Now more than ever employees are experiencing financial stress. The impact of COVID-19 is putting additional strain on incomes and introducing uncertainty around how stable people’s livelihoods are. In fact, a recent study from the International Labour Organization suggests an estimate of overall losses to labour income could be $860-$3,440 billion worldwide.
When employees are stressed about how they will pay their bills on time or manage their debt, it can wreak havoc on their personal and professional lives. If on top of that an employee is worried about when they will be paid next, it further compounds the situation.
The negative effects of money-related stress can cause depression, anxiety, and other health-related issues for employees. It can have a negative impact on both job performance and overall well-being. The struggle is real and not only impacts the employee but can also have a significant impact on an organization’s bottom line. Let’s dig in and see both how this money stress can manifest and what we can do as HR and payroll professionals to help alleviate it.
5 ways financial stress impacts employees
Let's start by understanding some of the common effects your people could experience due to financial stress:
- Decrease in productivity: When employees are distracted at work due to the constant worry about money, productivity suffers. The lack of engagement hurts immediate and long-term performance. When an employee is not engaged due to distractions it will be difficult for them to meet project deadlines, complete tasks, and maintain strong customer relationships.
- Increase in absenteeism: Employees may take more time off to manage their financial concerns. They may call in sick more often or not show up to work at all. When an employee is excessively absent, it can have an impact on staffing and increase the level of stress for employees that pick up the workload. It can negatively affect moral and lead to even more days missed.
- Increase in turnover:High levels of financial stress can lead to high levels of employee turnover. Employees may leave the organization to find better paying jobs. If an employee has a payroll related errors on their payslip, the higher the chance of them leaving. Employees picking up the workload when employees do not show up for work can become burnout, resulting in even more turnover. Replacing an employee can be costly – some experts estimate that it can cost as much as 33% of the employee’s annual salary. There are costs to recruit, hire, onboard, and train new employees and the hidden costs of reduced productivity related to ramp-up periods can also be significant.
- Increase in healthcare costs: An employer’s healthcare cost rises due to increased medical expenses from stress related health issues. Stress about money can also exacerbate or increase the risk of other health conditions. When an employee is already concerned about money, this sets off a vicious cycle as stress starts negatively affecting their health and then the need to pay for those healthcare needs adds even more stress. And on a wider level, more unhealthy employees can contribute to higher premiums and higher out-of-pocket cost for the entire company, pouring on even more financial pressure.
- Increase in workers' compensation claims: When an employee is stressed about money, they may be distracted, be fatigued from lack of sleep, or come to work sick in fear of losing their job. When an employee is less focused, the lack of attention can lead to accidents and injuries. Beyond causing danger for other employees, this can also potentially increase the number of workers' compensation claims and put organizations at additional financial risk.
How can employers help?
Given this time of uncertainty, employers are exploring ways to be more flexible so they can continue to pay their employees. Here are 4 best practice options to help manage the impact:
1. Payslip printing
With the limiting of non-essential staff and social distancing being enforced at the regional and local level, many companies are altering their procedures on how they process payroll and print and deliver payroll checks. We can’t always anticipate the unexpected, so it will be important to have a backup plan in place if your organization suddenly can’t do this.
Adding payroll services to help lighten the load and ensure employees get paid even in a crisis can be a great option, or alternatively ensuring that you have the facilities in-house to print the checks you need. During this time of crisis, more and more organizations are outsourcing to increase efficiencies, manage the cost and complexities created by payroll processing. In fact, a recent American Payroll Association (APA) survey showed that 92 percent of respondents outsource tax filing and 71 percent outsource. This option will give employees the peace of mind that they will receive their payslips correctly and on time.
2. Direct deposit
As the national and local coronavirus situation evolves, companies are working to ensure the continuity of their operations. One way they are preparing is by offering direct deposit. If business operations are interrupted due to COVID-19, employees may experience a delay in receiving a paper payroll check. Direct deposit is a safe, secure, and fast way for employees to get paid.
Direct deposit can help employees feel more secure about their financial concerns because their pay is available as cash on pay day. They do not have to worry about standing in line to get their payslips cashed or worry about when and if the check will arrive.
3. Pay cards
With the rise of offices being shut down, remote working, and employees being quarantined, payroll delivery may be a challenge. Many organizations are offering employees the convenience and security of a paperless payslip. Pay cards provide employees with instant access to funds for greater convenience, and they don’t have to worry about live payslips they receive being lost or stolen.
Pay cards can also reduce payroll cost by:
- Eliminating paper checks.
- Increasing time savings.
- Providing instant funding for off-cycle payments, termination pay, or payroll corrections.
- Eliminating escheatment responsibility.
4. On-demand/instant pay
Another way companies are helping employees with financial well-being is by offering instant pay on wages as they are earned. On-demand pay, also known as instant pay or earned wage access, allows employees to withdraw the wages they have already earned for work performed in a pay period, before the regular pay date. On-demand wage access can help prevent employees from having to choose between taking out a predatory, high-interest payday loan to pay for an emergency or paying their bills late (and accruing additional fees).
Instant access to wages earned is considered a financial management tool to help employees with their financial burdens, and works best when coupled with other resources that educate around and help build fiscal responsibility. For example, a financial wellness app like PayActiv can help take care of employee financial health, reduce financial worries, and improve employee retention, recruitment, and engagement for the business.
Conclusion: Stable pay is critical to employee well-being
Today more than ever, employees expect their employer to provide them with financial stability and want their earnings to be immediately accessible. The ability for employees to access money early, get paid correctly, and have visibility into their pay information has been proven to strengthen the bond between the employer and employee and ease financial pains for both.
This area is just one example of how organizations can adopt innovative ways of easing employee stress during these uncertain times.