Employees in the UK are entitled to certain mandatory benefits provided by the government and their employers.

These include pension, holiday pay, healthcare benefits, etc.

Employers also provide supplementary benefits and perks (fringe benefits) to their teams.

Medical insurance, life assurance, employer-paid retirement, and work-from-home expenses are some popular supplementary and fringe benefits.

Let's learn everything about employee benefits in the UK.

Further Reading

• Explore the nuances between the Old & New UK State Pension systems. 

• Want to set up a Workplace Pension Scheme in the UK? Read our comprehensive guide for everything you must know. 

• Discover the popular Employee Benefits in Ireland and why employers offer them.

What Are Employee Benefits?

Employee benefits are additional compensation and quality-of-life improvements provided to employees on top of their regular salaries by their employers or the State. 

These include benefits like medical insurance, sick pay, paid time off, and lifestyle perks such as wellness club and gym membership plans. 

If you're an employer in the UK, you must offer certain mandatory benefits to comply with UK labour laws. The government also provides benefits like primary healthcare at little-to-no charge. (More on these mandatory benefits soon). 

Is every employee eligible for benefits in the UK?

Not really.

Almost all employees are categorised as workers in the UK. This includes:

• Agency employees

• Employees with irregular working hours

• Employees working on zero-hours contracts

However, some organisations may restrict certain perks to full-time team members and offer lesser packages to part-time employees. 

Plus, employees may need to satisfy certain criteria to be eligible for a benefit. 

Keep reading to find out.

3 Types of Employee Benefits in the UK

Employers in the UK usually offer three types of benefits to their employees:

• Mandatory Benefits

• Supplementary Benefits

• Employee Perks

A. Mandatory Employee Benefits

UK law requires employers to provide employees with health or disability insurance, social security, pensions, and other benefits.

1. Pension

The UK has a State Pension scheme available for anyone who has reached the State Pension age (66 for everyone since October 2020). 

To qualify for State Pension, an employee must have a minimum of 10 years of National Insurance Contributions. The full rate for State Pension as of May 2023 is £203.85 per week. 

State Pension is paid to qualified employees every four weeks in arrears, i.e., for the last four weeks and not the coming four weeks. 

What about private pensions?

Employers in the United Kingdom must contribute a minimum of 3% of each eligible employee's salary to a pension plan. The employee can choose their own pension plans.  

An employee is eligible for a private pension plan if that employee:

• Earns £10,000 a year or more

• Is based in the UK

• Is between 22 and the State Pension age 

Employees must contribute at least 5% of their salaries to their pension plan. 

What are the pension schemes in the UK?

Two types of private pension schemes are available for employees:

• Defined contribution schemes: 

  • The pension provider puts the amount employees contribute into investments (shares/stocks).

  • The amount employees receive from their pension fund depends on the performance of these investments and how much they contribute.

  • In some schemes, the money is moved to low-risk investments when the employees are closer to retirement age. 

  • Learn more about Defined Contribution Pensions in the UK. 

• Defined benefit schemes: 

  • These schemes are called 'final salary' or career average schemes.

  • Defined benefit schemes often depend on several factors, such as employee pay and the duration of their employment.

  • The pension amount paid to the employees is independent of their contribution, and the pension provider gives them a certain fixed amount each year till retirement.

In most cases, employers auto-enrol employees who are 22-66 years old into workplace pension plans by providing the minimum level of pension provisions (3% for employers and 5% for employees).

Want to offer out-of-the-box retirement benefits for your UK team?

Try Yonder!

Yonder has partnered with Smart Pension, a reputable pension provider in the UK, to offer employees extensive pension coverage and retirement benefits. 

It allows employers to:

• Easily administer a defined contribution workplace pension regardless of where your company is based or whether you have a UK bank account. 

• Make a total minimum contribution of 8% towards the employees' pension fund — in compliance with the UK's auto-enrolment law. 

• Integrate your existing HR & payroll tools for a unified system.

• Manage pension postponements for one or more employees at a time, including postponement letters to notify them.

