We have asked the Corporate Legal Services department of PwC to set out advice in relation to 'perks' at work and their possible removal in order to save costs.

Although not legally defined, employee perks are generally recognised to be the little extras that make going to work more enjoyable, such as free fruit and snacks, Friday drinks, or the summer barbeque. Commonly perks arise from unwritten practices, which may not amount to contractual entitlements, and which contrast with what we consider to be the more fundamental contractual benefits, such as medical insurance, pension or holiday.

Perks, but more particularly benefits, can be used to attract and retain talent, potentially reducing pressure on employers to increase basic pay, which is of value in the current challenging economic climate. Thus, whilst the need to make efficiencies has forced employers to review perks and benefits, consideration may need to be given to hidden costs resulting from damage to staff morale, poor retention and legal risk.

The following are some of the areas employers may wish to explore before cutting perks and benefits:

Conduct a Benefit Review
It may be worthwhile for employers to conduct a benefit review to identify perks or benefits which are wasteful, which have no clear business advantage, or which are not particularly desired by the employees. As perks and benefits are used to retain talent and motivate employees, part of the review exercise may involve assessing impact on employee engagement of the proposed changes. 

Assess the Legal Status 
A further aspect of a review should involve assessing whether a particular perk or benefit is likely to amount to a contractual entitlement, this being something which will inform the steps an employer will need to take if changing it. Consideration of this will also allow an employer to quantify risk and associated cost as related to any proposals.

Assess the Savings
Cutting modest staff perks could be questionable if the cost saving is negligible, particularly when impact on staff morale is taken into account. It would be prudent for employers to concentrate efforts on areas where more significant cost savings are likely to be made, such as in respect of expenses policies, by placing budgets and controls on travel and hotel stays, and encouraging the use of telecommunications systems, conference calls etc rather than face to face meetings.

Communicate with Employees
Particularly with more substantive perks or benefits, or those which could amount to a contractual entitlement, employees should be informed of the intended cutbacks and given the chance to engage in consultation. This will reduce the legal risk attached to what otherwise might be an unlawful change to terms and conditions. Further, communicating with employees will help clarify the employer’s perspective – such as that “freebies” are not really free. It may also help bring forward new cost saving ideas and solutions.

Consider Alternatives
Sometimes variation or replacement of a perk or benefit, rather than withdrawal of it may be a viable way forward from a cost saving perspective, whilst also limiting damage to employee engagement and morale.

Anecdotal evidence of cuts in perks and benefits is widespread. In this context, it is perhaps surprising that the CIPD 2010 survey on Reward Management reported that in the previous 12 month period 40% of UK employers had increased their benefits spend, with only 16% of employers by comparison having reduced their benefits budget. Further, the survey reported that there is likely to be less change in 2010 than in 2009, albeit that one area where changes may continue is in pensions, with the most popular options being to introduce salary sacrifice, increase contributions from employees and closures to final salary schemes.

These signs appear promising, although there remains some concern as to the possibility of a “double dip recession”, as signified by a modest recovery followed by a further period of recession, particularly because of the proposed spending cuts and potential job losses in the public sector. Whilst the coalition Government measures are intended to bring about longer term gains, and a sustainable recovery, only time will tell if these measures will achieve their objectives.