Are employers responsible for their employees’ financial health? Should they act in loco parentis (a Latin phrase meaning in place of the parent)? You may think the answer is no, but given the aftershocks of the pandemic and the “great resignation,” it’s becoming a fact of company life that employers have some responsibility in helping employees with their financial wellbeing. Small businesses can only afford to pay so much in wages in order to maintain a profit margin, and it’s especially challenging to do this in today’s high inflationary environment. So, they can’t create financial wellbeing, but they can contribute toward it.
Here are 5 ways to help:
1. Consider early wage access programs
Recently, a national study found that 60% of workers want immediate access to wages when they’re earned (i.e., daily earned wages) through earned wage access (EWA) programs. Federal law doesn’t require any set frequency, and state laws, which vary, usually only require weekly, bi-weekly, or twice a month (check with your state). But workers view EWA programs as a plus to their financial security. With the availability of apps, offering an EWA program is doable for any business. Caution: The program may affect your payroll tax deposits and require you to revamp your payroll systems.
2. Provide for employees’ health coverage
We all know how much health care services cost; insurance is essential for employees’ financial wellness. Small employers aren’t required by federal law to offer health coverage, but may want to do so. Fortunately, there are a number of options for small businesses that they can use to help employees pay for coverage. Offering a qualified small employer health reimbursement arrangement (QSEHRA) gives employees tax-free money to use for personal health insurance premiums; the reimbursements are tax deductible by the employer. The same is true for individual coverage health reimbursement arrangements (ICHRAs). If the company pays at least half the cost of coverage, the employer may be eligible for a tax credit of 50% of premiums. Explore all the health care options to find one that’s affordable for you.
3. Help employees save for retirement
Many employees believe they’ll never have the financial wherewithal to retire. They can’t save money on their own. So, an employer’s qualified retirement plan is a big help in creating a secure financial future. Small businesses have many retirement plan options. Employers can contribute to plans, such as with matching contributions, to incentivize employees to make their own contributions. In some states, small businesses that lack a qualified retirement plan are required to enroll employees in state programs where payroll withholding is put into Roth IRA-like accounts; employers don’t make any contributions on behalf of employees. Note that Congress is moving toward mandatory enrollment in qualified retirement plans to ensure that all workers have coverage, but when and to what extent this will happen remains to be seen.
4. Help employees pay for some things they want
Employees may not have the discipline needed to put money toward things they want or need. Employers can help by offering various payroll deduction options. The money is coming from employees’ paychecks; the employer is simply facilitating the payments.
Some payroll deductions offer tax advantages to employees, enabling them to pay for needed things on a pre-tax basis, such as through a health or dependent care flexible spending account (FSA). Others are done on an after-tax basis, such as paying for pet insurance or buying U.S. savings bonds.
5. Provide access to financial wellness programs
A financial wellness program educates employees about how to better manage their personal finances, including budgeting, pay off debt, building credit, and creating an emergency fund. Helping employees get a better grip on their money by improving their financial literacy can ease stress and anxiety, which in turn can make them healthier and better able to perform on the job. Shortlister has an extensive guide to help you create a financial wellness program if you choose to do so.
Personal financial guru Dave Ramsey said: “You must gain control over your money or the lack of it will forever control you.”
Employees who lack control may not operate at peak performance and could also leave the job for another employer offering more financial wellness support. So, whatever you as an employer can do to enhance employees’ financial wellness is a plus…for employees and the company.