How to motivate staff without breaking the bank

Karen Mortenson highlights ways that HR can increase employee satisfaction without it impacting the bottom line

Traditionally, employee benefits meant holiday, contributory pension and, for senior staff, life assurance, health insurance and, potentially, permanent health insurance.

However, with all employees being entitled to a minimum of 28 days' holiday (inclusive of bank holidays), and the introduction of pension auto-enrolment, employers are looking at increasingly ingenious ways to reward and retain staff. 

Two of the most obvious options are higher basic salaries and end-of-year bonuses. These are of course still key, and the advantages, and potential pitfalls, of bonuses are discussed below. But employers are increasingly feeling the pinch, and HR is frequently tasked with increasing employee satisfaction, without it impacting the bottom line. So what low-cost benefits can you offer?

  • Additional holiday. One option – which actually reduces a company's overall costs – is to invite staff to buy additional holiday. The employee's salary is reduced by one day's pay for each additional day's leave. 
  • Unlimited holiday/sabbaticals. A more radical option is to allow staff to take unlimited holiday, or to allow them to take a paid, or unpaid, sabbatical after (for example) five years' service. Netflix is one of several employers offering unlimited holiday: provided the work gets done, staff can take as much holiday as they want. This requires a degree of a trust, and so may work better with close-knit, collegiate teams. From a legal perspective, where benefits are based on length of service it's important to be alert to possible age-discrimination claims – but there's a general exemption for up to five years' service, and if you offer benefits based on more than five years' service there's a further exception provided they fulfil a business need. 
  • Flexible working. All employees with 26 weeks' service now have the statutory right to request flexible working. While commonly associated with childcare commitments, flexible working can benefit employees throughout their personal and professional lives. While not suitable for all roles, managed effectively, flexible working can increase productivity and employee engagement. Employers must handle requests in a reasonable manner, and may only reject a request for one of eight specified reasons, for example, the burden of additional costs. A greater concern, however, is the risk of discrimination claims. For example Mr Walkingshaw, a mechanic who was not allowed to work part-time following the birth of his son, brought a successful claim for sex discrimination after the tribunal found his employer would have probably agreed to a similar request by a female colleague. 
  • Volunteering and charitable causes. Millennials are often said to value 'experiences' over 'things'. One way employers can support this is through their CSR programme. Giving staff one day off each year to volunteer, either for the firm's charity or a cause close to the employee's heart, helps increase employee satisfaction – while employers can benefit from the positive PR.
  • Pension contributions. While most employees now benefit from pensions auto-enrolment, many employers contribute more than the legal minimum, for example matching employee contributions up to a maximum of (for example) 10 per cent of salary. The additional cost can be mitigated through salary sacrifice, which reduces the NICs payable – and employees and employers alike can use the savings to help increase the size of the employee's pension pot.

If these ‘softer’ benefits don't quite hit the mark, cost-conscious employers may want to offer bonuses, rather than increasing an employee's basic pay. Bonuses are often linked to individual and company performance, and if paid annually can serve as a useful retention tool. While it is very difficult to reduce an employee's pay, a well-drafted bonus scheme can offer a significant degree of flexibility.

Employers should, however, be careful to avoid inadvertently creating contractual obligations, and should state if the bonus is conditional on the individual being employed and not under notice – unlike the advantages of rewarding and retaining key staff, this does not go without saying.

Karen Mortenson is a senior associate in the employment department at Howard Kennedy LLP