Flexible benefits - this time it's serious

If the social commentators are right, then the younger generation of current and future employees is planning to tear up the rules related to employer-sponsored benefits. The notion of paternalism is being replaced by independence, as employees demand more freedom over the benefits they receive.

Benefit programs which were taken as a standard part of the employment offer are now being questioned. Throughout Asia, growing numbers of employees are requesting non-standard benefit programs - most commonly in the areas of healthcare, annual leave and “lifestyle” benefits.

The most obvious reaction to this change in employee attitude is for an employer to consider a “flexible benefits” system (Flex). Flex is nothing new and is based around the principle of employees being given “credits” which they can use to select and “buy” benefits suited to their lifestyle. Flex was driven out of the US and Europe where it became commonplace from the late 1990s onwards. The key driver at that point was tax incentives which typically made offering benefits through a flex system effective for both employees and employers. Flex then made its way East but without the tax incentives that were on offer in other countries it didn’t really take off.

This time round though the driver for Flex is employee attitude and it has a lot more chance of taking off throughout Asia. However, implementing Flex is not straightforward and certain locations within Asia are more prepared than others.

The first complication with Flex is the administration system. Only the most basic Flex systems can be run manually and for the vast majority implementing Flex also means a new “online” benefits administration platform. This administration platform requires a “back-end” for the administrator and a “front-end” for employees to view their accounts and make their benefit choices.

Building an online administration system is not cheap and giving employees’ access to the tool means it needs to be fully robust. As it is, market forces are already taking us in this direction. The costs of building these systems are coming down and employers are starting to offer online access to the benefit programs - even in a non-Flex environment. The other issue with an online system is that employees need to have access to the system. This can be a problem for Blue Collar employees who may have to access the system outside of their working hours.

The second hurdle in Asia is the general market readiness for benefits offered via a Flex system. This applies to both the internal HR teams and the potential benefit providers. Many Asian businesses are growing very quickly leaving their HR teams at full stretch managing the status quo. The idea of implementing a new benefits system in this environment is often unthinkable. On the benefit provider side, many insurance companies are uncomfortable underwriting health and welfare benefits where the employee has actively chosen the benefit levels - essentially meaning that they won’t cover insurance benefits offered through Flex.

China is a great case in point of where the HR teams and the benefit providers are not ready. It is hard to find an employer in China that doesn’t think that Flex is the end position for employee benefits but severely overstretched HR teams and an immature insurance market means many companies are not yet ready to implement.

Singapore in contrast is seeing an increasing market demand for Flex. The relatively small headcounts for companies in Singapore had previously made the administration costs prohibitive but as these costs fall, employers are revisiting the proposition. Singapore has a level of economic maturity that is suited to Flex. The majority of the employee population is White Collar and the insurance market is able to underwrite the associated risks. In addition, many companies operating in Singapore are global brands that offer Flex in other parts of the world and would be keen to roll out such a system in Singapore.

In practical terms, the Singapore model of Flex may become the prototype for the rest of Asia as regional HR managers look to apply the principles elsewhere. One of the advantages for Singapore is that the existing benefits market is relatively simple and so Flex can be implemented quickly and without too many “legacy issues”. Flex systems being developed in Singapore are typically focused on the “core” benefits of health insurance, pension, life insurance and annual leave. The employer mandates a minimum benefit level and then employees can use their Flex account to top-up these benefits. The residual Flex account can then be used to purchase benefits from a “cafeteria” which will typically be made up from a range of retail benefits.

As for the rest of Asia (Hong Kong and Japan being the notable exceptions), the markets can be categorized as; ripe for Flex in the long term but with hurdles to overcome before it takes hold. As these younger employees scream out for more benefit choice it feels like these hurdles will be quickly reached and passed.