Employee benefits; contractual pitfalls to avoid

Employee recruitment and retention remains challenging for employers and offering an attractive package of benefits can give employers an edge. A wide range of benefits can be offered, including buying or selling annual leave; reduced gym membership; private medical insurance; critical illness insurance and retail discounts or vouchers.

‘Employers need to take care with employee benefits as they can become a contractual entitlement and there are often unanticipated knock-on effects,’ explains Elizabeth Bartle, a partner in the employment team with Ingram Winter Green in Central London.

Elizabeth outlines a number of potential pitfalls.

Creating a contractual right to a benefit

Staff benefit schemes do not always work out well, or the provider may change the terms which make them less attractive or affordable.

Employers wishing to have the flexibility to withdraw a benefit need to ensure that it is not included in the employment contract and it is made clear that it is discretionary and could be withdrawn. However, this may not be enough to stop it being a contractual entitlement if it is consistently provided and there is an expectation that it will be provided year after year.

It may not be realistic to keep particularly valuable benefits out of the contract. Employees may see these as an important component of their remuneration package and expect a contractual commitment that they will be provided.

Equal pay risks

Where the range of contractual benefits has varied over time, some employees may have a more generous package than others. Differences between the contractual benefits of male and female employees, can create the risk of an equal pay claim.

We can advise you on minimising the risk of an equal pay claim if you wish to offer benefits to some but not all employees or to stop offering a benefit to new joiners.

Discrimination risks

Aside from equal pay risks, employers must take care not to discriminate against employees with a particular characteristic. For example, it would be discriminatory to give one week’s honeymoon leave to a female employee marrying a man, but not to give this to a female employee marrying or entering a civil partnership with a woman.

Bear in mind that employees may perceive that certain arrangements are benefits, such as being given a client hospitality budget which could lead to bringing in new business and, in turn, to promotion opportunities.

Withdrawing a benefit in breach of contract

If the benefit is not a contractual entitlement, it should be possible to withdraw the benefit. Depending on the nature of the benefit, this may have to be done on a phased basis to tie in with current commitments. It is good practice to give plenty of prior warning.

Where employees have a contractual entitlement to the benefit, employers need to follow the usual procedures for changing the employment contract. We can advise you on how to minimise risk when changing a contract of employment. Care also needs to be taken that a contractual right to withdraw a benefit does not breach a separate agreement with the employee.

If the benefit relates to a pension scheme, this may trigger consultation obligations. Again, we can advise you on this.

How we can help

We can help you offer the best benefits to your employees while protecting your business. For further information, please contact Elizabeth Bartle in the employment team on 020 7845 7443 or email elizabethbartle@iwg.co.uk.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.