How much do employee benefits cost employers?

It varies widely. Relevant life: £30-80/month per person. Group life: 0.3-1% of payroll. PMI: £500-2,500/year per person. Cash plans: £100-300/year per person. Corporation tax relief reduces all costs by 25%.

Employee Benefits Insurance UK 2026 | Complete Employer Guide

Key Facts About Employee Benefits Insurance

Employee benefits insurance encompasses death in service, group income protection, critical illness cover, and private medical insurance (PMI). Only 13% of UK employees are happy with their benefits package (Drewberry 2024). The ABI reports \u00a34 billion in PMI claims alone in 2024, plus \u00a38 billion in total protection claims. Many of these benefits are tax-efficient for both employer and employee.

-Core package: death in service, group IP, critical illness, PMI

-Only 13% of staff are satisfied with their benefits (Drewberry 2024)

-£4bn in PMI claims processed in 2024 (ABI)

-£8bn total protection claims paid by UK insurers in 2024

-Many employee benefits are Corporation Tax deductible

What Counts as Employee Benefits Insurance?

Employee benefits insurance refers to the suite of protection policies an employer provides for staff. Under HMRC BIM45525, employer-paid protection premiums are generally deductible as a trading expense where they are wholly and exclusively for the purposes of the trade. The core components include:

Death in service: Pays a lump sum (typically 2–4x salary) to an employee's family. Premiums are Corporation Tax deductible and benefits are free of income tax.
Group income protection: Replaces income during long-term illness. Premiums deductible; benefits taxed through PAYE.
Group critical illness: Pays a lump sum on diagnosis of a specified condition. P11D applies.
Private medical insurance (PMI): Covers private healthcare. Premiums deductible but create a P11D benefit-in-kind.

According to the ABI, UK insurers paid a record \u00a38 billion in protection claims in 2024, with \u00a34 billion in PMI claims alone.

Tax Treatment of Each Employee Benefit

Understanding the tax efficiency of each benefit helps employers build a cost-effective package:

Death in service / group life: Premiums are Corporation Tax deductible. No P11D for employees. Benefits paid tax-free through a discretionary trust. The most tax-efficient group benefit.
Group income protection: Premiums are CT deductible. No P11D for employees on the premium. Benefits are taxed as earnings through PAYE when paid.
Group critical illness: Premiums are CT deductible but create a P11D benefit-in-kind. Benefits may be tax-free if paid to the employee.
Private medical insurance: Premiums are CT deductible but create a P11D. The employee pays income tax on the premium value.
Relevant life insurance: The most tax-efficient option for directors and high earners — no P11D, no lifetime allowance issues, CT deductible.

The CIPD Reward Management Survey provides benchmarking data on which benefits UK employers typically offer.

How to Set Up an Employee Benefits Package

Setting up employee benefits insurance involves several steps:

Audit your workforce: Understand demographics, existing benefits gaps, and employee priorities
Set a budget: Benefits typically cost 5–15% of payroll for a comprehensive package
Choose core benefits: Start with death in service and group IP as the foundation
Add voluntary benefits: Allow employees to opt into PMI or dental at group rates
Work with a broker: An independent broker can compare insurers and negotiate terms

According to Drewberry, only 13% of employees are satisfied with their benefits, presenting a significant opportunity for employers to differentiate themselves in recruitment and retention.

Employee Benefits Insurance FAQs

What is employee benefits insurance?

Employee benefits insurance covers all insurance-based workplace benefits: death in service (group life), group income protection, critical illness, private medical insurance, and relevant life. These provide financial protection for employees and their families.

Which employee benefits are tax-efficient?

Relevant life insurance has no P11D charge — the most tax-efficient benefit. Death in service premiums are deductible. PMI has a P11D charge but is still more efficient than salary alternatives. Group IP premiums are deductible but payouts are taxable.

What employee benefits should a small business offer first?

Start with relevant life insurance (no P11D, most tax-efficient) and a workplace pension (legally required). Then add death in service or health cash plans as budget allows.

Do employees value insurance benefits?

According to Drewberry's 2024 survey, only 13% of staff were truly happy with their benefits, and 20% specifically wanted insurance-type benefits including death in service.

Employee Benefits Insurance UKA Complete Guide for Employers

Key Facts About Employee Benefits Insurance

What Counts as Employee Benefits Insurance?

Tax Treatment of Each Employee Benefit

How to Set Up an Employee Benefits Package

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Employee Benefits Insurance FAQs

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