June 8 2021

How does financial wellbeing relate to the workplace?

Record numbers of employers are implementing measures to improve their employees’ wellbeing to create a happier workforce. But financial wellbeing is often missed out of these initiatives. Perhaps that’s because many HR professionals are still unsure about how employee financial wellbeing relates to the workplace.

It has become almost an expectation that workplaces take steps to protect their employees’ physical health. 

This can take the form of things that help them keep fit and healthy such as discounted gym memberships. It may also include either free or discounted private health care. 

In the last few years, the number of employers offering employees access to counselling services has jumped. HR teams everywhere have recognised that mental health is just as important as physical health when it comes to effective performance. 

HR teams that are at the forefront of employee wellbeing have also realised that financial wellness matters too.  

Employees with low levels of financially wellbeing can have serious consequences for a business. Understanding these consequences and what measures you can take to avoid them benefits your business (and employees) in multiple ways. 

Let’s delve into the concept of your employees’ financial wellbeing and the type of issues they may be facing. 

What does financial wellbeing mean?

Financial wellbeing is a term that has grown in popularity. As is often the case with buzzwords and phrases, these are banded around but not always understood. 

So, what exactly is financial wellbeing? 

Financial wellbeing comes as a result of a person’s financial capabilities (for example knowledge, resources, and attitudes) and behaviours (the spending decisions they make and ability to cope with a financial shock). 

Being financially capable and making the right decisions leads to wellness. 

Financial wellness means your employees are able to meet their expenses each month,  feel financially secure, and can cope with a unexpected financial requirement (also known as financial resilience). 

Positive signs that your employees are financially well include:

  • The ability to manage their day to day finances
  • Sufficient funds to deal with unexpected financial events
  • Being comfortable and able to enjoy their lives
  • Having a plan in place to look after their long-term financial health 

How many of your employees are financially well?

Often, employees give the impression that their financial wellness is in check.

This might be true, or it might not be the full story. In fact, many of us don’t entirely understand what financial wellness means. 

When asked to look at financial wellbeing in detail, the responses of your employees may surprise you. Post-pandemic research by the CIPD into the financial wellness of employees revealed that:

  • 40% of people feel they do not have good control of their money or manage it well.
  • Only half of working-age people are paying into a pension or have a previous pension.
  • Among those who already have a heavy debt burden (measured as missing three key debt repayment deadlines in the last six months), 81% have sought no advice and 33% cannot imagine doing so.

Financial wellbeing isn’t just down to the salary your employees receive. In fact, financial wellbeing isn’t directly correlated to how much someone earns at all. 

For example, someone who earns what could be considered a lower wage can have higher rates of financial wellness than those who are paid much more. This could be because they make considered financial choices and have savings to deal with unexpected bills or situations. 

In contrast, someone who earns a high salary isn’t necessarily financially well. A lack of time can be a huge barrier to someone’s financial wellness. Planning, researching, and considering financial options takes time. Plus we all feel society’s pressure to ‘live for today’. 

With the above in mind, it would be a mistake to assume that the financial wellbeing of your employees is good simply because they are paid market-leading salaries. 

Signs of financial distress 

Poor financial wellbeing is characterised by many different behaviours. However, some behaviours are not solely attributable to financial distress. Some of the signs that an employee may be struggling with their finances include:

  1. Asking for a pay rise
  2. Talking about their debts 
  3. Relying on credit cards or overdraft facilities
  4. Using payday loans
  5. Struggling to keep up with rent/mortgage payments
  6. Asking for a pay advance
  7. Consistently asking for overtime 
  8. Appearing anxious or even depressed
  9. Taking personal calls regularly 

Of course, some of the above points in isolation do not necessarily mean that someone is facing financial difficulties. 

When an employee is seeking a pay rise it could be as simple as they believe that they are worth more than they are currently being paid. However, when you combine this with constantly asking for overtime, then it becomes clearer that an employee may be struggling. 

One huge concern when it comes to the financial wellness of your employees is payday loans. 

Payday loans have often been the last resort for those who are in a financially unstable situation. Most people realise that the interest rates and fees on these loans are extortionate. But the fact that they take out these loans despite this is a clear sign of financial distress. 

How work creates financial burdens

Social events

Employers quite rightly want to engage their employees and often organise social events to promote togetherness and camaraderie. Work-organised social events take many forms, from a quiet drink down the pub to a full scale ball. 

While social events can do wonders for team building, they can cause significant stress for employees whose financial situation is precarious. 

The pressure to attend a work-organised social event can put undue pressure on employees to spend money they had already allocated for bills or an important payment. The Christmas party is an excellent example.  

Business expenses

Another aspect of work that can impact an employee’s financial wellbeing is expenses.

There are times when businesses expect their employees to meet the costs of fuel to travel to another location, parking, or phone bills. In general, an employer would always reimburse these. However, this is usually a month down the line. 

