What is Flexible Benefits Scheme?

Full Definition

A flexible benefits scheme (sometimes called a "flex" scheme or cafeteria plan) allows employees to choose how to allocate a set benefits budget, or to select from a menu of optional benefits, rather than receiving a single fixed package of benefits decided entirely by the employer. Typical options offered within a flex scheme include buying or selling holiday days, increasing pension contributions, adding or upgrading private medical or dental insurance, adding life assurance or income protection, joining a cycle to work scheme, or taking retail or gym membership vouchers, with employees usually able to change their selections once a year, or after a qualifying life event such as marriage or having a child. Some flexible benefits are delivered through salary sacrifice arrangements, where the employee gives up part of their contractual salary in exchange for a non-cash benefit -- this can produce tax and National Insurance savings for both employee and employer for benefits that qualify under HMRC's optional remuneration arrangements rules, though certain benefits (including most pension contributions and childcare vouchers under legacy schemes) retain more favourable tax treatment under salary sacrifice than others, following rule changes that removed the tax advantage from many other benefit types. Flexible benefits schemes are often positioned by employers as a way to make a fixed benefits budget go further for a diverse workforce, since employees with different needs and life stages -- for example, someone with young children versus someone prioritising pension saving -- can direct the same overall budget towards what matters most to them personally.

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