REBA Inside Track: Small financial wins with a big impact for low paid employees
At REBA we’re seeing reward and benefits practitioners increasingly focus on their lower paid employees – from cost-of-living bonuses or higher percentage pay rises, through to filling gaps in benefits. While I would argue that this is many years overdue because real wages have been eroding for over two decades, it is never too late to do something, no matter how small.
Reward and benefits managers frequently tell me they have limited budget, and little time to focus on financial wellbeing in among all their other responsibilities. But they do care, and do want to help.
So what are the small wins that can make a big difference?
Understand the poverty premium
What’s the problem: The poor have to spend more than the rich on necessities – to paraphrase Terry Prachett’s Captain Samuel Vines’ ‘Boots’ theory of socioeconomic unfairness.
What an employer can do: Ensure a voluntary or discounted products scheme includes good quality necessities for employees and their families. Some employers have started offering the equivalent of food banks and clothing exchanges within the workplace.
What’s the problem: If, as a low earner, you can access credit at all, it will often be at a higher rate than your higher paid colleagues. One-in-four UK adults have less than £100 in savings so even simple costs, such as the car you use to get to work breaking down, your bicycle getting stolen or needing to pay a deposit for childcare, can push you into the arms of loan sharks or stop you getting into or back to work.
What an employer can do: Employers are often in a position to offer access to interest-free loans via their own benevolent fund or payroll advance scheme. Alternatively, there are commercial wage advance and workplace loan suppliers employers can use. While these have been viewed with scepticism for some years, employers which put strong parameters of use in place are increasingly offering them with confidence.
In addition there are non-for-profit organisations which offer interest-free loans such as Fair4AllFinance.
What’s the problem: The lower your income the more likely you are to be locked out of access to insurances, putting them at risk when things go wrong.
What an employer can do: Offer access to insurances via workplace schemes – from voluntary, discounted products through to fully-funded insurances. It might seem like a tiny saving, but could make a huge difference to help lower-paid employees stave of huge debt if disaster strikes.
The cost of charges and understanding compound interest
What’s the problem: Charges on financial services, interest rates and the huge cost of compound interest.
What an employer can do:
1. Understand the huge positive impact of compound interest on savings (especially long-term savings such as pensions), and the huge disadvantage on borrowings such as credit cards and loans.
2. Educate employees about compound interest. This is not advice, it is knowledge that is fundamental and should be taught as a basic at school. However, few people understand it, so it is extremely helpful if employers can step into this gap.
3. Understand the charges linked to any financial services products offered in the workplace – from pensions to loans. Then challenge providers to ensure you’re not overpaying. Charges erode savings and are rarely understood nor negotiated. Charges do have a role to play, but need to be transparent and fully understood.
4. Use group buying power to negotiate hard with providers to get the highest savings rates, and the lowest borrowing rates for your employees.
The National Insurance link between Child Benefit and the State Pension
What’s the problem: Parents, even those with household earnings too high to claim, do not realise the vital importance of registering for Child Benefit. Even if they have to opt out due to the earnings threshold, most non-working parents who register continue to build their National Insurance Contributions (NIC) record until their child is 12. To receive a full State Pension a UK citizen needs 35 years of NICs so this is crucial for long-term finances.
What an employer can do: This is about awareness raising, particularly to employees taking maternity, paternity, adoption or shared parental leave. But also to all parents in the workforce, some of whom may have partners at home who are not working while raising children and are thus missing years of NICs from their record.
Financial exploitation of the TikTok generation
What’s the problem: Rising danger of online gambling within the workforce.
What an employer can do: This one might appear to be outside the remit of the employer, but it is a risk to any organisation if there are employees who get into financial distress due to gambling. Figures show that online gambling is on the rise, particularly among the younger generation. Sadly financial exploitation online is also on the rise.
There are no doubt many more, seemingly small or inexpensive actions employers can take that will make a big difference to the most financially vulnerable in their workforces.
If you have other ideas that your peers will find useful please share them via REBA’s professional networking took rebaLINK (available free to REBA professional members).