This year’s Employee Rewards Watch Survey from Thomsons Online Benefits highlights the ongoing financial demands that companies are under to control costs at a time when 34 per cent are finding basic pay more difficult to control than any other element of reward.

According to Thomsons, pension and benefits spend typically accounts for between 9 and 12 per cent of a company’s salary bill. With the survey highlighting escalating costs and a lack of engagement from employees, HR professionals find themselves under increasing pressure to make significant changes to their benefits package.

“Over the past ten years Thomsons has tracked the effect of business pressures on reward spend and in 2013 the challenges are the same as 10 years ago – how does a company control this significant spend, while getting buy-in from employees?” explains Michael Whitfield, CEO of Thomsons Online Benefits. “The 2013 Employee Rewards Watch Survey evaluates the challenges against a backdrop of legislative change and provides guidance on the options to help employers navigate the right course for them.”

The report gives an in-depth insight into the current and future challenges of over 500 HR, reward and finance professionals across the UK, and highlights some interesting attitudes towards key benefit and reward areas including pensions, salary sacrifice and flexible benefits.

Pension spend (31 per cent) closely follows salary in the list of concerns regarding costs and this can be linked to the introduction of auto-enrolment, which will have a huge financial impact on every company and in particular the 67 per cent of companies surveyed who currently have less than 75 per cent pension take-up among their employees. However, despite the imminent deadlines, 59 per cent of people surveyed believe that auto-enrolment won’t impact them compared to 19 per cent who have no confidence in their ability to meet the challenge of auto-enrolment.

“Auto-enrolment represents a ticking time bomb for UK mid-sized firms and their employees, with 30,000 employers facing their staging dates in the three months following April 2014. At the same time that changes brought about by RDR (the Retail Distribution Review) are forcing financial advisers to flee the sector, businesses are discovering that they need their help more than ever to understand and implement auto-enrolment. A gap has already appeared between the need for professional consultancy and its supply, leaving hundreds of thousands of people at risk of not facing up to a future involving poverty in retirement, the opposite of what the Government wants. As their employers struggle to implement auto-enrolment, without the skills to actively engage them in the importance of retirement saving, advisers are being driven out of the sector by RDR,” says Michael Whitfield.

The report shows that engaging employees more generally in benefit and reward programmes continues to be a key stumbling block for companies, with nearly 50 per cent of those surveyed stating this is an issue when it comes to pensions take-up. Looking at health and risk benefits, 62 per cent of respondents consider improved engagement to be the top advantage of offering such perks, but adversely 51 per cent also see it as the second biggest challenge in justifying their spend, behind managing costs itself (62 per cent).

Commenting on the report, Michael Whitfield, CEO of Thomsons Online Benefits, said: “One of the largest spends of any organisation is its benefits package, which can account for as much as 12 per cent of a company’s salary bill. Add to this escalating administration costs and a lack of employee engagement and HR professionals are finding themselves under increased pressure to make significant changes, to ensure their schemes offer the right benefits, in the right way, to the right people.”

The provision and take-up of salary sacrifice offerings has been the largest growth area since the first Employee Reward Watch survey in 2004. Childcare voucher provision has risen from 20 per cent ten years ago, to 88 per cent of in 2013. 72 per cent of companies in the 2013 report also cited that salary sacrifice has improved engagement with other benefits.

Recent budget announcements however could be set to change the return that companies get from offering these schemes to their employees. Proposed changes to the childcare voucher scheme may have little impact upon the individual, but could have a huge bearing upon employers who currently rely upon the money gained from offering these schemes to fund other projects.

“Ten years on and benefits are still considered a key way to engage employees, but this seems to be at odds with actual levels of take-up in most areas with only 13 per cent of the survey respondents actively communicating their benefits to staff at least every quarter. There seems to be a reluctance to ask the opinion of staff about the benefits on offer, in case there is a negative response. However, only by communicating effectively and taking comments on board can companies hope to improve engagement levels and get a grip on how best to manage spiraling associated costs,” adds Whitfield.

The 2013 Employee Reward Watch survey questioned 505 HR, reward and finance professionals in the UK regarding their reward strategy and the employee benefits they currently offer or intend to offer in the future.