Some employment benefits are truly marvellous, from pension schemes to free nurseries and tax-free bicycles for a healthy commute. But others, such
as the company car, contain hidden ills that staff should be wary of, says Claire Veares.

Benefits make any job seem more appealing. But once the tax man walks in, schemes that look like a benefit could actually be more of a burden.

Take the company car, for example; increasing taxation has made it less appealing to employees. Many now opt for extra salary instead of a car or get a car allowance to buy their own vehicle.

The trick is to know which benefits will really add value to your salary package. This is particularly the case when more employers are offering staff the chance to pick and choose their own mix of benefits.

An Industrial Society survey last November showed that such schemes had doubled in the past four years, with more than half of the firms surveyed offering flexible benefits.

If you opt for an occupational pension scheme approved by the Inland Revenue, it won't have hidden pitfalls. Staff contributing towards one of these schemes are allowed to deposit up to 15% of their salary and have this amount deducted against their taxable income. This is beneficial because investment returns from pension funds are exempt from tax on income and capital gains, meaning higher growth rates are more likely than through other investment methods.

In essence, for those lucky enough to join a non-contributory scheme, the pension is money for nothing.

These schemes are still fairly common in the insurance industry and recruitment consultant Insurance Personnel Selection reports that more than a quarter of its job candidates are offered this type of pension.

Nurseries and mobile phones
Workplace nurseries provided by employers are tax-free if certain conditions are met. For example, the nursery must not exist mainly to educate the children in its care.

Other tax-free benefits include work training, relocation and removal expenses (up to £8,000), and mobile phones, so long as they are not the pre-paid type.

Certain transport provided by employers is also not taxable. Those that are shipped into work by staff bus are not taxed for the privilege, while those who commute by bike can have one provided tax-free by their employer.

At the other end of the scale, the appeal of the company car looks set to wane still further when the government changes the taxation system in April next year. At the moment, tax on company cars is calculated according to the car's list price and the number of miles driven for business each year. This system is to be replaced by one based on the car's carbon monoxide emissions.

The charge will build up in steps from 15% of the car's list price for vehicles emitting up to 165 g/km of CO2. For every extra 5g/km, the tax will increase by one percentage point up to a maximum of 35% of the car's price. The level of emissions qualifying for the minimum charge will fall to 145g/km by 2004 to 2005. Diesel cars will be subject to a 3% supplement as a result of their higher emissions of other air pollutants.

The Industrial Society survey that showed that schemes allowing employees to pick and mix their benefits are on the increase also found that most staff were keen to get flexible benefits.

But it warned that what was on offer needed to be set out clearly to employees from the start.

And staff can help themselves by keeping up-to-date with tax laws, to see which benefits will improve their working lives and which could be more trouble than they're worth.

The most popular benefit for prospective employees is a pension scheme, with many insurance companies offering the non-contributory version. Traditional pension schemes offering a proportion of final salary on retirement are becoming less common and are being replaced with money purchase alternatives.

More candidates want to know about, and be offered, a pension, says Mark Amos, general insurance consultant with Joslin Rowe in Edinburgh. "It seems that jobseekers are increasingly aware of the value of good schemes, particularly where these are not contributory," he says.

Jo Quail of London-based Royce Appointments says the appeal of pensions obviously relates to security in later life, but she says: "I'm sure there are less tangible, more psychologically beneficial elements from both the employer and employee perspective too."

For transport, people working in London expect an interest-free season ticket loan as part of a benefits package. Company cars tend to appeal more to those in the senior end of the market.

And those wanting or needing to use a car for their jobs, car allowances are becoming more common.

Holidays are another important consideration. Abigayle Quick, senior consultant at London-based DSL Insurance Personnel, says this is because people generally are working longer days.

Other benefits sought include bonuses - especially among more senior candidates. These are based either on the performance of the company or of the individual employee or a combination of the two. Private healthcare is also important to a lot of people.

In addition, many jobseekers look for help with their professional exams, such as course fees and paid study leave, which are both still widely available.

And for those looking for benefits with a difference, one company hosts a lunch for its staff twice a year, where board members and senior management will serve the rest of the employees. At the Christmas meal, those executives playing waiter will even get into the festive swing of things by dressing up as elves.