2. Healthcare

The National Health Service (NHS) is a government-funded healthcare system in the United Kingdom that any resident can use at a subsidised fee. 

The services provided by NHS include:

• Visiting doctors or healthcare providers for medical diagnosis, treatment, or check-ups. 

• Treatment at a hospital in case of sickness, disability, or injuries.

• Emergency help from professionals, like ambulance services, for life-threatening injuries and health problems. 

The bad news?

The NHS is under pressure, leading to increased waiting times and declining quality of care. And the COVID-19 pandemic has exacerbated the situation.

As a result, employers in the UK prefer to offer private healthcare benefit plans to their employees. 

What's the benefit of private healthcare?

Private health insurance provides access to clinics and healthcare providers with shorter waiting times. They also offer a wider coverage of health benefits and high-quality services. 

3. Holiday Pay

Holiday entitlement is a mandatory employee benefit offered to all workers in the UK. 

Employees are entitled to a week's salary for each week of annual leave they take.

How does this work?

Employees who work five days a week are entitled to 28 days (5.6 weeks) of paid annual leave. They can use their annual leave for vacations, personal time off etc.

This workers compensation can differ according to their employment type, such as part-time and shift work:

• Although part-time workers are entitled to 5.6 weeks of paid holiday leave, it amounts to less than 28 days. For example, if they work 4 days a week, they must get at least 22.6 days (4 x 5.6) of paid annual leave.

• Employees working irregular or flexible hours (shift workers) can get paid time off for every working hour. 

Public holidays and bank holidays aren’t included in paid leave but can be offered as part of employees' annual leave. 

Employers in the United Kingdom can grant regular employees more paid holidays than the minimum requirement as an added incentive. 

If you offer more paid leave than the statutory minimum, you can impose certain conditions on those extra leave days. For instance, you could mandate that employees qualify for extra paid leave only if they have completed one year of employment. 

What's more?

As part of a flexible work benefits arrangement, employers may offer employees the option of increasing their holiday entitlement by 'buying' extra days.

Employees can request to purchase a certain number of days of annual leave every year through their salary (salary sacrifice scheme). 

The days will be charged at their regular daily cost or at a lower rate as the employer decides.

4. Maternity, Paternity and Adoptive Pay

Employers in the UK offer paid parental leave to their employees in the form of paternity, maternity, and adoption leave. 

All female employees on maternity or adoptive leave get up to 52 weeks of leave and are eligible to receive payment for 39 weeks.

Employees on maternity or adoption leave receive:

• 90% of their average weekly earnings (before tax deductions) for the first six weeks, and,

• £172.48 or 90% of their average weekly earnings (whichever is the lesser) for the remaining 33 weeks.

Employees going on maternity leave can start the leave a maximum of 11 weeks before the expected week of childbirth unless the baby is born prematurely. 

Employees can avail of two types of maternity leaves: 

• Ordinary Maternity Leave -  for the first 26 weeks

• Additional Maternity Leave - for the last 26 weeks

Adoption leave is handled similarly to Maternity Leave, with employees entitled to 26 weeks of ordinary adoption leave as well as 26 weeks of additional adoption leave. 

Adoptive leave can start a maximum of 14 days before the child starts living with the person (only for UK adoptions). For international adoptions, the leave can begin when the child reaches the UK.

Employed fathers or partners of anyone receiving adoptive leave can avail of paternity leave. 

Employees who qualify for statutory paternity leave and pay can either take one week off or go on leave for two consecutive weeks.

Couples in the UK can also choose to share up to 50 weeks of leave and up to 37 weeks of payment.

How do you share the parental leave?

The individual receiving maternity pay should take less than 50 weeks of leave and 37 weeks of pay and share the remainder with their partner.

But look:

What we discussed above are only the minimum requirements for parental leave. 

As an employer, you can extend these entitlements for a few additional days or weeks to ensure your employees’ welfare.

5. Sick Pay

Employees are entitled to a minimum Statutory Sick Pay (SSP) of £109.40 per week for up to 28 weeks as of May 2023.

How does the payment work?

The payment starts on the fourth day of an employee's sick leave.

