Cafeteria system

From CEOpedia | Management online

The cafeteria system is one of the elements of flexible remuneration of employees. The essence of cafeteria systems is to give the employee the opportunity to choose elements including non-payroll benefits, which a given employee can use as part of the remuneration.

The use of cafeteria systems was initiated in the United States, where due to the high level of wages, further increases became impossible and ineffective. As a result, the companies were forced to change the remuneration policy. Currently cafeteria systems are widely used.

Reasons for introducing cafeteria systems

Fig.1. Cafeteria system implementation and operation

Cafeteria systems, like other non-wage benefits systems, are used as a means of influencing employees. They become a particularly important element in the face of changing the labor market from the employer's market to the employee market. However, there are a number of other reasons why companies decide to introduce cafeteria systems in their offer. These include mainly :

  • increasing the employee's loyalty towards the organization,
  • maintaining valuable employees in the company,
  • easier recruitment of new employees,
  • building a positive image in the eyes of employees (the so-called image of a caring employer),
  • preferential terms of the services offered (due to the large scale),
  • the possibility of using tax benefits (in connection with non-cash benefits).

Basic principles for the construction of cafeteria systems

According to the best remuneration practices, cafeteria systems should be built based on a series of rules. It should be remembered that as with any employee remuneration element, non-wage benefits systems must be calculated accordingly, and the organization should be aware of their "profitability".

The scientific literature also indicates other key guidelines that should be taken into account when implementing cafeteria systems:

  • the elements from which the employee makes his choice should be within the amount indicated in the internal regulations of the employer,
  • some of the elements of the cafeteria system may be granted to an employee only if certain conditions are met (e.g. when the employee deserves a bonus, on the basis of a bonus),
  • certain selected elements may be granted to a permanent employee, for example, a coal allowance (then part of the cafeteria system is treated as a fixed remuneration),
  • in all options, the choice of benefits is limited to a strict list, clearly indicated in the internal regulations of the employer,
  • in internal legal documents, the percentage share of the cafeteria system in relation to the basis of remuneration should be specified in detail. Such indicators may be the same for all employees or may differ depending on the position or grade occupied,
  • the groups of employees who can use the offered cafeteria should be clearly defined.

The most popular elements of cafeteria systems

Nowadays, when cafeteria systems are gaining popularity, the offer of benefits that an employer can include in the list of cafeteria is extremely wide. Certain benefits offered, such as medical care or sports card, have become an absolute standard, which is no longer considered by employees as an additional benefit, but a mandatory benefit. However, new proposals still appear, and companies often outdo each other in offering ever more interesting items on their list of benefits. Here are some of the most common elements used in cafeteria systems.

Security benefits:

  • private medical care - increasingly offered to all employees of the company regardless of their position. Typically, an employee can purchase packages for members of their family on preferential terms,
  • life insurance - usually covered by the employer. Include random events and unfortunate accidents. Due to the large scale of such insurance, they are characterized by very preferential conditions,
  • employee pension schemes - once enjoying high popularity, and in the current market situation (high dynamics on the labor market) not so common. By definition, these programs allow you to accumulate future funds for retirement, financed in part by the employer.

Material benefits:

  • car - in the context of cafeteria systems, we are talking about cars for private use. It is a benefit often offered only to a few employees including senior management positions. Increasingly, however, employers offer preferential forms of leasing also for regular employees,
  • meal supplements / lunches - offered in the form of paid meals at the workplace or prepaid cards to cover the costs of meals consumed at work. More and more often, organizations also offer various types of benefits for employees in the form of a kitchen for employees provided with free sweets, fruits, vegetables,
  • general / housing loans - granted to employees on preferential terms. They are a particularly advantageous form for the employer due to the long-term relationship between the employee and the company,
  • additional paid time off - occur in the form of an additional number of days paid leave for an employee. Often, this element is related to the employee's experience (such days arrive with successive years),
  • subsidies for holidays - implemented in the form of co-financing or full coverage of costs,
  • sports cards - usually in the form of open passes for sports facilities in the country or city,
  • prepaid cards for a selected group of stores - an increasingly frequent element of cafeteria systems due to its high flexibility. It consists in the implementation of cash transferred to a pre-paid card, which can be paid in strictly defined places (usually of a cultural and educational nature),
  • meal vouchers - similar to a pre-paid card, they can only be used in grocery stores.

