How Can Businesses Support Employees in the Cost of Living Crisis?

The cost of living crisis in the UK has reached unprecedented levels, exacerbated by the lingering effects of the COVID-19 pandemic and ongoing geopolitical instability. These events have placed immense financial pressure on households across the country, leading to a scenario where even employed individuals, including higher earners, are struggling to make ends meet.

With all in consideration, businesses have a crucial role to play in supporting their employees' financial wellbeing.

Understanding the Financial Pressures

With the pressure of higher mortgage rates, high interest rates, and the continued cost-of-living-crisis particularly affecting renters (report here), many employees in the UK are left financially vulnerable.

This financial vulnerability leaves individuals susceptible to unforeseen expenses, often forcing them into debt, which can spiral into severe financial hardship. Without adequate savings, both immediate and long-term, employees are at risk of things such as mental illness, poverty, and decreased productivity, which also negatively impacts businesses.

The Role of Employers

Employers can significantly influence their employees' financial health by providing tools and resources, such as a payroll app, that can encourage and facilitate saving and prudent financial management. Here are several strategies businesses can also adopt to support their employees during this challenging time:

1. Financial Education and Resources

Providing employees with access to financial education resources can empower them to make better financial decisions. Workshops, seminars, and one-on-one financial coaching sessions can help employees understand budgeting, saving, and investing. By educating employees about managing their finances, businesses can help reduce the stress associated with financial uncertainty.

2. Integrating Savings Options into Payroll

Automatic payroll deductions for savings can make it easier for employees to save. By integrating savings options directly into the payroll process, employees can effortlessly build their savings without having to take additional steps. This method reduces the friction associated with saving and helps employees develop more consistent saving habits.

3. Offering Emergency Savings Funds

Businesses can set up emergency savings funds that employees can tap into during financial crises. These funds act as a financial buffer, helping employees avoid high-interest loans or credit card debt. Some companies offer matching contributions to these funds, further incentivising employees to save.

4. Flexible Pay Options

Flexible pay options, such as on-demand pay, can allow employees to access their earned wages before the traditional payday. This can be particularly helpful for those who face unexpected expenses between pay periods. By providing this flexibility, employers can help reduce the financial strain on their workforce.

5. Financial Wellbeing Programs

Implementing comprehensive financial wellbeing programs that include mental health support, debt counselling, and retirement planning can address various aspects of employees' financial lives and bring many benefits. These programs can provide holistic support, ensuring that employees have the resources they need to manage their financial health effectively.

Addressing Behavioural Barriers to Saving

Behavioural factors, such as present bias and inertia, often hinder individuals from saving adequately. Present bias leads people to prefer immediate rewards to future benefits, while inertia, or, status quo bias, causes them to stick to their current financial habits, even if they are detrimental. Employers can use behavioural insights to design interventions that overcome these barriers:

1. Pre-commitment devices: Allow employees to commit to saving a portion of their future pay. This can increase the likelihood of saving as it leverages the power of commitment made in advance.
2. Goal setting: Encourage employees to set specific savings goals. Breaking down these goals into manageable daily or weekly amounts can make saving seem less daunting.
3. Timely prompts: Use timely moments, such as receiving a pay rise or paying off a debt, to prompt employees to save more. These moments are opportune for making positive financial changes.

Enhancing Trust and Engagement

To maximise the effectiveness of financial support programs, now more than ever, it is essential to build trust and ensure high levels of employee engagement:

1. Transparency: Clearly communicate how financial tools and programs work, how employees’ data is protected, and the benefits of participating in these programs.
2. Confidentiality: Reassure employees that their financial information is confidential and not shared with their employer. This can alleviate concerns and encourage more employees to use the available tools.
3. Personalisation: Tailor financial tools and resources to meet the diverse needs of the workforce. Personalised recommendations can increase the relevance and impact of financial interventions.

A Vital Role

In the face of the ongoing cost of living crisis, businesses have a vital role in supporting their employees' financial resilience. By providing access to financial education, integrating savings options into payroll, offering emergency funds, and implementing comprehensive financial wellbeing programs, employers can help their workforce navigate these challenging times.

Tools and software demonstrate how integrating financial management features into payroll can significantly enhance employees' financial control and wellbeing. By adopting these strategies, businesses can not only support their employees but also foster a more productive and loyal workforce.