Complete guide to the top employee benefits UK employers should offer

Employee benefits in the UK extend far beyond basic salary. From statutory requirements like holiday entitlement and workplace pensions to discretionary employee perks such as health insurance and flexible working, a comprehensive benefits package is essential for attracting and retaining top talent in 2025.

This guide explores the five major types of employee benefits UK employers can offer, covering both mandatory statutory benefits and optional perks, plus their tax implications and how to build competitive compensation packages.

What are employee benefits?

Employee benefits are any form of non-wage compensation provided in addition to the standard salary figure. Together, such elements create a comprehensive compensation plan that addresses the diverse needs of your workforce, from financial security right through to physical health.

While traditional benefits have tended to focus on essentials, like pensions and private medical insurance, the modern benefits landscape is far more varied. To stay competitive, UK employers now leverage new additional employee perks such as wellness coaching, green incentives, and flexible working arrangements.

By moving beyond basic statutory obligations to offer a holistic support system, businesses can significantly improve talent attraction and retention rates.

Now, let’s take a look at how all these different types of benefits for employees are categorised so that you can get a better sense of what to include in your own company’s package.

What’s the difference between mandatory and discretionary benefits?

Before we get into the different types of employee benefits you can offer, it’s important to remember that a benefit will either be statutory or discretionary. In other words, there are some benefits you are legally obliged to provide, while others are optional.

Contrary to common opinion, benefits like health insurance aren’t mandatory, but annual leave and pensions are. Let’s take a closer look at the difference between mandatory and discretionary benefits.

What are mandatory (statutory) employee benefits?

Statutory benefits are mandatory obligations for UK businesses. Regardless of other perks, you must provide:

• Holiday entitlement: 5.6 weeks (28 days) holiday on a full-time basis.

• A pension scheme: Automatic enrolment into a suitable pension scheme.

• Sick pay: Statutory sick pay for employees unable to work due to illness.

• Maternity and paternity leave: Up to 52 weeks maternity leave and statutory paternity leave.

What are discretionary benefits?

Discretionary benefits are optional perks that help your business stand out. While not legally required, they often include private health insurance, stock options, gym memberships, well-being plans, cycle-to-work schemes, and flexible working arrangements.

Summary: statutory vs. discretionary benefits

The five major types of employee benefits

Now that we’ve covered the differences between statutory and voluntary benefits, let’s look more closely at the different types of employee benefits you can provide as part of your compensation packages. As we touched on before, the world of employment perks is a varied one – they come in all different shapes and sizes. 

Generally, however, there are five major categories you should be familiar with.

Insurance

This is a broad category that encompasses all kinds of health insurance, as well as life insurance and disability coverage. Employers will usually take out this kind of benefit in the form of group coverage, which covers the entire workforce, and is much more cost-effective rather than having employees sign up for plans individually.

High-quality health or medical insurance is one of the most sought-after types of benefits for employees as this provides coverage not only for their needs but also their families. If you’re keen for your business to offer a robust package of benefits, then life insurance should be high on your list. It’s another great way of showing you care about both your employees and their families. 

Having good life insurance in place means that if an employee passes away, their family will receive a sum to cover funeral and other cost of living expenses. Then, there’s disability insurance, which can be used to cover short or long-term disability or even illness. Under such plans, employees are provided with regular payments for as long as their illness lasts. 

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Pension plans

For many professionals and workers, retirement is a crucial consideration. A solid pension scheme will help an employee feel more at ease about their future while helping them save up for the kind of retirement they want. Here in the UK, pension contributions allow employees to earn employer contributions while saving and investing a portion of their own wages in the process. 

As mentioned before, auto-enrolment is a legal obligation here in the UK - all eligible staff must be enrolled in a pension scheme as soon as they join a company. Employees then have a right to opt out if they so choose, or adjust their contribution level. Automatic payroll deductions can streamline and better support this process.  

