 Employees)

Benefit

75% of salary

Cease Age

65 / state pension age

Deferred Period

26 weeks

Payment Period

To cease age

Cost per Employee

£19.41 per month

Education Business (100 Employees)

Benefit

75% of earnings

Cease Age

65 / state pension age

Deferred Period

8 weeks

Payment Period

2 years

Cost per Employee

£8.63 per month

Software Developer (55 Employees)

Benefit

  • 75% of salary for employees
  • Employer pension contributions at 8%

Cease Age

65 / state pension age

Deferred Period

26 weeks

Payment Period

To cease age

Cost per Employee

£31.31 per month

Computer Equipment Manufacturer (25 Employees)

Benefit

  • 75% of salary for employees
  • Employer pension contributions at 8.5%
  • Employee pension contributions at 4%

Cease Age

65 / state pension age

Deferred Period

13 weeks

Payment Period

To cease age

Cost per Employee

£39.86 per month

Consultancy Firm (10 Employees)

Benefit

75% of salary

Cease Age

65 / state pension age

Deferred Period

13 weeks

Payment Period

To cease age

Cost per Employee

£59.66 per month

The Cost of Group Critical Illness Cover

What Is It?

Group Critical Illness Insurance pays a lump sum if a worker suffers a critical illness. This lump sum is either a multiple of their earnings or a fixed amount of your choice.

The most common claims on Group Critical Illness Cover are for cancer, heart attacks and strokes.

In most cases, Group Critical Illness Insurance premiums are a tax-deductible business expense for employers.

What Affects the Cost of Group Critical Illness Insurance?

As with all employee insurance benefits, Group Critical Illness Insurance premiums depend on both personal factors about your staff and the level of cover you offer.

The following points impact the cost of premiums:

  • Benefit
    Employers typically offer workers a payout of between one and five times earnings. The higher the payout, the higher your premiums.
  • Employees’ ages
    The older your workforce, the more likely they are to suffer a critical illness, meaning a greater monthly cost.
  • Coverage
    ‘Core’ cover protects against around 12 critical conditions. You can extend your policy with ‘additional’ cover for a further 20-25 or so conditions. The more conditions your policy covers, the higher your premiums.

Example Premiums

The table below offers example Group Critical Illness Insurance premiums for companies of various sizes with slightly different policy options.

Compare Group Critical Illness Cover quotes tailored to your company ⟶

Education Provider (100 Employees)

Benefit

2 x earnings in last 12 month

Coverage

Extended: Core + Additional Illnesses

Cease Age

65 / state pension age

Cost per Employee

£10.63 per month

Storage Company (40 Employees)

Benefit

1 x annual salary

Coverage

Standard: Core conditions only

Cease Age

65 / state pension age

Cost per Employee

£7.44 per month

Business Services Firm (10 Employees)

Benefit

2 x annual salary

Coverage

Extended: Core + Additional Illnesses

Cease Age

65 / state pension age

Cost per Employee

£42.23 per month

How Much Do Employee Health & Wellbeing Benefits Cost?

There are a few types of employee health and wellbeing benefits. The two most common are Business Health Insurance and Corporate Health Cash plans.

However, other options are increasingly appearing offering popular benefits, including digital GP appointments or access to counselling, as standalone benefits.

Meanwhile, you may also find some health and wellbeing benefits, including virtual GP appointments and mental health support, as free additional benefits with employee insurance policies such as Group Life Insurance.

The Cost of Business Health Insurance

What Is It?

Business Health Insurance pays for your employees to have private medical treatment. They bypass NHS waiting lists, getting the care they need exactly when they need it.

Not only does this improve employees’ health and wellbeing, but it can also have a positive impact on the business. For example, workers with health conditions may be off sick or working in a reduced capacity while on an NHS waiting list.

Private healthcare gets them fast access to treatment, reducing time off sick and often therefore the productivity of your workforce.

For employers, premiums are typically a business expense not liable to corporation tax.

What Affects the Cost of Business Health Insurance?

Premiums vary depending on your company, your employees and the level of cover you want to offer. To price a Business Health Insurance scheme, insurers look at:

  • Group size
    While covering more employees means higher premiums overall, the more staff you have the lower the cost tends to be per worker. This is due to economies of scale in covering larger groups.
  • Employees’ ages
    It costs more to insure older employees due to the fact they’re more likely to claim. You’ll therefore pay more to cover an older workforce.
  • Location
    The cost of healthcare around the UK varies. As employees understandably want treatment near their home, it costs more to cover workers in areas where healthcare is more expensive, such as in and around London.
  • Occupations
    Premiums depend on how risky your employees’ daily working lives are. Office-based workers cost less to insure than scaffolders, say, who are seen as at greater risk of a claim.
  • Policy options / coverage
    Every policy option affects premiums. For example, while all Business Health Insurance covers inpatient treatment, there are many options to add for an extra premium to increase coverage. There are also options which cut premiums, such as an excess or the 6 week NHS wait.

