The often long wait between December and January paydays, the cost of the Christmas festivities and the arrival of credit-card bills make this time of year a real challenge for many employees across the UK. So how do workers cope financially?
A recent survey from Howden Employee Benefits and Wellbeing suggests that many still turn to their employer for short-term loans or salary advances through the existing payroll processes. The research found that 64% of employers still provide employees with such options.
Commenting on these findings, Steve Herbert, Head of Benefits Strategy at Howden Employee Benefits & Wellbeing said;
“Given that we are now in the 2020s – and that most salary payments are made via bank transfers rather than in cash – it is frankly astonishing that so many employers are still offering access to loans or salary advances.
Whilst it’s commendable that many organisations are keen to support their employees in this way, doing so does overlook some key concerns for both parties. Aside from the obvious impact on cash-flow and the risk of default, employers need to be aware of the danger of favouritism. Do they offer the same credit facilities to all employees or only some, and how do they avoid setting a precedent in their selection criteria?
Finally – and certainly not least – without an understanding of the underlying issues and the employee’s ability to repay, they might actually be making things much worse for their employee and their family later in the year.”
The survey of more than 160 employers also found that less than 1% are currently offering access to finance through a recognised Workplace Finance Provider, despite the rapid growth and popularity of such offerings in recent years.
“Workplace Finance is a more constructive and sensible approach to such issues. By partnering with the employer, finance providers can offer loans based on more than credit score and affordability assessments alone. Criteria such as service history, and the ability for repayments to be made via payroll deductions, make a significant difference to many lending decisions. The result is often that finance can be offered where it might otherwise have been declined, and at affordable rates that may not be available from other High Street or internet lenders.
Importantly, this approach will avoid any precedent risk for the employer, and affordability will also be assessed by the provider. Should the risk of further lending be too high for the provider, then signposting the employee towards appropriate debt management and financial education support could help them to regain control of their finances.”
The research also asked employers how they encouraged a savings culture amongst their employees. Worryingly, 9 in 10 organisations (89.57%) didn’t offer any access to saving options other than a pension scheme.
“Employees who seek salary advances often need to do so because they have no savings to fall back on, even to manage relatively minor financial shocks. It follows that just a small amount of rainy-day money can make all the difference and help the employee to escape the debt spiral which is so prevalent in the UK today. So it’s disappointing that so few employers have taken action to offer some short-term saving solutions. It’s worth highlighting that Workplace Finance providers usually offer such facilities as part of their core offering, so this is yet another reason to consider that approach.”
The Howden Employee Benefits & Wellbeing report on Workplace Finance – comparing the finance and savings offerings of the three key providers in this space – is available from: [email protected].
*The report can be purchased as a stand-alone item, or is provided free with a day’s Workplace Financial Education provided by Howden Employee Benefits and Wellbeing