If your employees are already struggling financially, having to cover expenses (if only temporarily) can create an additional and unwelcome financial burden. 

How financial wellbeing affects us at work

Employee financial wellbeing is often overlooked, or only given a cursory glance by employers. 

But the organisations that take time to focus on their employees’ financial wellbeing put themselves in a better position on many levels. 

As an HR professional, you know that a successful business is built on its people. That’s why employers should take some responsibility for the financial wellbeing of their employees. 

It’s vital to understand the impact of your employees’ financial wellness on your operations. Solely focusing on the bottom line will often lead to problems. 

Your employees’ financial wellbeing is more closely linked to your business performance than you think. Some of the biggest challenges that businesses face associated with poor financial wellbeing include:

Decrease in productivity 

22% of employers experience a decrease in productivity due to poor employee financial wellbeing. 

Close Brothers’ Financial Wellbeing Index 2019

Unpaid debts, a reduction in household income, and making their money stretch until payday are genuine concerns for many employees. But employees cannot switch these worries off just because they’re at work. 

Many employees will find themselves being consumed by money worries and unable to focus on their work. Perhaps they need to deal with these issues by calling creditors and lenders during working hours, meaning they have less time to do their work. 

You may notice employees missing targets that they previously reached. Being less productive can really hinder an organisation’s growth. 

Increase in absenteeism 

19% of employers reported an increase in absenteeism attributable to poor financial wellbeing.

Close Brothers’ Financial Wellbeing Index 2019

Poor financial wellbeing also leads to your employees taking more sick days. This may be down to the fact that they need time to deal with practicalities. 

However, more commonly, an employee’s financial stress is having an impact on their mental health. Money worries can quickly lead to anxiety and depression. This may result in long-term absence.

Elevated turnover rates

Poor financial wellbeing is causing 22% of employers to experience higher turnover rates.

Close Brothers’ Financial Wellbeing Index 2019

Recruitment costs are substantial, to say the least. Once you have talent in place, it’s expensive to replace. 

So if your employees are struggling in terms of financial wellness you may find that they leave to join other businesses. This could be because they are seeking higher pay or a job where they are paid more frequently than they are at present. 

It’s important to note that the increase in remote working can make it more difficult to spot signs of financial pressures among your employees. This makes it vital for HR teams to take positive action towards giving employees the help they need to improve their financial wellbeing. 

Financial wellbeing best practice for HR teams

After realising the importance of financial wellbeing, employers are keen to take steps to support their employees. 

Taking action to support your employees’ financial wellbeing can be hugely beneficial on a business level. Organisations that have a financial wellbeing strategy in place are likely to experience:

  • An increase in productivity
  • Reduction in absenteeism 
  • Lower staff turnover 

Here are the most effective steps that HR teams can take to promote financial wellness:

1. Encourage open conversations  

Ensure that your workplace culture centres around openness and honesty. 

Lead from the front and show your employees that talking about finances isn’t just okay, but is actively encouraged. 

Communicate that your employees can and should seek assistance and advice from management teams without fear or shame.

2. Provide financial education

One of the fundamental building blocks of financial wellbeing is financial education. 

Key lessons for employees centre around how to save, how to budget, building an emergency fund, and having a financial plan in place that covers retirement. 

3. Review your benefits package 

Benefits packages tend to focus on employees’ physical health although there is a shift towards encompassing mental health too. 

One thing that is often missing from benefits packages is initiatives that focus on financial wellbeing. 

You can stand out from the crowd by making sure that your organisation offers financial wellbeing programmes or perks. This could include access to financial advisors or even online training to boost employee financial education.

4. Break the monthly payment cycle 

With some employees struggling to make it from one month to the next, why not add some flexibility to how they are paid? 

Paying your employees once a month is beneficial for your business. But it’s not always best for your employees and their financial wellness. In fact, monthly pay cycles can be hugely stressful for employees.

Using Openwage enables your employees to access their pay more regularly. It can help them avoid bank balance peaks and troughs that can make employees feel financially vulnerable. 

5. Issue expense cards

Expecting employees to pay for business expenses and then get reimbursed later is a financial pressure that’s easy to fix. 

Why not provide employees with expense cards? This means they can meet business expenses without having to pay for them themselves. It’s a convenient solution to managing employee expenses. 

6. Offer a salary savings scheme

Part of financial wellness includes the ability to save. Savings schemes are a great way to encourage employees to plan for the future. These schemes work by deducting a percentage of your employees’ pay at source and transferring them to a savings scheme. 

Final thoughts

If you’re reading to the very end of this article, then you’re probably aware that your organisation could do more for your employees’ financial wellbeing. This is a useful article about how to tackle financial wellness at work that outlines some of the fundamental principles of tackling financial wellbeing.  

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