Flexible Benefits Plans: What They Are and How They Work

Variety is the spice of life—and it’s certainly welcomed in the employee benefits space. Flexible benefits plans appeal to forward-thinking companies that want to offer their employees a highly personalized rewards experience. The possibilities are endless, from wellness programs and education stipends to remote work allowances and mentoring opportunities. 

This article covers how a flexible benefits plan works, what it includes, and why choice, empowerment, and employee satisfaction should always take center stage. 

What are flexible benefits, and how do they work?

Flexible benefits, also known as fringe benefits, form part of your employee compensation package. They’re fully customizable and allow employers to provide the same core benefits to all their employees while also enabling them to tailor their benefits package based on individual needs. 

Interest in flexible benefits has grown exponentially over the past few years, with SHRM reporting that 7 in 10 employees prefer this option to traditional prescribed benefits. Where employees were previously happy with standard benefits like healthcare and paid time off, modern workers now seek a broader range of accessible perks. MetLife’s 21st Annual U.S. Employee Benefit Trends Study 2023 reports that 60% of employees are drawn to non-medical benefits, the highest level since 2013. Similarly, 61% of employees are interested in benefits their employer doesn’t yet offer—an increase of 3% over the past year. 

Employees list their top “must-have” benefits as follows: 

• Medical/health insurance: 79%
• Paid leave: 77%
• 401(K) or other defined contribution retirement plan: 75% 
• Dental insurance: 73%
• Vision care insurance or discount program: 70% 

How do flexible benefits packages work?

Companies choose a benefits provider and allow their employees access to a flexible benefits plan. They work within a budget to choose perks and benefits that suit their needs. For example, a single male worker with no dependents doesn’t need access to childcare but may require counseling for a mental health concern. A flexible plan enables them to build their benefits package accordingly, using different expense categories as the building blocks. 

Company example: Crisis Text Line worked with Benepass to craft a benefits package with the following expense categories: 

• Professional development: Training courses, coaching, and online learning 
• Mental health: Therapy and counseling services 
• Wellness: Physical and mental health benefits, such as fitness apps, athleisure clothing, meditation classes 
• Internet: Monthly Wi-Fi costs 
• Work from home: Essential office supplies and equipment for remote workers  

Flexible benefits plan examples

The nature of flexible plans means there are unlimited ways to customize your benefits offering. Encourage your employees to choose the options that matter most to them. These may include: 

Stipends 

A stipend is a fixed sum of money distributed regularly—often monthly or annually—or on a one-off basis. The payment is made separately from the employee’s regular wages and isn’t considered part of their base pay. However, they are still considered taxable income in most cases and are subject to income tax withholding and employment taxes. Certain stipends may be considered nontaxable if they are used for business-related expenses. 

A stipend covers a specific expense to support employees professionally or personally. Some examples include: 

• Wellness: To promote a healthier and more productive workforce by offering health-related activities. With a focus on employee well-being, companies allocate wellness stipends to support gym memberships, fitness classes, or wellness programs. 
• Technology: To provide funds for employees to purchase or upgrade their work-related devices such as laptops, smartphones, or software licenses, ensuring they have the necessary tools to perform their jobs effectively.
• Remote work: To support employees in working effectively from a remote location. Some people may put their stipend toward the cost of coworking spaces, while others may use the fund to kit out their home office. 

For an in-depth look at setting up a flexible stipend, including program design tips, vendor checklists, and ROI calculations, download our eBook Launching a Competitive Lifestyle Spending Account: 7 Steps for Success.

Transportation 

Commuting patterns have shifted significantly since the Covid-19 pandemic, as many employees now opt to work from home at least part of the week. Transportation or commuter benefits are a flexible way to cover regular or sporadic travel and mass transit costs, such as:

• Fuel costs 
• Parking fees 
• Public transit passes 
• Uber or Lyft stipends 

Professional development 

35% of employees consider learning and people development as one of the top three elements of the employee experience. MetLife confirms this increases to 49% of IT company workers, 43% for Black employees, and 42% for Hispanic employees. The company’s analysis reveals that current professional development is shifting from hard to soft skills, such as networking and coaching training. 

Flexible employee benefits covering employee development might include: 

• Tuition fees 
• Textbooks 
• Certification courses 
• Professional memberships 

Family and childcare 

Childcare costs American families an annual average of $14,760 per child, but the costs vary wildly across states. Mississippi offers the most affordable average at $5,436, while Massachusetts costs $20,913 annually. 

Only some of your employees will be parents, but those who are will be attracted to an employer willing to successfully support their efforts to balance work and family life. Flexible benefits that address this include: 

• Backup childcare stipends 
• Childcare tax credits or deductions 
• Parental leave and return-to-work programs

Similarly, employees with elder care responsibilities may benefit from a flexible benefits program that offers:

• Eldercare stipends
• Tax breaks or credits for long-term care insurance 
• Time off for eldercare emergencies 

Paid time off

The Fair Labor Standards Act doesn’t require employers to pay for time not worked in circumstances such as vacation, sick leave, personal time, or federal holidays. However, some forms of leave are mandatory at state level. In either case, many employers offer some form of paid time off (PTO) to attract and support employees. 

