Moving towards a combination of salary and non-pay benefits could be in the interests of both employers and employees, writes Gerald Flynn

OVER THE past two weeks we have had plenty of 'pay hype' in the wake of the employer groups, trade unions and Government failing to agree a national wage deal. Some private sector unions have decided to press ahead with a €30 flat-rate wage increase claim, while some employers have opted to hold firm on any remuneration decisions in the hope that a national agreement will be hammered out in September.

It is still possible for confident managers and employees, or their representatives, to negotiate new terms and conditions even in times of retrenchment.

The key is using flexible benefits as a competitive advantage and limiting existing employment costs from trying to match inflation. The problem with an across-the-board claim for 5 per cent, or a €30 flat-rate rise, is that it chases inflation and may not be in the interests of the organisation's sustainability or the employment prospects of its staff. A better approach is to offer a flexi-pay plan which meets the different priorities of employees.

Over the past decade well-managed companies have been offering these packages to adapt to a tight labour market and the diversity of lifestyle in different age brackets. Priorities for employees vary from needing more cash to meet rising mortgage repayments to longer holidays, study leave and supports, childcare facilities, more extensive health insurance cover or increased voluntary pension contributions.

Traditionally, many employers were fearful of "flexi-benefit" schemes, concerned at the potential complexity and administrative costs associated with such a "pick-and-mix" approach towards remuneration. People-management software programmes make this a lot easier and some specialist outsourced payment centres offer the service.

It means that the payroll costs currently covering salary and benefits are provided with an element of personal choice for employees so that they may opt for reduced benefits to boost their take-home pay or, alternatively, opt for a lower basic salary but enhanced non-pay benefits.

The trend towards flexible benefits reflects the increasingly diverse workforce and the higher mobility between jobs in the past decade. A driver for some older and high-rate income tax payers are the savings in income tax and PRSI in trading some of their salary for benefits.

An advantage from the employment perspective is that each employee is more aware of the actual costs and value of their entire package rather than only considering the pre-tax pay figure printed on their earnings statement each week or month.

In a study last year Employee Benefits magazine found that one-third of surveyed organisations were offering flexible benefits packages, compared with just 9 per cent in 2002; last year 24 per cent of respondents were considering moving in that direction.

Given the national pay impasse, the next few months could be an ideal time for businesses to consider a migration from fixed salary to flexible packages.

It is not something that should be rushed into, as a smooth transformation involves extensive employee communication and clear pricing of all benefits and potential in income tax savings. In addition, any calculation must examine the potential savings, if any, in recruitment, staff turnover and training costs.

In some organisations it may demand a significant mind-set shift but the move to defined-contribution pensions has made this easier as these contributions can form part of the flexible remuneration package.

A younger employee faced with heavy mortgage repayment and creche costs is less likely to be able to afford additional pension contributions and may wish to have minimal pension contributions to boost her salary earnings. Likewise, a migrant worker may prefer to have an extra week's annual leave rather than be provided with private medical cover or gym membership.

Already many middle managers have experienced the move from benefits when the attractiveness of having a company car was seriously diluted by the benefit-in-kind tax implications.

In some firms, where there are overlapping skills and competencies, a buy-and-sell market for holiday entitlements in excess of the legal entitlements could be operated. A couple with young children may not have the resources to pay for three or four weeks' holidays a year and may trade a week or two with an older employee who may have a holiday property.

Of course, flexibility can be overdone as has happened in some parts of the public sector where many employees are effectively on a four-day week due to juggling their working hours through 'flexi-time'.

That may benefit them and their families but sometimes it can lead to a knock-on of less effective service provision.

Flexible systems of remuneration or working patterns must, primarily, be aligned with the organisations' business imperatives. If adapted efficiently, that can help overcome the concept that a one-size-fits-all pay deal is best suited to all employees.

• Gerald Flynn is an employment specialist with Align Management Solutions in Dublin