Mental health benefits for employees: why they pay off and how to set them up
Depression and anxiety cost an estimated 12 billion working days a year worldwide, according to the World Health Organization (WHO) and the International Labour Organization (ILO). For a business that means sickness absence, overtime for colleagues, mistakes and resignations. A mental health benefit is one of the few tools an employer has to act early.
Why mental health benefits pay off for small businesses too
In a small team, nobody is easy to replace. If one person in six is off for a month with burnout, the rest of the team feels it straight away.
Supporting mental health helps in three main ways:
Less absence. People deal with stress earlier, not once they’re signed off.
Lower staff turnover. Employees who feel supported are less likely to look elsewhere.
A more open team. Where workload can be discussed, problems surface sooner.
A benefit on its own won’t remove stress at work, and personal habits matter too. You’ll find practical techniques in our article on effective ways to tackle workplace stress.
Which mental health benefits you can offer
An employee assistance programme (EAP). Staff can get confidential counselling by phone or online, and you don’t see who uses it.
Counselling sessions with a qualified counsellor, paid for by the business.
Workshops on stress and resilience, or a subscription to a meditation or sleep app.
Training for managers so they can spot overload and talk about it. The WHO guidelines on mental health at work recommend this.
Flexible hours or remote working. These aren’t taxable benefits, but they often make the biggest difference.
How mental health benefits are taxed
Benefits provided to employees are usually taxable benefits in kind. Welfare counselling is an exception: it’s exempt from tax when it’s made available to all employees on similar terms.
Points to watch:
The exemption covers welfare counselling, such as support with stress or bereavement. It doesn’t cover services like tax or financial advice.
Many EAPs bundle exempt counselling with other services. HMRC’s strict view is that if a single programme mixes exempt and non-exempt services, the exemption may not apply to the programme as a whole. Some employers split the services into separate programmes.
If the programme isn’t exempt, the benefit is reported on form P11D.
Private medical insurance that includes mental health cover is a taxable benefit in kind, with income tax for the employee and Class 1A National Insurance for the employer.
Welfare counselling
Example
How to introduce the benefit so people actually use it
Ask your team what would help. A short anonymous survey is enough.
Guarantee confidentiality. Choose a provider that only shares overall usage figures, never names.
Remind people regularly, for example during onboarding and in team meetings.
Track the results: absence, turnover and satisfaction.
Adjust the offer based on what people really use.
Looking for more ways to keep good people? Find ideas in our guide to the best employee benefits in the UK for attracting talent.
Frequently asked questions
Do employers have to offer mental health benefits?
No. These benefits are voluntary. The rules only decide when they can be provided without a tax charge.
Is an employee assistance programme a taxable benefit?
Welfare counselling made available to all employees on similar terms is exempt. If the programme also includes non-exempt services, part or all of it may need to be reported on P11D.
Is private medical insurance with mental health cover tax-free?
No. Private medical insurance is a taxable benefit in kind, with income tax for the employee and Class 1A National Insurance for the employer.
Can I offer counselling only to some employees?
You can, but the welfare counselling exemption only applies when the counselling is available to all employees on similar terms.
Will the employer know who used the counselling service?
That depends on the provider and contract. With confidential EAPs, the employer usually receives only overall usage figures.