Depending on the flexibility of your PTO program, you may allow employees to roll unused days over from one year to the next or even buy extra vacation days from you. 

Flexible working schedules 

The traditional 9-to-5 working day is becoming obsolete as employees strive to find a working pattern that better fits their personal schedules. Microsoft found that 30% of its 180,000 employees log most of their working hours at night, signaling how personal productivity changes from person to person—some of us are night owls, and others are early risers. 

Companies can support their employees with flexible scheduling, such as the following: 

• Frontloaded schedules: Employees work longer hours at the start of the week before tailing off for a shorter schedule by Friday. 
• Compressed schedules: Employees work their regular hours over fewer days, for example, the 9/80 pattern, which is 80 hours over nine working days, with the 10th working day off. 
• Remote options: Employees can work from home, in coworking spaces, or a combination of both. Employees reclaim more time in their personal lives by skipping the commute. 

Health benefits 

Group health coverage is the most common type of benefit that employers offer. Although a group approach is often the most affordable option, the health coverage may not suit your individual employees. Flexible benefits in this area give employees more control over their benefits package. These may include: 

• Health savings accounts (HSAs): Employees can save pre-tax dollars to spend on high-deductible health plans. The flexibility here allows employees to determine how much to invest in their individual healthcare.
• Health reimbursement arrangements (HRAs): An HRA is an employer-funded account that employees can use for certain healthcare expenses not covered by their health insurance plan. The reimbursement is tax-free and customizable based on your employees’ priorities, pre-existing conditions, and life stage.
• Mental health coverage: Some employers offer mental health and wellness benefits such as online counseling sessions, meditation classes, or mindfulness training.
• Vision care: Vision plans help employees cover the cost of eyeglasses, contact lenses, and eye exams. 
• Dental coverage: Offering dental coverage protects your employee’s oral health while shielding them from costly treatments for cavities, gum disease, and other procedures.
• Telemedicine: 93% of employers now provide access to round-the-clock medical advice via video call.

Financial wellness 

As the cost of living rises, budgeting and financial planning are ongoing challenges for some employees. MetLife research finds that 45% of employees want access to financial wellness tools and resources, up from 18% in 2019.

Show your employees you appreciate their continued contribution to your organization by offering practical guidance on every aspect of their personal finances. Courses may include: 

• Financial education and budgeting seminars
• Debt management advice 
• Student loan repayment plans 
• Retirement investing 
• Estate planning 
• Emergency funds or savings 

6 advantages of flexible benefits plans

Employers don’t need to offer a flexible benefits plan, and some will choose to narrow down their offerings rather than broaden the selection. But flexible benefits can strengthen your company and relationships with your employees in the following ways: 

1. Increasing recruitment and retention 

Monster’s Future of Work report highlights that 35% of employers plan to increase their benefits and perks selection over the next three years to stand out in a competitive job market. Doing so strengthens your employer brand and creates a unique benefits offering based on the exact talent audience you want to attract. Molly Johnson-Jones, CEO & Co-Founder of Flexa, explains: 

“Your employer brand is not supposed to appeal to everyone. An employee brand should be unique, exciting, and appeal to the people who thrive in your company. Be transparent about your culture, ways of working, flexibility, and benefits. Bring out your company’s personality, mission, and vision. That’s when a match made in heaven occurs.” 

2. Demonstrating employee care

The benefits you offer influence your worker’s perception of how well you support them. Adam Flack, Financial Adviser & Planner for SMEs, explains: 

“By offering a range of employee benefits, such as health insurance, retirement plans, and flexible work arrangements, you show your employees that you genuinely care about their wellbeing. This increased job satisfaction leads to higher motivation, engagement, and ultimately, loyalty.” 

3. Empowering employees with control over their benefits 

Flexible benefits empower employees to take control and meet their individual needs. This creates a sense of ownership and increasing job satisfaction. Clare Martin, Marketing Leader for Blue Cactus Digital, asserts that a one-size-fits-all approach to benefits fails to acknowledge employee individuality:

“It’s important to recognize that we’re all built differently, and therefore our needs vary. A good benefit plan allows employees to decide how they want to make use of the benefits provided to enhance their individual experience.” 

4. Providing tax advantages

Your employees and your company may receive a tax break, as some flexible benefits are eligible for pre-tax dollar funding to reduce your tax liability. IRS Publication 15-B2 offers guidance into specific benefit taxability. 

5. Reducing administrative pressure

Benefits teams can feel overwhelmed trying to craft the perfect benefits package that meets the needs of everyone working for you. A flexible benefits package takes the pressure off by allowing employees to customize their individual selections to achieve personal and professional happiness. 