So an employee will get sick pay for all days they are off from work due to illness, except for the first three

Employees can also claim statutory sick pay for up to 28 weeks once they stop working.

B. Supplementary Employee Benefits

Some additional benefits employers offer their employees include medical, retirement, and health insurance coverage. 

Companies partner with insurance/benefits providers to offer these benefits effortlessly.  

1. Life Assurance 

Life assurance (aka 'whole-of-life' life insurance) is paid to your employee's family members or loved ones after their death.

Unlike general life insurance with a set pay period, life assurance covers the employees for their whole life. No surprises there!

There is no fixed payout for life assurance. Employees can choose the amount they wish to receive based on their situation.

However, employers will typically cap their contribution at a certain amount — and if the employees want a larger cover, they'll have to bear a portion of the insurance premium. 

Life assurance is a personal product and depends on your employee's:

• Age

• Health problems

• General lifestyle options, and,

• Amount of coverage required

To offer life assurance benefits to your employees, you can partner with an insurance provider. 

Since life assurance guarantees a lifetime payout to your employees' families, it's more expensive than basic life insurance plans.

2. Income Protection (Long-Term Disability)

Income protection pays a monthly income to employees who become physically unable to work due to sickness or disability. Their condition could be temporary or can continue indefinitely. 

It's also known as Group Income Protection (GIP), which can cover up to three employees in one plan. 

The employees receive around 50-60% of the payment from the insurance providers, while employers usually pay between 1.25-1.5% of the payroll. 

The income employees can claim must be half or two-thirds of what they earned before they stopped working due to disability.

What's the catch?

Employees cannot avail of income protection immediately. They must wait at least four weeks from when they apply for GIP for the pay period to start. 

While four weeks is the minimum waiting period, in some cases, income protection compensation can start two years after the employee has stopped working due to disability. This is because the employee will continue receiving their employer's sick pay.  

3. Critical Illness Cover (CIC)

Critical illness insurance grants a lump sum payment to employees diagnosed with specific illnesses or disabilities such as: 

• Stroke

• Loss of arms or legs

• Heart attack

• Multiple sclerosis

• Parkinson's disease

• Cancer

How do employees avail of CIC?

They must be a resident of the UK when they apply. The maximum age for applying for Critical Illness Cover is 67, with a minimum term length of two years. 

4. Private Medical Insurance (PMI)

Private Medical Insurance (PMI) covers the expense of private medical treatment for 'acute conditions' (short-term illnesses like respiratory infections) that arise after the start of coverage.

PMI provides a range of different services, which cover:

• The cost of hospitalisation 

• Diagnostic tests like MRI and CT scans  

• Surgeries

• Doctor's consultation 

• Nursing care

• Cancer treatments 

Companies can partner with PMI providers to offer a range of plans to employees. Companies can bear the plan's full cost or share the premium with employees. 

Employees can also decide the level of coverage they need and can choose a basic plan to save money

5. Dental Insurance

Dental care insurance provides all kinds of dental coverage to your employees. 

This can range from routine procedures like extractions, dentures, and root canals to emergency services.

There are two types of dental insurance plans available in the UK:

• Dental insurance coverage: This dental coverage involves paying the dentist for treatment and then claiming the amount back from the insurer.

• Dental payment plans: They are also known as 'capitation' insurance plans, which spread the cost of treatment over a defined length of time with a regular monthly payment from your employer.      

The cost of purchasing dental insurance plans can range from £70 to £300 a year, but this amount can vary between insurers and policies.

As an employer, you can include dental insurance as a part of your employee benefits package or through private medical insurance plans.

6. Health Cash Plan

Health cash plans require employees to pay a monthly charge to their insurance providers in exchange for covering their usual medical and dental expenses up to a certain limit. 

For example, employees could pay £10 per month for a plan that covers up to £200 in dental expenditures, £100 in physiotherapy, and £100 in optical costs.  

But how does a health cash plan differ from health insurance? 

Health insurance covers treatment for diseases that arise after employees enrol in the plan, while a health plan can be used to pay for ongoing and routine treatments. 

