Why 77% of UK SMEs Are Rethinking Their Benefits Package in 2026

Seventy-seven per cent of UK SMEs say they plan a significant overhaul of their employee benefits in 2026. That is not a marginal shift in intent. It reflects a genuine squeeze from three directions: higher employer costs, a workforce that is increasingly unwell, and a labour market where smaller employers can no longer assume they can compete on salary alone.

The question for most SME founders and HR managers is not whether to change their benefits, but where to start. The data gives a reasonably clear answer.

What is driving the pressure

Three forces have converged in 2026 to make the status quo untenable for a large share of UK SMEs.

Employer NI costs. The employer National Insurance rate rose from 13.8% to 15% in April 2025, and the secondary threshold (the point at which employers start paying) dropped from £9,100 to £5,000. For an employer with 50 staff on average wages, that represents a meaningful increase in the cost of employment. Benefits structured through salary sacrifice reduce NI liability; those that are not mean the employer absorbs the full cost of higher NI on top of pay rises.

Sickness absence. The Howden/YouGov research points to UK sickness absence at a 15-year high, with an estimated 104.9 million working days lost. For small employers, even a modest increase in absence has a disproportionate impact. Mental health support, Employee Assistance Programmes (EAPs), and access to private medical insurance all directly address the most common causes of extended absence.

Talent competition. The rise of remote work has broadened the employer market employees compare themselves against. A 40-person business in Leeds is now competing for talent against remote roles at larger London employers with established flexible benefits schemes. The Howden data identifies flexible benefits (47%) and mental health support (46%) as the top priorities for SMEs precisely because these are the areas where larger employers have historically pulled ahead.

The gap the benchmarking data reveals

The Drewberry 2026 Employee Benefits Benchmarking Report, based on a survey of 626 UK employers conducted in February 2026, identifies the structural weaknesses clearly.

Nearly 40% of employers do not use salary sacrifice for pensions. This is a direct NI saving available to any employer with a workplace pension, at no cost to the employee and a reduced cost to the employer. For a business with 30 employees contributing to a pension, switching to salary sacrifice typically saves thousands of pounds a year in employer NI. Our salary sacrifice calculator shows what the saving looks like for your headcount and contribution rate.

Only 36% of employees fully understand their benefits. This matters because the retention and recruitment value of a benefits package depends almost entirely on whether employees know what they have. An employer spending £800 per head on benefits that employees do not understand gets the cost without the upside. Drewberry also found that over a quarter of employers still manage their benefits administration on manual spreadsheets, which almost certainly contributes to low employee awareness.

Half of employers do not benchmark their benefits at all. Benchmarking is how you find out whether your package is competitive, where you are overpaying for low-value benefits, and where a targeted addition would have the most impact. Without a benchmark, most SMEs are renewing their existing stack year after year on the assumption it is roughly right. The Howden data suggests that assumption is increasingly wrong.

What the data says to prioritise

Taken together, the Howden and Drewberry findings point to a consistent order of priority for SMEs doing a benefits review.

First: fix salary sacrifice. If you are contributing to a workplace pension without a salary sacrifice arrangement, you are paying National Insurance on contributions that could be NI-exempt. This is the highest-return, lowest-disruption change available and it benefits employees directly through lower NI on their own contributions too. Add the EV salary sacrifice scheme if company cars or car allowances are part of your benefits mix.

Second: address mental health and absence. Mental health is the leading cause of long-term sickness absence in the UK. An Employee Assistance Programme (EAP) is typically the most cost-effective starting point: annual costs of £10 to £15 per employee give access to confidential counselling, legal advice and financial guidance. The Howden data shows 46% of SMEs plan to add or improve mental health support in 2026.

Third: communicate what you already have. The Drewberry finding that 64% of employees do not fully understand their benefits suggests that communication is often a higher-return investment than adding new benefits. An employee who knows what an EAP covers, what their pension pot looks like, and how to use their health cash plan is more likely to value their package and less likely to leave for a role where they assume the benefits are better.

Fourth: use a benchmark before your next renewal. Half of employers renew their benefits without benchmarking. The ones that do consistently negotiate better renewal terms, drop benefits nobody uses, and add alternatives with higher perceived value. The benchmark does not need to be complex: a structured healthcheck against market norms is enough to identify the gaps that matter.

Where PerkIQ fits

PerkIQ was built for exactly this moment. It scores your existing benefits package across seven categories against market benchmarks, identifies where salary sacrifice is missing, flags which benefits are below-market, and gives you a structured view of where to focus. You can run a free healthcheck in about five minutes, or browse the provider directory if you are ready to look at specific options.

The 77% planning an overhaul is not a trend. It is a signal that the old approach, renewing the same package year after year and hoping it works, is no longer enough.