Example Premiums

The premiums in the table below are for companies of a range of different sizes, each seeking Business Health Insurance. Every company has chosen different policy options, which ultimately affects the price of cover.

Compare Group Health Insurance quotes for your business here ⟶

Digital Financial Services Firm (110 Employees)

Benefits

Full cover for:

  • Outpatient treatment
  • Cancer care
  • Therapies
  • Mental healthcare

Excess

£0

Underwriting

Medical history disregarded

Add-Ons

Dental and optical cover

Cost per Employee

£69.69 per month

Management Consultancy (55 Employees)

Benefits

  • £1,000 outpatient cover
  • Cancer cover in full
  • Therapies cover in full

Excess

£100

Underwriting

Full medical underwriting

Add-Ons

  • Travel cover

Cost per Employee

£57.04 per month

Healthcare Investment Trust (25 Employees)

Benefits

  • £1,000 outpatient cover
  • Cancer cover in full
  • Therapies cover in full
  • Mental healthcare in full

Excess

£100

Underwriting

Moratorium

Add-Ons

Cost per Employee

£79.34 per month

Management Consultancy (10 Employees)

Benefits

Full cover for:

  • Outpatient treatment
  • Cancer care
  • Therapies
  • Mental healthcare

Excess

£0

Underwriting

Full medical underwriting

Add-Ons

Cost per Employee

£150.15 per month

Energy Trading Firm (5 Employees)

Benefits

Full cover for:

  • Outpatient treatment
  • Cancer care
  • Therapies
  • Mental healthcare

Excess

£0

Underwriting

Moratorium

Add-Ons

Dental and optical cover

Cost per Employee

£166.52 per month

The Cost of a Corporate Health Cash Plan

What Is It?

A Corporate Health Cash Plan is a more affordable way to provide some health and wellbeing benefits than full blown Business Health Insurance.

Rather than paying for private medical treatment, a Health Cash Plan reimburses money towards everyday medical expenses, such as routine dental and optical care. The plan might also pay towards other treatments / procedures such as:

  • Therapies (e.g. physiotherapy, acupuncture, osteopathy, podiatry)
  • Health checks
  • Dental accidents / injuries
  • Diagnostic tests / scans.

What Affects the Cost of Corporate Health Cash Plans?

As Corporate Health Cash Plans aren’t as complicated as Group Health Insurance there are fewer options to consider.

The main factors behind the cost of premiums are the number of workers you have and the level of cover. The level of cover impacts how much workers get back for their treatment, with higher levels meaning greater reimbursements and therefore higher premiums.

HMRC typically allows Corporate Health Cash Plan premiums as a business expense.

Example Premiums

The premiums in the table below are for companies of a range of different sizes, each looking for a Corporate Health Cash Plan. However, this only offers a rough idea of cover — it could be different for your company.

Compare Corporate Health Cash Plan quotes from the best UK insurers ⟶

Benefits

Cost per Employee

Employees: 125

Cash back for treatment such as:

  • Routine optical / dental care
  • Dental accidents / injuries
  • Complementary therapies
  • Alternative therapies
  • Chiropody
  • Diagnostic tests and scans

£4.62 per month

Employees: 55

Cash back for treatment such as:

  • Routine optical / dental care
  • Dental accidents / injuries
  • Therapies (e.g. physiotherapy, osteopathy, acupuncture and chiropody)
  • Health checks
  • Diagnostic tests and scans

£6.37 per month

Employees: 10

Cash back for treatment such as:

  • Routine optical / dental care
  • Dental accidents / injuries
  • Complementary therapies
  • Alternative therapies
  • Chiropody
  • Diagnostic tests and scans

£6.19 per month

How Much Will Employee Pensions Cost My Business?

Since the introduction of auto-enrolment, almost every business with employees must provide them with at least a defined contribution workplace pension. You must do so for every employee who is:

  • Aged between 22 and their state pension page
  • Earning at least £10,000
  • Normally working in the UK under a contract of employment.

Employees are automatically enrolled in a pension, which means they have to actively opt out. Even if they do, they are automatically re-enrolled after 3 years.

How Much Do I Have to Pay Into My Employees’ Pensions?

As an employer, your pension contributions are a percentage of employees’ earnings. The cost of pensions therefore depends on how many staff you have, their earnings and how generous your contributions are.

Under auto-enrolment, the minimum you must contribution to an employee’s pension is 3% of ‘qualifying earnings’.

Qualifying earnings are all earnings between £6,240 and £50,000 you pay an employee. They include:

  • Salary / wages
  • Bonuses / commission
  • Overtime
  • Statutory Sick Pay
  • Statutory maternity, paternity or adoption pay

£50,000 is the cut off for qualifying earnings. You don’t have to pay 3% of anything your employees earn above this.

