In February, the cost of living was the highest it’s been in 20 years. So what is the impact on employee wellbeing?
Many considerations need to be made in the current economic climate, and firms should ensure they make employee financial wellbeing a top focus during these uncertain times.
What is financial wellbeing?
Financial wellbeing refers to an individual feeling confident and in control of their current and future financial situation. As a result, employees can manage resources to live within their means, make informed financial decisions and investments, set realistic goals, and prepare for short-term and long-term needs or emergencies.
Research shows that the cost of living is having a negative impact on employee engagement. For example, in a survey by Space HR, 57% of the panel questioned felt that employers should be concerned about the impact of the cost of living on employees, and 27% of contributors said that employers should be ‘very concerned’.
Finances play a critical role in employees' lives, and not having enough financial security can increase stress and anxiety, impacting employee health and resulting in poor performance at work or absenteeism.
It was reported by the Chartered Institute of Personnel and Development (CIPD) in March 2021 that half of the employers do not have a financial wellbeing policy, despite the financial impact of Covid-19 and the ever-increasing cost of living.
A financial wellbeing policy should be key in any business' approach to wellbeing. Even where finances may be restricted, it is important to have a policy that shows employees you are supportive and sensitive to the pressures of the increased cost of living.
The CIPD recommends that a financial wellbeing policy should include:
Signposting to financial wellbeing advice, such as the resources available from the Money and Pensions Service.
- Targeted financial education support at key moments in working lives, such as ahead of maternity leave, adoption leave, shared parental leave and retirement.
- Revising benefits packages to include finance-friendly initiatives, like giving employees the option to choose how often they are paid.
- Implementing flexible working policies so employees with caring responsibilities can balance working enough hours to pay their bills comfortably.
- Giving employees security over their hours and helping them progress into higher-paid
- Commitment, where possible, to paying all employees at least the Real Living Wage.
As part of the study by Space HR, 73% of respondents believed organisations should prioritise steps to reduce the impact of the increase in the cost of living. Furthermore, the panel discussed which factors they thought would be likely to increase due to the increase in the cost of living.
The top three answers were:
- Salary costs
- Absence issues/mental health concerns of employees
- Resignations and employee turnover
How costly is financial stress?
According to recent research from Ernst & Young, seven in ten people in the UK and the US experience financial stress regularly. Financial stress is costly not only for individuals but also for their employers, as a result of lost productivity. Employees who are experiencing financial stress may find it harder to focus on work and may take time off work due to their stress. The research also found that 20% of employee turnover is attributable to financial stress.
How do firms address financial stress and the increased cost of living?
Employee Assistance Programmes (EAPs) are a useful option for many businesses. They provide employees with support in various areas such as mortgage advice, debt management, financial planning and more.
In addition, employers should also be open and transparent when it comes to the pay review process. Sometimes the review won’t lead to a pay rise and, in these circumstances, this must be communicated and it should be shown that some thought has gone into looking at salaries and considering whether a pay rise could be applied.
HR expertise is capable of helping companies to understand whether there is scope in the business to offer other options as part of a wider benefits offering. For example, interest-free loans for buying season tickets for travel or making tax savings through salary sacrifice schemes.
Financial wellbeing and supporting employees with the increased cost of living will be a key HR and company agenda item going forward – so begin planning now if you need assistance. Get in touch with the team at IHRS.
Email HRhelp@ihrsolutions.co.uk, call 01604 709509 or visit our website.