Your employees can also avail of health insurance and health cash plan simultaneously.

7. Employee Assistance Programmes (EAP) and Virtual GP Services

An employee assistance program aims to improve employee well-being and productivity while minimising absences.

It includes face-to-face, phone, or online counselling sessions to provide employees professional help on personal and work-related concerns. 

Most employers provide an EAP as a separate benefit or as part of the Income Protection package. 

Online virtual GP services have also grown in popularity and are offered as a value-added service as part of a PMI or GIP benefit. Some of these services may include:

• Scheduling and cancelling appointments

• Re-ordering prescriptions

• Viewing a patient's medical records (containing information on allergies, immunisations, diagnosis, medications, and test results).

8. Employer-Sponsored Retirement

Want to offer retirement benefits to your UK employees?

Set up an employer-sponsored retirement scheme! 

An employer-sponsored retirement benefits scheme offers employees a lump sum, gratuity, or other cash and non-monetary benefits. 

Retirees can receive retirement benefit payments: 

• On/after their retirement or death in connection with the service;

• In case of any change in the nature of their service; or

• Due to a pension-sharing order or provision.

C. Employee Perks

1. Company Cars

Employers can offer company cars to employees or pay their car allowance when they travel to or from work for business purposes.

You can also decide to rent the cars for your team members who receive the vehicle as an employment benefit — which lowers your tax liability compared to owning the vehicles. 

2. Childcare Vouchers (Tax-Free)

The tax-free child care program replaced the tax-free child care voucher scheme in 2018.

So it’s unavailable for any employee who joined your company after October 4, 2018. 

Only eligible employees, i.e., those who joined the childcare voucher scheme on or before October 4, 2018, can continue to receive the tax-free vouchers provided: 

• Their wages have been adjusted on or before October 4, 2018

• They work for the same employer that continues to run the scheme

• They do not take an unpaid career break of longer than a year

3. Bike to Work

Offer a bike-to-work scheme to make daily commutes easier for your employees. 

In this scheme, you'll purchase the bike for your workers, and the employees can rent it for a set period. Once the rental period ends, the employees can buy the bike at a reduced price. 

This way, employees can save up to 42% of the taxes they would have had to pay to purchase a new bike.

4. Gym Membership

With the COVID-19 pandemic, many people prioritised their physical fitness and mental well-being.

Based on these trends, employers offer employees benefits like free membership to gyms and sports clubs. 

You can also pay for your employees to access sporting and recreational facilities.

This can include sporting activities like cricket, football, basketball, etc., or recreational facilities like taking them for trips, hiking, camping, etc.

Remember: 

Improving employees' physical well-being and mental health can increase productivity and employee satisfaction and reduce absenteeism.

5. Workplace Canteens 

If you offer free or subsidised meals to your employees at workplace canteens or offer vouchers that cover the cost of these meals, you're exempt from paying tax and National Insurance on the expenditure.

The exemption applies:

• To meals served in any canteen — it doesn't have to be on the employer's premises or limited to employees of a single employer. 

• Only if everyone receives a free lunch. 

A lunch provided by a third party to an employee while the employee is working on the third party's premises is also exempt from taxes.

6. Travel and Subsistence

If your employees travel for business purposes, you can pay the cost of their trips. 

This includes paying for your employees' accommodation, meals, and other subsistence costs.

Subsistence costs include other necessary travelling costs, such as parking charges, tolls, congestion charges, or business phone calls.

7. Business Travel Mileage for Employees' Vehicles

Some employers also reimburse employees for business trips they may take using personal vehicles. 
Employers can make tax and National Insurance Contribution (NIC) free payments to their employees to reimburse these travel expenses.

8. Relocation Costs 

If your employees are relocating to a new location within the UK or moving out of the UK due to an internal work transfer, you can pay for their relocation expenses. 

Paying for your employee's relocation costs may include:

• The cost of buying or selling a home,

• Moving costs (paying for labour, moving trucks, etc.) 

• The cost of buying furniture for a new home

• Availing home loans

9. Training Payments

Employers can offer training or work-related workshops to regular employees to enhance their skills.