6. Future-proofing your organization 

Retirement is happening later than ever, with the number of people aged 75+ expected to grow 96.5% by 2030. This means that companies must offer benefits that appeal to five generations: 

• Baby boomers: People born between 1945-1964
• Generation X: People born between 1965-1980
• Millennials: People born between 1981-1996
• Generation Z: People born between 1997-2012
• Generation Alpha: People born in 2013 and beyond 

Beyond generations, employers must design benefits that appeal to a more diverse workforce in terms of gender, socioeconomic background, geography, and culture. Flexible benefits reduce the risk of overlooking an employee’s specific needs, ensuring that all your talent has access to the support they need, now and in the future. 

3 disadvantages of flexible benefits plans

For all the advantages they offer, flexible benefits plans may also present some challenges, although you can easily overcome these with the right preparation. 

1. Costs time, money, and resources

A flexible benefits plan requires resources, including: 

• The cost associated with paying your benefits team to research and roll out the plan
• The potential cost of paying implementation fees (depending on your benefits provider) if you’re switching programs 
• The time it takes to communicate your benefits offering 

2. Requires employee education 

For your employees to fully invest in your benefits plan, they must understand: 

• What is available to them 
• How they access their benefits 
• What elements are customizable 
• Which benefits are taxable 

Answer these questions by providing training, support, and ongoing communication of the plan provisions and changes. Check with your benefits vendor to see what type of employee support and education they offer to reduce your administrative burden.  

3. Lacks guidance 

Flexible benefit packages do not come with a predefined structure, so employers must use their discretion when offering different benefits. 

To make this process easier, the Benepass Benchmarking Guide describes which plans are popular with companies of different sizes across a range of industries. 

Choosing a flexible benefits platform

Flexible benefit plans can provide a powerful competitive advantage to your company, but only if you pick a versatile platform that will adapt to your employees’ needs. Consider the following as part of your decision-making process: 

Flexibility 

First and foremost, select a benefits platform that delivers true versatility for your employees. Example: The Benepass Lifestyle Spending Account allows you to pick eligible expense categories such as wellness, food, mental health, or professional development.

Enrollment 

Signing up for your flexible benefits package should be easy for your employees, so look for a platform with enrollment capabilities that are automated and intuitive.

Affordability 

MetLife reports that 72% of employees rate affordability of company benefits as a defining factor in employee care. 4 in 10 employees are not satisfied with their employer’s contributions to the benefits, meaning they’re too expensive and inaccessible. 

Before signing up with a benefits provider, check that you can afford the plan and determine whether you’ll pre-fund or use a reimbursement account to distribute employee benefits to your workforce. Take note: Employees may find it hard to pay upfront for expensive benefits such as professional development courses, which may prevent them from participating. 

Accessibility 

Employees are accustomed to accessing digital platforms from various devices, including smartphones, tablets, and desktops. Always check if your preferred provider offers a mobile app that offers full-feature parity with the web-based dashboard. 

Global benefits 

If you’re providing benefits to a distributed team or plan to in the future, make sure your provider supports global benefits. This is the ability to deliver accounts that work in multiple locations and currencies. Check that your provider can offer tailored accounts that adhere to local regulations. 

Check out our comprehensive guide for a deeper dive into how to choose benefits administration software.

Offer flexible benefits plans with Benepass

Benepass is designed with flexibility in mind. Follow the below steps to create the perfect mix of benefits to achieve personal and professional happiness: 

• Step 1: Select the expense categories you want to add to your flexible benefit account.
• Step 2: Hand over to Benepass to code your Benepass policy template.
• Step 3: Connect your account to your payroll system for automatic employee enrollment. 
• Step 4: Communicate your benefits program to your employees and invite them to join. 

Ready to create a personalized and impactful benefits experience for your employees? Discover the possibilities of a cutting-edge benefits culture by scheduling a live demo of Benepass today. Feel free to contact our dedicated sales team at sales@getbenepass.com with any queries. 

To learn more about the various flexible benefits plans you can offer employees, check out our comprehensive guides:

• Meal Allowance: What Employers and Employees NEED To Know
• Travel Stipends Guide: What You Need To Know
• A Guide to Work From Home Stipends (Work Stipends in 2023)
• A Wellness Stipend Guide For Employee-First Companies
• Cell Phone Stipend: A Win-Win Solution for Employers and Employees
• Gas Stipends: How They Work and Common Questions
• How to Offer the Best Childcare Benefits for Employees
• Offering Fertility Benefits to Your Employees: Everything You Need to Know
• Employee Rewards and Recognition Programs: What, Why, and How
• How to Offer Tuition Reimbursement Benefits: Advantages, Complications, and 7 Steps to Success
• Commuter Benefits Programs Guide: How to Support Your Employees’ Journeys to Work
• The 17 Most Important Benefits to Employees in 2024