Flex Fund Calculation
Purpose
As an organisation offering Flexible Benefits using an Additional Funding Scheme, you allocate a flex fund to each of your eligible employees, comprising a fixed sum of money available for employees to spend on Flexible Benefits.
You must decide on a calculation method for this flex fund. You normally use only one method of calculating employees’ flex funds during any single benefits year. The calculation method can be reviewed each year, either during the pay review process or in the pre-enrolment period before the next benefits year begins.
Prerequisites
See
Additional Funding Scheme
, under:
Prerequisites
.
Process Flow
The calculation of flex fund values in an Additional Funding Scheme is incorporated within the overall pre-enrolment Flexible Benefits process, a generalised version of which is below:
- Your organisation decides that an Additional Funding Scheme will be used to fund benefits selections for all eligible employees
- Your organisation agrees which Flexible Benefits are to be provided to which employees.
- The Benefits Administrator contacts all relevant benefits providers and negotiates terms and rates for the required benefit plans for the upcoming benefits year.
- The Benefits Administrator calculates the value of the flex funds for participating employees, based on the agreed calculation method. He or she informs employees of the value of this fund.
- The Benefits Administrator enrols core benefits for employees (which cannot be changed during the annual enrolment period) and standard benefits.
- The Benefits Administrator assigns open benefit offers for eligible groups of employees.
Result
The value of all flex funds is calculated, as part of the pre-enrolment process for Flexible Benefits Administration.
Examples of Flex Fund Calculation
The following examples illustrate possible methods of calculating the value of employee’s flex funds, as discussed under Additional Funding Scheme :
1. Flex Fund as a set percentage of basic salary
An employee receives a basic annual salary of GBP20,000. You allocate a flex fund of 10% of basic annual salary. Therefore, the flex fund is :
20,000 x 10% = GBP 2,000
In some organisations the flex fund always remains as a set percentage of the basic annual salary. However, in others, it starts out being a set percentage as a way of introducing Flexible Benefits. As the scheme matures, the flex fund becomes disassociated from the basic annual salary, such that it is increased independently of this salary and often by different percentages.
This flexibility is built into the flex fund calculation to allow for potential large increases in the cost of certain benefits, for example, health insurance. This approach would be necessary if an organisation wishes to increase the flex fund sufficiently to ensure that the actual level of benefits provided to employees is maintained, when providercosts increase.
For example, in the first year of your Flexible Benefits scheme, an employee receives a basic annual salary of GBP20,000 and a flex fund equivalent to 10% of this salary, GBP2000. In the second year, the basic annual salary is increased by 3%, but the flex fund is increased by 10% to cover unexpected increases in provider costs for a number of Flexible Benefits. Therefore, the employee now receives an annual salary of GBP20,600 and a flex fund of GBP2,200.
2. Flex fund as a set value of money dependant on grade or position
Manager level:
Managers in your organisation receive a basic annual salary of between GBP35,000 and GBP45,000. The flex fund is the same for all managers and is set at GBP4,000 per annum.
Supervisor level:
The basic annual salary for supervisory grades is between GBP22,000 and GBP26,000. The flex fund is the same for all supervisors and is set at GBP2,500 per annum.
3. Flex fund based on value of prior benefits held by employee
Prior to the introduction of Flexible Benefits, an employee in your organisation receives the following benefits:
Benefit |
Cost per annum (GBP) |
|
|---|---|---|
Private Medical Insurance |
200.00 |
|
Life Assurance |
160.00 |
|
Annual Holiday : 25 days |
1,923.07 |
|
2,283.07 |
||
The total value of benefits before the introduction of Flexible Benefits is GBP2,283.07. This therefore becomes the value of the employee’s flex fund in the first year of the new scheme.
In year 2, you increase all flex funds by 10%. The employee’s flex fund increases to GBP2,511.37 for the second benefits year.
4. Flex fund as a percentage of base salary plus value of existing benefits
An employee in your organisation is paid a basic annual salary of GBP20,000 and you use a rate of 5% to calculate the value of her flex fund.
Before the introduction of Flexible Benefits, the employee receives the following benefits valued at GBP2,389.23:
Benefit |
Cost per annum (GBP) |
|
|---|---|---|
Private Medical Insurance (+ partner) |
380.00 |
|
Life Assurance (six times salary) |
240.00 |
|
Annual Holiday : 23 days |
1,769.23 |
|
2,389.23 |
||
In the first year of Flexible Benefits, you decide to offer the following core benefits, valued at GBP1,898.46 :
Flexible Benefits Core Benefit |
Cost per annum (GBP) |
||||
|---|---|---|---|---|---|
Private Medical Insurance |
200.00 |
||||
Life Assurance (four times salary) |
160.00 |
||||
Annual Holiday : 20 days |
1,538.46 |
||||
1,898.46 |
|||||
The value of the employee’s flex fund is 5% of basic annual salary, plus the value of the existing benefits received before the introduction of the Flexible Benefits scheme, minus the value of the core benefits offered. Therefore, the flex fund is calculated as follows:
1,000 + 2,389.23 – 1,898.46 = GBP 1,490.77
5. Individual calculation per employee
This method could apply, for example, to new employees joining your existing Flexible Benefits scheme. You calculate the value of their flex funds as a like for like value of the benefits they receive in their current organisations.
For example, a female employee currently works for Company ‘X’ and receives the following benefits:
Private medical insurance (plus partner),
Life assurance (four times salary),
Annual holiday: 25 days
Full female health screening
Annual travel Insurance (plus family).
She moves to your organisation and you calculate her flex fund based on the level of her previous benefits. The value of the fund is calculated using your provider costs for the Flexible Benefits she received in her former organisation, as follows:
Private Medical Insurance (plus partner) |
380.00 |
|
|---|---|---|
Life Assurance (four times salary), |
160.00 |
|
Annual Holiday : 25 days |
2,211.54 |
|
Full Female Health Screening |
306.00 |
|
Annual Travel Insurance (plus family) |
55.00 |
|
3,112.54 |
||
On joining your organisation, therefore, the total value of her flex fund for is GBP3112.54 per annum.
Another employee joining in the same position could have a much greater/lesser value flex fund depending on the benefits they received in their previous job. Furthermore, the above example assumes that your organisation offers the same benefits that the employee enjoyed in the former organisation.