Benefits of using cafeteria systems

A cafeteria system, which was created in a thoughtful way, and therefore one based on real needs and expectations of employees, can bring many indirect and direct benefits to employers. It should be particularly emphasized here:

  • opportunity to obtain information on the hierarchy of employees' needs,
  • flexibility in changing the offer that allows for ongoing adaptation to the needs of the organization and employees,
  • maintaining the proper structure and relationship of wages,
  • reduction of labor costs by not having to pay social security contributions, from some elements of the cafeteria system,
  • providing employees with the opportunity to choose an offer tailored to their needs.

Examples of Cafeteria system

  • Health Insurance: Employees can choose to include health insurance in their cafeteria system, which provides them with access to medical care, health check-ups, and treatments.
  • Vacation: Employees can opt to have a certain amount of vacation days as part of their cafeteria system. This allows them to take time off work to rest and recharge.
  • Retirement Savings: Employees can also choose to allocate a portion of their salary to a retirement savings plan. This allows them to save money and invest for their future.
  • Gym Membership: Employees can choose to include a gym membership in their cafeteria system. This allows them to stay healthy and fit without having to pay for a full gym membership.
  • Education/Training: Employees can opt to have access to educational or training opportunities as part of their cafeteria system. This allows them to further their knowledge and skills and can provide them with a competitive edge in the job market.
  • Childcare: Employees can choose to include childcare as part of their cafeteria system. This allows them to have access to childcare when needed, and can make it easier for parents to balance work and family life.

Limitations of Cafeteria system

The cafeteria system offers several advantages, but also has certain limitations. The main limitations include:

  • Lack of flexibility in the options available to employees. The range of options offered by the cafeteria system may not meet the needs of all employees, and the system may not be able to respond quickly to changing needs.
  • High administrative costs associated with the system. Cafeteria systems require complex administrative processes, which can be costly to maintain.
  • Difficulties in ensuring fairness in the system. It may be difficult to ensure that all employees are able to access the same range of benefits, especially if their individual needs vary significantly.
  • Complexity of tax regulations may limit the types of benefits available. Many benefits offered through cafeteria systems are subject to tax regulations, which can add complexity to the system and limit the types of benefits available.

Other approaches related to Cafeteria system

In addition to cafeteria systems, there are other approaches related to flexible remuneration of employees. They include:

  • Employee Stock Ownership Plans (ESOPs) - These are plans that give employees the right to own shares in the company, providing them with partial ownership of the business. They incentivize employees to stay with the company and contribute to its success.
  • Deferred Compensation - This approach allows an employee to delay their compensation to a later date. This can be beneficial to the employer, as the employee is not receiving their full remuneration until after their work has been completed.
  • Performance-based Bonuses - This type of bonus rewards employees for exceptional performance. It can be used as an incentive for employees to strive for higher goals and achieve better results.
  • Variable Pay - This approach gives employees a variable pay rate, which is based on individual performance. This type of remuneration has the potential to attract and retain top talent, as employees can see the value of their work in terms of the rewards they receive.

In conclusion, while cafeteria systems are a popular approach to flexible remuneration, there are several other approaches that can be used to reward and incentivize employees. ESOPs, deferred compensation, performance-based bonuses, and variable pay are all approaches that can be used to create a flexible and rewarding system for employees.


Cafeteria system — recommended articles
Ancillary benefits — Income stream — Full service leasing — Employee leasing — Part-time work — Qualified automatic contribution arrangement — Charitable foundation — Overtime premium — Alternative staffing

References

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