A single line in the CIPD report, Financial wellbeing: An evidence review, summarises why employers must prioritize their employees' financial wellbeing as a part of the greater corporate agenda.
As businesses emerge from the pandemic, hiring and retaining talent has become a significant challenge. In an uncertain political and economic climate, where a sizeable proportion of the global workforce faces in-work poverty, the standard wages offered by companies aren't enough to alleviate the financial strain on employees.
The heightened financial stress affecting employees' health and wellbeing profoundly impacts their organization's bottom line. Businesses must address this to motivate their employees, win the talent war and hold their own in a shifting market.
What is financial wellbeing?
Financial wellbeing refers to being secure and in control of your finances, both in the present and future. The peace of mind comes with knowing you can meet your living costs and deal with unexpected emergencies, and it's the freedom of choice when you're no longer pinching pennies.
But it goes beyond the employee's financial position; it's also about the employer's mindset towards their employees and their attention towards the things that matter most to them. Employers, as income providers, have a critical role in supporting their workers' financial wellbeing. But the truth is,
Most companies follow a carrot-and-stick policy, offering only short-term solutions to their employee's economic problems instead of helping them create and build long-term assets. This explains why
Emerging from the economic devastation wrought by the pandemic, the new generation workforce's focus is financial security. With the rising household debt, many employees are turning to their employers for long-term financial wellness support and comprehensive benefits programs. If they fail to find it, they quit and move on to greener pastures or give in to the lure of the gig economy.
Why is financial wellbeing important?
Financial wellbeing is the biggest driver of retention and employee engagement. It also attracts the right talent, the kind that ensures the company's survival during disruptions and accelerates its growth.
Employers must collaborate with their workforce to understand their needs, identify support areas, and formulate solutions that benefit their employees while aligning with the company's revenue generation goals. Employees need to feel financially secure and appreciated, and companies prioritizing financial wellness get higher returns on their human investments.
Types of employee benefits that promote employee financial wellbeing
Since the relationship between the employee's financial health and the company's overall wellbeing is reciprocal,
Some companies have cracked the code to their employee's financial wellbeing by taking a total rewards approach toward long-term wealth creation. They provide extrinsic motivation in the form of
1. Legally mandated financial wellness benefits
These are a standard set of government-mandated benefits offered by companies to help their employees make, save, or better manage their money. These benefits are provided over and above the standard wages and at the company's discretion.
- Supplemental pay – This offering shows the workforce that the company is committed to charting a path to their employees' financial wellbeing. Supplemental income includes stock options, 401 (k) plans, bonuses, etc. Additionally, companies can choose to offer 401(a) or 401(k) plans to help employees save for retirement. These plans differ in their funding structure, investment options, and eligibility requirements.
- Retirement plans – Employer-funded retirement plans can match the employees' contributions up to a certain amount, creating an asset for retirement. Since they are tax-exempted, they also lower the employee's average tax bill by reducing the taxable income.
- Legal assistance – Employee-sponsored legal assistance can offer legal support or access to lawyers and attorneys to help with family law, community laws, fraud, Medicare, tax assistance, identity theft, unemployment benefits, or transactions with legal implications.
- Healthcare coverage – Health is wealth. Employers must offer comprehensive healthcare coverage for the employee and sometimes immediate family members (spouse and kids) to deal with any medical emergency. While the insurance premium is discretionary, plans include regular check-ups and eye and dental coverage. Some employers also offer short or long-term disability insurance for those affected and unable to work.
- Workplace life insurance – Some employers offer their workers limited-term life insurance at reduced costs, also called a group plan. Others go beyond by providing disability insurance for when an employee becomes disabled and cannot work. The coverage for the former is long-term, while the latter can be either short or long-term.
- Additional paid time-off – Some employers go the extra mile to ensure their employees can avoid burnout and work stress. They provide extra paid leaves to allow employees to take vacations or rejuvenate and recharge.
2. Financial incentives
While they vary across employers, from a privilege to a monetary reward, financial incentives drive motivation, engagement, and good performance, improving productivity and morale across the organization.
- Sales and partner incentives – Vastly different from annual performance bonuses, on-the-spot, target-based sales commissions, or partner incentives monetarily reward an employee who has contributed significantly to the company's revenue or sales targets.
- Referral cash incentives – Employees are encouraged to earn cash or cashback through referral signups. Every time a newly referred candidate comes on board, the referrer receives some financial benefit in cash or vouchers.
- Gamification – Some employers enthuse their employees or attract new talent using points, badges, challenges, and leaderboards to measure and celebrate good performance. Employees can exchange these for cash or financial rewards through gift cards, vouchers, coupons, discounts, cashback, etc.
