The Pros and Cons of Flexible Benefits

What are flexible benefits?

Employee benefits extend beyond base salary as additional compensation. Flexible benefit plans provide a menu of options (e.g., health insurance plans, reimbursement accounts and highly rated retirement plans), allowing each employee to build a personalized benefits package aligned with their lifestyle and priorities. This customizable approach has gained significant traction among both employers and employees.

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Examples of flexible benefits

There are several types of employee benefits that you can offer depending on the flexible benefits plan you set up. A cafeteria plan, one of the most common flexible benefits plans, comprises several benefits to cover eligible expenses, as long as they meet the criteria outlined by the IRS in Section 125.

“The benefits usually offered can range from cash value, life assurance, premium conversions, medical opt out, critical care, vision and dental to a health savings account (HSA) and 401(k),” Zane Dalal, executive vice president at Benefit Programs Administration, told us. “It is important to remember that these flexible benefits tend to be ancillary in nature, and the rights and obligations of employees and their employers differ from state to state and region to region.” 

While flexible benefits come in various forms, Carla Yudhishthu, chief people officer at Intellum, notes they typically address three key areas: workplace needs, personal life support and future financial planning.

Yudhishthu listed the following flexible benefits that employers can offer: 

Operational benefits (work)

• Career planning (e.g., sabbaticals or personal leaves of absence)
• Commuter benefits (e.g., tax-free reimbursement of parking or mass transit costs)
• Expense coverage for remote work (e.g., Wi-Fi, cell phone or incidentals)
• Flexible scheduling (e.g., flextime, shift flexibility, compressed workweeks or job sharing)
• Paid volunteer time
• Professional development (e.g., classes or training to earn or maintain professional credentials)
• Telework options (e.g., working from home or video conferencing)
• Paid time-off benefits (e.g., personal days, floating holidays or vacation buying) 

Health and wellness benefits (home life)

• Bereavement leave
• Employee assistance programs (e.g., confidential counseling, self-help and development content, and referrals)
• Employer matching for philanthropic donations 
• Flexible spending account (tax-free reimbursement for health expenses) 
• Dependent care flexible spending account
• Health coverage (medical, dental and vision benefits), including both high-deductible and traditional plans
• Health reimbursement arrangements, paid by the employer and tax-free to employees
• Income protection (e.g., short- and long-term disability insurance)
• Life and accident insurance with choice of coverage amounts
• Tuition and student loan reimbursement
• Voluntary insurance options (e.g., individual policies for specific diseases, accidents or long-term care)
• Wellness programs (e.g., health promotions and incentives)

Retirement and savings benefits (future planning)

• 401(k) plan (tax-free savings for retirement) 
• Health savings account (tax-free savings for current or future health expenses) 

What are the pros of offering flexible benefits?

Flexible benefits deliver value for both employers and employees. The primary advantages include enhanced talent acquisition and retention, greater employee autonomy, improved work-life integration, stronger workplace diversity, and streamlined benefits decision-making.

1. It increases employee recruitment and retention.

Small businesses must provide competitive benefits to match industry standards. Benefits significantly influence job decisions; and for many candidates, the benefits package determines their final choice between competing offers. To secure and retain top talent, businesses should prepare to offer comprehensive compensation packages.

2. It gives employees control over their benefits.

Each employee has distinct needs. An older employee with health concerns and family responsibilities requires different benefits than a recent graduate managing student loans. According to MetLife’s 2024 Employee Benefit Trends study, 79 percent of employees want benefits customized to their life circumstances, career level and personal needs. Flexible plans enable employees to select benefits that directly support their current priorities.

“Flexible benefits empower employees to ensure their organization is meeting their professional and personal needs,” Yudhishthu said. “Employees want to feel their employer is investing in them, and flexible plans are a great way to do exactly that.

3. It improves employees’ work-life balance.

Work-life balance remains essential. MetLife’s 2024 study identifies it as a leading contributor to mental health challenges for 33 percent of employees, following financial stress at 44 percent and external life pressures at 36 percent. Enabling employees to select personalized benefits helps support better work-life integration while reducing overall stress levels.

4. It enhances workplace diversity and inclusion.

Your diverse workforce naturally requires varied benefits. Rather than imposing uniform benefits, allowing employees to tailor their plans demonstrates respect for individual needs. This personalized approach strengthens diversity initiatives and creates a more inclusive workplace culture.

5. It eliminates the guesswork of choosing your employee benefits.

Employees understand their own needs best. With flexible benefits, you avoid creating generic plans that partially satisfy everyone. Instead, employees make informed choices, ensuring they receive benefits that support their health, financial goals, and personal and professional well-being.

6. It saves you money.

Though it seems paradoxical, strategic flexible benefits implementation can reduce costs. Rather than funding underutilized standard benefits, you invest in options employees actually value. This targeted approach boosts satisfaction, engagement and retention, generating savings through improved performance and decreased turnover. Employee surveys help identify which benefits deliver genuine value versus unnecessary expenses.

What are the cons of offering flexible benefits?

Despite numerous benefits, flexible plans present challenges. Key considerations include administrative complexity, resource requirements, communication demands and potential costs.

1. It requires time and administrative resources.

Managing employee benefits demands ongoing compliance with evolving federal, state and local regulations. Since flexible benefits involve salary adjustments and pretax contributions, they fall under the Employee Retirement Income Security Act (ERISA) oversight, with regulation from both the Department of Labor and IRS, Dalal noted. Expanding benefit options increases the administrative burden for compliance monitoring and maintenance.

“A small business that attempts to offer too many options may find that the burden of communication and administration is a disadvantage,” Yudhishthu said. “Additionally, the process of creating and implementing a flexible benefits plan is time-consuming, which takes away resources from other projects.” 

2. It requires exceptional communication.

Effective communication drives successful flexible benefits programs. Since these plans and contributions require frequent adjustments, HR teams need robust communication channels or user-friendly platforms for benefits management. Staying current with employee selections ensures compliance with payroll deduction regulations. Any benefit changes require clear, timely communication to all affected employees.

3. It can be costly.

Flexible benefits involve significant investment. Beyond the time investment for setup and maintenance, you may need new technology infrastructure for plan administration. Before transitioning from traditional benefits, conduct employee surveys to understand their priorities and ensure the investment aligns with actual needs.

What types of flexible benefits should you offer? 

Since flexible benefits adapt to employee needs by design, customize your offerings based on workforce preferences. Begin by researching competitor benefits packages. Yudhishthu recommends evaluating these three factors when benchmarking:

1. How do your benefits compare to industry standards?
2. Should you match the market or exceed it?
3. What flexibility and benefits questions arise during recruitment?

These insights guide development of a flex plan aligned with your business objectives and employee expectations. Additionally, regular employee surveys reveal which benefits provide maximum value and which represent poor investments.

“The secret to success in small business is the fine line an employer treads between his profit margin and the well-being of those upon whom he relies to make it,” Dalal said. “Reinvestment in a small business when you expand or need new equipment is a no-brainer and, in most cases, is given tax advantages. Consider that reinvestment in your workforce is as important and brings you continual dividends, and there are considerable tax advantages to doing so.” 

Source interviews were conducted for a previous version of this article.