How cutbacks are worsening workers' basic benefits

Employees are waving goodbye to many perks.

Employees who drive their own cars on company business can expect to see their mileage rates fall in many organisations. The green agenda is converging with the demands of cost-cutting to push these rates down. The Lake District National Park Authority, for instance, is now consulting with employees to drop the maximum mileage payment from 65 pence a mile to 40 pence from April. In a move to force down CO2 emissions, staff are also being encouraged to use video-conferencing, the train or the humble telephone in preference to driving. The authority hopes that many other employers will follow its example.

Employers are taking all sorts of moves to cut their costs. While pay freezes and job losses are capturing most of the headlines, the changing terms and conditions of employees who keep their posts are attracting less attention. But many of these changes are dramatic and will could come as a shock to staff.

The changes cover a long list of areas, including: performance bonuses, sick pay (see box), redundancy terms, further developments on pensions, overtime claims, flexible working and travel expenses.

Performance bonuses are being tightened up, even if it does not seem that way for high-earning bankers.

Many workers, especially those involved in sales, get these bonuses but the criteria can be changed easily in most cases. If sales are lower, as they are likely to be now, then bonuses are likely to be smaller.

Redundancy terms have traditionally been far more generous in certain sectors than in others, but some of the better schemes are now being slimmed down. "Redundancy packages are getting worse," says employment consultant Richard Lynch. "They are moving closer to the statutory minimum [of a maximum £400 per year for years served up to the age of 40, and £600 for years served after]."

So many employers have already downgraded their pension schemes that more bad news might seem impossible. However, the requirement to enroll all employees into a scheme could see yet more employers pare back their contributions as the rule is phased in from October 2012. Consultant Aon Hewitt says that only 40 per cent of employees are currently in pension schemes in certain sectors, including retail. "There are more employers saying that, given the market conditions, they will have to consider leveling down," says Anthony Arter, head of pensions at solicitor Eversheds.

"The cost of maintaining existing "final salary" schemes has become crippling," says James Davies of the Lewis Silkin employment law team. This could mean that many workers see the level of contributions that their employers pay on their behalf fall 50 per cent from the 6 per cent that many companies pay now to the 3 per cent that the new rules will require.

Many other changes could happen in pensions. For instance, under an arrangement called the Public Sector

Transfer Club, public sector workers moving jobs from one employer to another can often take their previous "final salary" entitlement with them to their new employer, getting it updated for pay increases and inflation until they retire. Some public sector employers are now realising that this is, potentially, a hugely expensive benefit to offer. We could start to see some local authorities and other employers leaving the Club and refusing to take these transfers.

Overtime rates are also under attack, with many employers setting up TOIL (time off in lieu) schemes in preference to paying overtime.

One development that is more related to client service than the economic downturn is the spread of flexible working. "There has been widespread recognition that presenteeism in the office isn't the be-all and end-all," says workplace expert Natasha Morley, associate director for property consultant DTZ.

Two years ago, employers and employees worked in partnership with each other to save jobs by setting up sabbatical schemes, part-time working and even (as with the law firm Norton Rose) four-day working. But Alastair Hatchett, head of pay and HR at research organisation IDS, does not think we have the same environment now. "I doubt if the current climate will produce engagement or partnership," he says. That spirit of co-operation has been damaged by factors including pay rates falling behind inflation, cuts in pension contributions and many people working part-time and below their capacity just to keep on earning.

Many employers will simply irritate their staff with the unwieldiness of their cost-cutting measures. Implementing cuts can be done in a ham-fisted way, resulting in unforeseen consequences. For example, the sensible-sounding rule that some organisations have introduced which requires staff to book train tickets in advance (in order to get discounts) can backfire. It means that, if a meeting finishes early or is cancelled, staff can be left doing nothing for hours waiting for the return journey. Such a rule is demotivating as it can be construed as meaning that an employee's input is less valuable than a train ticket.

Changes to tax rules and the planned withdrawal from 2013 of child benefit for higher-rate taxpayers will make more employers look at offering flexible benefits for workers, says Marsha How, remuneration expert at consultant Aon Hewitt. Parents who pay tax at 40 per cent on just £1 of their earnings are on course to lose child benefit (at £1,055 for one child, for instance, or nearly £2,450 for three). Those employees would probably prefer schemes where they can swap salary for benefits. "Historically, employees haven't been greatly energised about benefits," says How. "But the benefits space is going to become much more significant."

While many, many employees will suffer in ways that they do not currently expect, there are some positive points. Richard Lynch sees no moves to tinker with holiday pay which is now set at a statutory level of 28 days including bank holidays. More staff will get smartphones, iPads and other attractive technology, and more will get greater control over how they receive their remuneration package. The green agenda will also play its part. The Lake District National Park Authority is planning to introduce, for the first time, a mileage allowance of 20 pence per mile for bike users.

Sickness and absence can prove costly

* Employers are seeing absence and sickness management as a way to cut costs, and many of them are taking action. So entitlement to company sick pay schemes is being restricted, private medical packages are being made less generous in smaller organisations and employers are taking a range of measures to cut absence in the first place.

* Absence rates are at their lowest now since the CBI began its annual survey in 1982, when the average was 8.2 days a year. In 2008, the average was 6.7, and in 2009 (the latest available statistics), it fell another 4 per cent to 6.4 days.

* Workers are probably taking less time off, not simply because they are healthier, but because administration systems have changed and because some of the sickness safety nets are getting smaller.

* The use of insurance benefits by employers is developing fast. "A lot of small corporates are keeping private medical insurance but downgrading it," says Mark Noble, of Aviva Healthcare.

* Many employers offer sickness schemes which are more generous than the weekly £79.15 given as statutory sick pay. But, says Mr Lynch: "We are seeing more companies introducing waiting periods before they get company sick pay." Looking at the situation for workers who suffer long-term health problems, James Davies, from solicitor Lewis Silkin, says: "Employers are replacing schemes which guarantee a proportion of income to retirement with schemes which last for a maximum period of no more than five years."

Useful links

* Acas (Advisory, Conciliation and Arbitration Service): www.acas.org.uk

* Citizens Advice: www.citizensadvice.org.uk and www.adviceguide.org.uk

* DirectGov: www.direct.gov.uk/en/Employment/index.htm

* TUC: www.worksmart.org.uk/rights

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