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How would your employees spend a £500 windfall?

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Most employees would take extra holiday and invest in long-term savings plans instead of cash rewards if offered a one-off bonus of £500, PwC research shows. 

Surprisingly, only 17 percent opted to take a discretionary bonus award as extra pay, revealing a preference among UK employees for tax efficient savings. One fifth chose to spend their bonus on five days’ extra annual leave from work, while one quarter said they would put the money in their pension, showing that when it comes to variable pay most workers are balancing short-term consumption with longer term financial planning.

The survey of more than 2,400 employees also revealed that 35 percent of employees would prefer to purchase extra annual leave over any other new workplace benefit, with this rising to 47 percent among employees under the age of 20. As well as varying by age, the desire to buy extra holiday also varies by sector. When asked if they would prefer extra holiday or a £500 discretionary cash bonus, two-thirds of individuals in professional services opted for extra holiday, while 58 percent of retail workers chose extra pay.

The importance of receiving cash over benefits increases, however, when employees are offered the opportunity to exchange 5 percent of their pay for a new workplace benefit.  In this scenario two thirds of employees surveyed say that they would wish to maintain their cash rather than sacrifice five percent of their existing salary for any additional benefits. With pensions and savings plans proving the most popular among respondents overall, the survey suggests that people do recognise the need to save for the long-term. However, few would give up a portion of their existing salary for any other benefit, suggesting that they have little room for manoeuvre within their existing reward packages.

John Harding, Pay, Performance and Risk partner at PwC, said: “Despite record low inflation, many people are still feeling the squeeze and they value benefits that will save them money. Employers need to understand their people and their diversity to design a reward programme that takes account of individual preference. What is interesting is that employees are more likely to sacrifice discretionary pay such as a bonus for additional benefits and that funding additional holiday from work ranks as one of the most popular ways of using such a windfall.”

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