So, for example, if an employee earns £50,000, your contribution as an employer is £1,312.80 per year / £109.40 per month. You calculate this as follows:

Qualifying Earnings

£50,000 – £6,240 = £43,760

Employer Contributions

£43,760 x 3% = £1,312.80 per year / £109.40 per month

However, if an employee earns more, say £55,000, the 3% employer contribution is still only on earnings between £6,240 and £50,000. Your total maximum contribution under auto-enrolment is therefore £1,312.80 per year per employee.

jonathan cooper, senior paraplanner at drewberry

While this is the absolute maximum you have to pay in by law, many companies pay higher contributions or offer to match staff contributions up to a set percentage. In a competitive labour market, it helps you stand out.

Jonathan Cooper
Senior Paraplanner at Drewberry

How Much Will It Cost to Train / Educate My Employees?

Where a company pays for training and education for employees that improves their skills wholly and exclusively for the benefit of the business, the cost of training is usually a business expense.

You can therefore typically claim tax relief on the cost of that training providing it’s aimed at improving skills the business needs.

The company may also be able to reclaim costs related to that allowable training and development. For example, allowable expenditure in this area includes:

  • Travel costs (e.g. public transport, parking, congestion charges / tolls)
  • Hotel accommodation if an employee needs to stay overnight
  • Food and drink
  • Books / course materials.

However, if the training takes place at an employee’s usual place of work, travel expenses to that location are not allowable.

Essentially, providing the training purely upskills your workforce to meet the needs of the business, HMRC generally lets you deduct the cost of it when calculating your taxable business profits.

The cost of training and development will vary depending on your industry and the skills you need within the business. You can check prices of training and education courses with professional bodies for your industry.

How Much Would It Cost to Offer My Workers Childcare?

The government used to back a Childcare Vouchers scheme to help with employees’ childcare costs.

Employers managed this, usually via salary sacrifice, where employees got vouchers for childcare in place of some of their gross salary. Some employers did offer Childcare Vouchers on top of gross earnings.

However, the government closed childcare Vouchers to new entrants from October 4th 2018.

Only parents receiving Childcare Vouchers on or before October 4th 2018 and who remain with the same employer offering them prior to this can still get them. This is only while they and their child meet eligibility criteria.

The government replaced Childcare Vouchers with Tax-Free Childcare. This has no employer involvement at all. The government manages it via National Savings & Investments, topping up eligible parents’ contributions to a childcare account with the equivalent of basic-rate tax relief.

Can Employers Still Offer Childcare?

Since 4th of October 2018, the only way for employers to pay for childcare for their workers is to set up and fund their own nursery / childcare facility.

This must meet the same criteria and standards as any other childcare provider. It must also:

  • Be available to every employee
  • Provide childcare for employees’ children (or children they have parental responsibility for)
  • Provide childcare up to the maximum age its registration and approval allows for
  • Not be in a private residence.

The facility doesn’t have to be in the workplace; it could be off-site (but not in a private residence). Obviously, setting up a childcare facility would be costly and something that would only viable for a bigger company with many employees needing childcare.

How Much Does a Cycle to Work Scheme Cost?

The government introduced a Cycle to Work scheme in 2011 to reduce traffic congestion and encourage physical activity.

Any employer, of any size, can run a Cycle to Work scheme. It lets you offer employees a bike and relevant safety equipment as part of a consumer hire agreement. To be eligible, the bike must be mainly for commuting and business travel.

Employees pay for this hire from their gross earnings using salary sacrifice. Employers therefore make National Insurance savings at 13.8% on the proportion of the salary an employee has chosen to sacrifice.

At no point must employees get an option to buy the bike / safety equipment alongside, or as part of, the initial hire agreement. This is because that would be a hire-purchase agreement, which requires different regulatory permissions. It would also not be eligible for tax exemption.

However, at the end of the scheme, employees have three options:

  • Extend the hire agreement
  • Return the bike / equipment
  • Buy the bike / equipment under a separate agreement entered into at the time, at a value based on a markdown laid out in legislation to account for depreciation.

There’s a £1,000 cap on the cost of the bike / equipment you can hire to the employees. However, if you get the required authorisation from the Financial Conduct Authority (FCA), you can become authorised to hire bikes and safety equipment worth more than £1,000.

Get Employee Benefits Quotes & Expert Advice

With many employee benefits, the cost depends on so many factors that it can be hard to know where to start!

If it’s all getting a bit much, you can always ask us to lend a hand. We provide regulated fee-free advice to businesses from start-ups to large corporates across the UK.

Why Speak to Us?

We started Drewberry™ because we were tired of being treated like a number.

We all deserve a first class service when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

For help and fee-free advice on employee benefits, don’t hesitate to get in touch. Just pick up the phone — our team of experts is available on 02074425880. Or, if you prefer, drop us an email at help@drewberry.co.uk.

Really good service: prompt, efficient and helpful. Would definitely use Drewberry again.

Mark Bevan
16/05/2021
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