The full cost of the training is incurred by the employers, which includes paying for books, travel, course fee, etc.

10. Remote Work Expenses 

In case you have remote working employees, there are certain expenses that you may have to cover as an employer to ensure their financial well-being. 

This includes the cost of setting up their work-from-home office equipment like computers, furniture (desk or chairs), internet connection, and stationery. 

You can also pay for additional household expenses like electricity charges.

11. Mobile Phone Costs 

Some companies provide their employees with mobile phones for official purposes only. This includes making or answering work calls (local and international). 

If you provide your employees with work phones, you will have to cover the costs of phone bills. 

If you do not offer work phones, you can still reimburse your employee's phone costs for the phone calls they make for official purposes.

Why Is It Important for Employers to Offer Employee Benefits?

Missing out on offering mandatory benefits can be dangerous. 

Employers who fail to provide statutory benefits to employees can be charged with breach of contract and ordered to appear in civil courts or at an industrial tribunal. 

Based on the severity of the violation, they may also have to pay fines imposed by the government. Companies can also be asked to stop operating in the UK in extreme situations. 

But that's just for mandatory benefits.

Why do employers offer other supplementary benefits?

To ensure a smooth working environment for both employers and employees, most businesses offer valuable benefits to their employees because it:

• Shows that they care about their employees’ physical and mental health

• Helps with employee retention 

• Boosts the economic stability of the employees

• Encourages them to maintain a healthy work-life balance

A human resource management study found that 46% of job seekers would forego additional compensation in exchange for comprehensive healthcare and life insurance plans.

Employee benefits also help employers save the cost of regular salary hikes.

The reason?

While good pay is important to employees joining your company, they also prioritise additional perks and benefits like private health insurance, flexible working hours, etc. 

This makes employee benefits the top driving factor candidates search for in an employment opportunity. 

How Much Do Employee Benefits Cost Employers?

The cost of offering employees benefits (especially health insurance) may depend on your company culture and the level of coverage required.

A study estimates that, on average, around 32% of a company's salary expenses should go towards employee benefits. 

Some labour statistics recommend that businesses allocate 20% to 50% of an employee's salary to cover their benefits package.

Company benefit expenses (particularly core benefits like health insurance) vary greatly depending on the size, demographics, claims history, and degree of coverage necessary.

2 FAQs on Employee Benefits in the UK

Still got some questions on employee benefits in the United Kingdom?

We got you covered:

1. Are Employee Benefits in the UK Taxable?

Employee benefits like pensions or bike-to-work plans are taxable per the UK government policy.

To avoid these taxes, some organisations may have payroll deductions or salary sacrifice arrangements that require employees to give up a part of their pre-tax salary. 

The company, in return, offers them a benefit.

For example, in a pension salary sacrifice system, the employee gives up a portion of their gross salary in exchange for the employer making an equivalent payment to the pension. 

This helps the employee and the company save on income tax and National Insurance contributions (NIC). 

2. Are Employees Free to Choose Their Benefit Provisions?

Employees can choose their benefits packages by opting for voluntary, discount, and flexible benefits plans. 

• Discount and Voluntary benefits: The employee discount scheme and voluntary benefits allow employees to purchase products or services from their company at discounted prices or use payroll deduction and salary sacrifice schemes.

• Flexible Benefits Schemes: It allows employees to tailor their benefits package to meet their needs. This is done by allowing them to retain their current salary while letting them choose from a mix of benefits. 

In some cases, employees can also move their salary up or down by taking fewer or more benefits.

Offer Employee Benefits in the UK to Support Employee Well-Being

Whether you're a large enterprise, small business or startup, offering employee benefits in the UK is about more than just complying with legislation.

Companies often offer employee benefits beyond the statutory minimum — from paid leave and healthcare coverage to workplace pension plans and perks like company cars.

These benefits increase employee engagement and retention and also help you attract talented employees.

If you want to offer comprehensive and affordable retirement benefits to your UK team, join Yonder. It lets you set up, manage, and scale your pension effortlessly — all in one app.