How to support employees returning from furlough to improve their financial resilience
Our recent research – Employee wellbeing: the state of the nation’s financial health – found that almost one-third (32%) of UK employees have less than one month’s money in reserve or even no savings at all. Only one-third had more than three months’ savings which many commentators suggest is the minimum buffer that we all need. These figures were gathered pre-pandemic – the Money and Pensions Service has highlighted that since March, UK adults are increasingly needing to use savings to cover living costs. From our survey 35% of employees were concerned that they might lose their job due to COVID-19, so it has never been more important to build the nation’s financial resilience.
Building, or rebuilding, a savings buffer is a critical factor to improve employees’ financial resilience and wellbeing. Without the additional pressures of financial worries, employees will be more engaged, effective and efficient within the workplace.
Many workers have now spent several months earning 20% less. For some, this has caused significant financial stress, and a return to full pay is a requirement to meet essential needs. But for others, a reduction in income has coincided with the ability to reduce household expenditure, whether through reduced commuting costs, dining out, entertainment or lack of holidays. The pandemic has provided a ‘reset’ of spending behaviours, and as pay returns to the norm, employers can seek to support their employees to utilise their reinstated pay in a way that will support long-term financial resilience and wellbeing.
Encouraging ‘save more tomorrow’
Many organisations already encourage employees to use a pay rise or bonus to build a savings buffer through concepts such as a ‘save more tomorrow’. Save more tomorrow has developed from behavioural economics – we are more willing to make promises to save future income increases than to forgo current pay. Employees agree to redirect a percentage of future bonus or pay rises into savings before that payment is received. This is a great way to enable employees to think about the future and commit to change without the perceived ‘reduction’ in take-home earnings.
While a return to normal pay is not actually a pay rise, if an employee has been comfortable with reduced income and spending while on furloughed pay, a return to full pay after months of 80% pay could feel like an increase. This increase to disposable income could be a good opportunity to change savings behaviours permanently, as well as that the impact of COVID-19 over the last few months has demonstrated to employees the importance of having a savings buffer.
Employers can facilitate employees building savings buffers – with the use of salary-deducted savings products or increased loan repayments. For organisations that do no not have these schemes in place, you can still encourage employees to make the most of their reinstated income through providing financial education and clear communications.
Managing expectations future pay rises or bonuses
The coronavirus pandemic has also highlighted the importance of a transparent process around bonuses and commissions. Many individuals who were perhaps expecting to receive these payments, or even made financial decisions reliant upon them, now may be coming up short in their financial plans.
When there is a history of receiving bonuses or commissions, reality can fall short of expectation and this can be sensitive to manage and can lead to dis-engagement. Communication in times like these is vital, as are the skills of managing expectations so that employees avoid making decisions based on hypothetical future projections of their income.
Employees do understand the current environment and the reasons why bonuses or pay rises may be restricted in 2020. Until the normal pay rise and bonus cycle can resume, organisations can still support their employees’ financial wellbeing in other ways. Organisations need to consider the ways in which they are encouraging effective use of existing pay – whether through their employee benefits or financial education initiatives to give employees help and confidence with budgeting and savings.
This article is provided by LCP.
