According to a recent study, almost three-quarters of UK companies with overseas employees provide cash lump sums rather than sourcing and financing employee benefits. This puts their legal and ethical obligations at risk.
Towergate Employee Benefits’ research shows that this method is widely used. Companies that offer lump sums are doing so to allow employees to find their own support for health and well-being, including private medical and life insurance.
This method can leave businesses at risk if the employees do not use the money as intended.
Sarah Dennis, Towergate Employee Benefits’ head of international, stated that “offering a lump sum of cash to overseas employees is quite common. The problem is employers cannot be sure the money will be spent correctly.” Globally mobile employees are known to use their cash lump sum to fund lifestyles rather than insurances. This can have serious consequences for both the employer and the employee.
Employers are exposed to risks if they do not provide insurance
If an employee who is working abroad needs medical treatment, the employer could be exposed to significant financial risk. The cost of a procedure in another country can be tens or even hundreds of thousands of pounds. If employees do not have life insurance, their dependents may be left with no financial support in the event of a tragedy.
Towergate emphasizes that employers have a duty to care that is applicable to all employees, regardless of where they are located. Employees working abroad can be more at risk in some situations, particularly if they don’t have the same access to public services and healthcare as the nationals of their host country. Employers must take into consideration these factors and make sure adequate provisions are made.
Cash payments may be flexible for some companies, but they also limit employer oversight. Companies risk being held responsible for not supporting their employees properly if they don’t know if their employees have vital insurance products. It is also feared that employees may not have the knowledge necessary to choose the correct level of insurance.
Lack of knowledge and buying power
Towergate warns employees that without proper guidance, they may have difficulty obtaining adequate protection. A lack of knowledge can lead to incomplete coverage, even when employees want to buy appropriate benefits themselves. Individuals who purchase insurance on their own lose out on the benefits of group buying, including lower rates and better policies.
Dennis said, “While an employee may be tempted by a lump-sum of cash, receiving the benefits directly is the most efficient and effective solution.” The employees will understand the value of the offer if it is clearly communicated.
Global employee assistance programs are often included in international benefit packages. These services provide vital support to employees based abroad, such as legal advice, financial guidance and counselling. When employees buy their own insurance, they don’t usually get these additional features.
Cash allowances are more common among smaller employers
According to the research, company size and international footprint are important factors in determining benefits strategies. The research found that smaller employers with less than 250 employees are more likely to provide cash lump sums (76%), compared with larger organisations with more than 250 employees (68%).
As the number and number of employees abroad increases, so does the likelihood that a company will offer cash benefits rather than structured ones.
Dennis said, “It’s understandable that small companies with a limited number of employees in a handful of countries would prefer to offer a lump-sum payment than a benefits package for their employees, but it may be shortsighted.”
In the long term, the option that seems easier to provide a lump sum of cash could prove to be costly and complex if something goes wrong.