- Profit-sharing – Some employers give their workforce a share in the company's profits as a retirement benefit to show their appreciation for employees. The share percentage differs across organizations but usually ranges from 2.5% to 7.5%.
- Celebratory incentives – Some employers offer cash or gift cards on anniversaries, birthdays, marriages, childbirth, etc., as a thoughtful gesture to celebrate and recognize their employees.
- Financial education and planning – Financially educated employees are in better control of their finances and, by extension, less stressed and more productive. So, employers must empower their workforce with the right budgeting tools, strategies, and resources to make confident financial decisions.
3. Financial perks
While they vary across employers ranging from a privilege to a monetary reward, financial incentives drive motivation, engagement, and good performance, improving productivity and morale across the organization.
- Employee allowances – Employers who offer lifestyle stipends, travel, and relocation allowances to cover initial travel, rent, food, insurance, moving costs, etc., win their employees' hearts.
- Child-care and tuition assistance – Employees that sponsor childcare programs through onsite day-care or corporate tie-ups and/or provide tuition assistance ensure a good work-life balance and reduced absenteeism in a stable workforce.
- Education stipend – Some employers boost their employee's growth and development by providing financial support for learning initiatives, higher education, job training, or certifications.
- Student loan or college fund assistance – Although rare, some truly caring employers motivate their employees by offering financial assistance with pre-existing student loans or college funds for themselves or their kids.
4. Supplementary benefits
Aside from the standard benefits, perks, and incentives, some employers enhance the employer-employee relationship and encourage loyalty by offering additional fringe benefits.
- Emergency savings fund – When bills don't align with the traditional paycheck cycle, on-demand, short-term solutions like instant credit or a salary advance called 'earned wage access' can act like a financial cushion for unexpected expenses. Employees can avail of an instant, short-term credit or early salary advances for sudden car repairs, marriage or divorce, house repairs, accidents, medical emergencies, unplanned travel, paying bills during extended sick leaves, etc.
- Home buying or rental assistance – Most employees worry about buying or renting a house in an ever-exorbitant housing market. Since long-distance commute impacts overall productivity and presenteeism rates, employers can address it by offering housing support as a part of their benefits packages.
- Cashbacks or cash cards – Near-cash benefits like cashback, meal coupons, travel cards and fuel vouchers are perfect for employers to stand out in the market. These fringe benefits act as an added support to the employee's financial security goals and create a motivated, engaged workforce to drive business success.
- Exclusive employee discounts/vouchers – Some organizations motivate and enthuse their best talent by offering supplementary financial benefits such as exclusive employee discounts for shopping, paid lifestyle experiences, and health club memberships. While these are 'good-to-have' benefits, they are also great crowd pullers, helping an organization to attract and retain good talent.
How can financial wellness benefits be managed effectively?
Doubtless, prioritizing financial wellbeing leads to better EVP, higher engagement, and retention. Financial wellness programs have gained a greater significance across industries as employers realize their role in alleviating their employee's monetary stress. But to effectively manage their benefits, employees must first understand the extent of their financial wellness benefits entitlement:
- What comprises financial wellness benefits, and what are its limits?
- Will the employer offer upfront payment support, or will it be reimbursed?
- What is the eligibility to avail of such benefits?
- What are the tax implications of these benefits?
- What is the procedure when an employee quits?
Once the employer clarifies the extent of its financial wellness support, they should leverage the power of digital technology to quickly launch, manage and centralize financial wellbeing benefits across the organization. This offers a degree of transparency by helping every employee easily access and track their financial health.
FAQs (Frequently Asked Questions)
Q: How to promote financial wellbeing in the workplace?
You can promote financial wellbeing in the workplace by leveraging the power of digital technology to quickly launch, manage and centralize a custom financial benefits program.
Q: How can employers evaluate the financial wellbeing of their staff?
Employers can evaluate the financial wellbeing of their staff by conducting regular surveys and financial counselling sessions to understand their employees’ needs and overall workforce sentiment towards their financial wellness offerings.
Q: What are some examples of financial wellness programs?
Some examples of financial programs include:
- Providing financial coaching and educational material
- Offering access to emergency savings funds through payroll advances and instant credit
- Designing a comprehensive retirement benefits package
- Offering financial incentives and perks like exclusive discounts, rewards, allowances, education assistance and more
Q: How does poor financial wellbeing affect the workplace?
A poor financial wellbeing program in the workplace leads to financial stress, that affects mental wellbeing, and burnout for the employee ultimately resulting in low morale, disengagement, and attrition.