How important are pay and workplace benefits?

They're not simply a means of rewarding employees for their time and performance anymore

First published on Thursday, Jun 04, 2020

Last updated on Friday, Jun 14, 2024

They’re also key methods for attracting talent and motivating greater performance.

“I don’t pay good wages because I have a lot of money; I have a lot of money because I pay good wages.”
— Robert Bosch, founder of Bosch GmbH

Good wages could mean several things. It could mean paying workers a huge salary. Or it could mean rewarding employees in a way that makes them happier and your organisation more competitive. When you build your pay and benefits strategy around your business needs, it can be more like the latter.

Managing pay & employee benefits

Pay covers all financial reward your organisation makes to workers. This includes wages or salary as well as variable earnings like bonuses and overtime.

Designing a pay strategy

Key aims of pay strategies are to attract talent and retain and motivate employees. Effective strategies are built on knowing what motivates the talent you need. They are also determined by your ability to pay and legal requirements. Strategies often include:

  • Formal pay structures, which is a useful way to place a particular value on a role. It can also show how jobs relate to each other within your organisation and the job market. While many use graded pay structures, over half of UK organisations use individual ‘spot’ salaries (CIPD 2015).
  • Pay reviews, which can include performance-based rises for individuals and organisation-wide changes based on inflation and changing market rates.
  • Bonus and incentive awards are used widely, especially in the private sector. They’re most commonly linked to individual performance, followed by organisational performance (CIPD 2015).

Legal requirements

UK pay policies also need to meet legislative requirements. Equal pay laws protect the right of men and women to be paid the same for equivalent work. National minimum wage rules apply to all workers over 16. There are also special regulations for senior management reward policies.

Employee benefits

Cash isn’t the only way to reward employees. Some individuals might not consider financial reward important — individuals at the start of their career may prioritise development, for example. Employee benefits such as share schemes can provide your organisation with tax-efficient alternatives to high salaries.

The benefits most commonly offered to UK workers are pension schemes, paid bereavement leave and training and career development (CIPD 2015). Market-competitive benefits designed to enhance employee lifestyles can include healthcare plans, company cars and childcare assistance.

Non-financial benefits

Most non-cash benefits have a financial value to employees. However, research shows that non-financial rewards are also valued by workers. Examples include flexible working, career development opportunities, employee recognition programmes and good performance management.

Costing and evaluating employee benefits

Some benefits might be ‘non-cash,’ but they’re still costly. There’s one cost for a company car fleet itself, and another for employee mileage admin and vehicle maintenance.

Effective benefits programmes are reviewed regularly — and they deliver performance worth the total cost.

Frequently Asked Questions about Wages

Our clients ask loads of questions about staff wages, so we’ve answered some of the most common ones below.

Not found an answer to your question? Bright Lightning gives you the answer to thousands of employment questions in seconds.

How do pensions work?

Every employer with at least one employee is required to provide a workplace pension.

Employees pay a percentage of their pay into a pension scheme each month. In most cases, employers also add money.

You get tax relief on the money paid into a pension scheme, to help you save for retirement.

Learn more about auto-enrolment, and the different types of workplace pension in our pensions guide.

How are employees paid?

Employees can be paid in many different ways. Most employers pay wages directly into their bank accounts, but you can also use paper cheques or pay in cash.

You can pay employees monthly, weekly, or even daily. But you must stick to the payment process agreed in employment contracts.

Most employees are enrolled in the Pay As You Earn (PAYE) scheme. This means Income Tax, National Insurance, student loan fees, and pension contributions are deducted. You must calculate these deductions before paying staff wages.

Should overtime be paid at a higher rate?

It’s up to you. There’s no legal requirement to pay more for overtime. However, offering an enhanced rate of pay can encourage staff to take on extra hours.

More about pay and benefits

Get detailed answers to your pay and benefits questions. BrightBase brings you up-to-date compliance guides, leading opinion on current topics and essential HR resources — find them below.

Janine Lennon

Head of Payroll Services

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