How Benefits Professionals Can Leverage Payroll Tools to Improve Workers’ Financial Security

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America is in a savings crisis, with 36% of households being unable to handle a $400 emergency from savings. A commonwealth To analyse of the Federal Reserve’s report on household economic well-being indicates that the problem is worse for low-income households earning less than $60,000, where 58% of people do not have $400 in savings. In this income bracket, Black (71%), Latinx (69%) and female (61%) employees who are unable to handle this sizeable emergency indicate that a lack of emergency savings is actually an issue. of fairness.

Payroll cards – reloadable debit cards that can be used to withdraw cash or make purchases, and eliminate the need for a traditional bank account to get paid – are often the solution of choice for employees who don’t don’t have a traditional bank account or credit union. . Pay card users tend to be younger, low income and more likely to be from communities of color, compared to the working American population. In a recent survey conducted by Commonwealth and ADP, low- and moderate-income (LMI) workers said they want and need high-quality emergency savings solutions. Yet the employers surveyed were unaware of payroll cards’ emergency savings features and did not view them as a benefit to employees.

Using payroll cards as a potential means of emergency savings – for employers and workers alike – is an opportunity to provide a simple, efficient and free savings tool to millions of employees.

An appetite for emergency savings tools

Employers are increasingly concerned about the financial security of their workers – both due to the growing focus on holistic wellness of all stakeholders, including employees, and the fact that employee stress – and financial stress in particular – costs businesses $250 billion per year. The needs of IMT workers are particularly acute. Even as employers increasingly recognize the growing and costly problem of employee financial stresssuch as lost productivity, absenteeism and healthcare costs, many are struggling to find an effective way to help their most financially vulnerable employees save for emergencies.

The appetite for emergency savings tools among employees exists: in an AARP survey, 71% of employees said they would participate in an emergency savings program if offered by their employer. However, employer-sponsored accounts are often retirement-focused, which doesn’t meet short-term savings needs. Thus, IMT workers, in particular people of color and women – often do not participate in retirement accounts.

To address this segment of workers, the human resources and benefits community is currently paying a lot of attention to upfront payment (i.e. access to earned wages and pay-as-you-go), but options outside of the payday advance do exist and may be more attractive and effective. . A recent American banker report reported that two-thirds of payday advance use cases could be solved by an employee with at least $400 in liquid emergency savings. Additionally, Commonwealth research found that Black, Latino and female IMT hourly workers would take advantage of emergency savings benefits at statistically higher rates than payday advance tools.

Meeting the savings needs of IMT workers is a challenge for benefits professionals, but effective and proven savings tools and opportunities often exist within the employer platforms they already use.

Powerful Opportunity for Payroll Tools to Deliver Financial Wellness Benefits

A popular feature that has proven extremely effective in advancing employee emergency savings is split deposit, which meets the 93% of the American workforce who are paid by direct deposit. Low-wage workers who use automatic split deposit are 55% more likely to allocate money from a long-term raise to savings, according to a Commonwealth study, than those who manually deposit money into the split deposit. ‘saving. The same study reported that among employees using split deposit, 62% reported having more than $400 in their savings account, and they were much more likely to have more than $400 than workers who made manual savings deposits.

But to be effective for financially vulnerable employees, savings tools such as split deposit must be offered outside of bank accounts alone. While only about 5% of Americans are unbanked, this number is higher among low-income households, less-educated households, and Black, Indigenous, and households of color. Payroll tools offer a unique opportunity to reach millions of low-income people, but these tools must be designed for the needs, wants and aspirations of those who have traditionally been excluded from the system.

For LMI employees, General Purpose Reloadable Debit Cards (GPR) can be used as a proven savings tool. These reloadable debit cards can be used to withdraw cash or make purchases, and eliminate the need for a bank account to get paid. Many also offer employees a split payment option on the cards, providing the opportunity to save some of their salary. The design of these savings tools, as well as access, are key to adoption by ITM employees.

Payroll providers have created solutions that meet the unique needs of IMT workers, providing a savings pocket directly linked to their pay cards. These solutions are typically offered free to employers and offer IMT workers a convenient way to automatically build emergency savings, as we found in the Commonwealth and ADP study.

Long the purview of payroll services, payroll cards offer benefits professionals the ability to provide emergency savings benefits to some of their most vulnerable workers. Many benefits professionals are unaware that these tools are already part of employers’ toolkits and often have features that better meet the needs and wants of IMT employees and how they prefer to save.

The money in the savings pockets remains accessible and liquid in order to help employees in the event of shocks to their income and expenses.

Best Practices for Benefits Professionals

Our research has repeatedly shown that LMI employees can save when offered the right emergency savings tools at the right time. Benefits professionals should employ a number of best practices:

  • Offer no-cost options: Payroll cards are often at no additional cost to employers and do not require onboarding a new provider; workers can use free apps to access their funds and savings.
  • Offer liquid savings: Research supports that ITM employees in particular want features that help them save, but also the liquidity and flexibility to withdraw that money when they need it. Many payroll cards have this feature.
  • Deploy messaging to raise awareness: Employees are unaware that their employer-provided payroll card has emergency savings features that meet their needs because it may not have been communicated to them.

By leveraging proper messaging and well-designed emergency savings programs built into payroll cards, benefits professionals can add these emergency savings tools to their wellness benefits toolkit. financial and enable IMT workers to save money.

Nick Maynard is Senior Vice President of Commonwealth, a national nonprofit organization that builds financial security and opportunity for financially vulnerable people through innovation and partnerships to change systems.

Anurag Chandra is Divisional Vice President, Strategy at ADP.

Sarah J. Greer