Additional compensation

Beyond their regular salary, you can also create opportunities for your staff to earn more. Commissions, bonuses or performance-based awards are all common ways you can provide this type of benefit, as well as through stock options or profit-sharing plans. 

In the UK specifically, tax-advantaged share schemes like Enterprise Management Incentives (EMI) and Company Share Option Plans (CSOP) are highly effective employee retention tools. These schemes allow employees to acquire company shares with significant tax benefits compared to standard benefit options, directly aligning employee personal financial growth with the company’s long-term success.

Bonuses can either be contractual (such as for sales positions), or offered out at your company’s discretion. More often than not, these extra payments are dolled out as part of a greater incentive programme and employee performance management that you can hone to better motivate employees towards showing up and giving their best. 

Bonuses are also a way of increasing morale, though we’d caution against using this as a sole motivator. On their own, additional compensation schemes cannot make up for a poor, toxic culture, and can sometimes lead to unhealthy competitiveness. Ensure you’re motivating your team with more than only pounds and pence by supporting their well-being and overall engagement.    

Paid time off

Whether you’re a business owner or an entry-level employee, we all need a good break every now and again. Employers who stand out understand that their personnel need breaks from time to time in order to recharge and return to work with a fresh perspective and energy. That’s where paid time off, like paid holiday and sick leave, comes in, but this category also encompasses other types of leave, such as bereavement, or sabbaticals. 

Here in the UK, paid time off is part of our legislation, but employers can always choose to expand the mandated leave through their own occupational policies. This is an excellent way for your company to stand out and offer employees attractive support beyond what’s simply been legislated. And it’s in going that extra mile that your business is likely to attract talent that is more competent and engaged with your business and its mission.

Fringe benefits

Finally, we come to fringe benefits. While optional, these are crucial for differentiation and retention. This is where your HR team can get strategic and creative by rounding out compensation packages with perks that support employees’ lifestyles.

The impact of these additional benefits is significant, as they can be the deciding factor for a potential hire accepting an offer. Including strong fringe benefits allows you to:

• Differentiate your company in a crowded job market.

• Retain top talent by supporting their lifestyle and well-being.

• Create a supportive culture that goes beyond basic financial compensation.

Here are the key areas for fringe benefits:

How are different types of employee benefits taxed?

We’ve explored the myriad of benefits your company can offer (and remember, this list isn’t exhaustive). So now let’s get down to brass tax (see what we did there?).

Most benefits will attract some kind of tax treatment. In the UK, taxable non-cash perks are often referred to as Benefits in Kind (BIK). Because they have a monetary value, they must be reported to HMRC (often on a P11D form), and tax may be due on them. However, treatment varies significantly based on the benefit type.

When setting up salary sacrifice, remember that it is crucial to consider implications for Universal Credit and ensure that pay never falls below the national minimum wage.

Employee benefits trends for 2026

As the workplace evolves, so do employee expectations. Looking ahead to 2026, the most competitive benefits packages will move beyond one-size-fits-all options to offer:

• Hyper-personalization: Using data to tailor packages to individual life stages and circumstances, and giving employees control over what perks they have.

• Financial well-being 2.0: Moving past basic financial advice to offer tangible support and tools, like emergency savings pots, expert mortgage advice, and salary advance schemes.

• Green benefits: Alignment with eco-conscious values via electric vehicle schemes, sustainable pension funds, and incentives for low-carbon commuting.

• Inclusive health support: Expanded coverage for previously overlooked areas such as menopause support, fertility treatments, and gender-affirming care.

Wrapping up with some advice on building a competitive benefits package

Companies used to just take out a health insurance and pension plan and call it a day. But those days are falling further and further behind us as the modern job candidate seeks out positions that offer not just fair compensation but a basket of supportive benefits to go with this. 

If you want to compete in today’s job market, then offering benefits that bolster employee mental health, well-being, financial security and work-life balance is a must. Offering benefits that your business can afford but that are also varied can help you put together comprehensive compensation packages that win out.

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