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Benefits Column

Should Companies Loan Employees Money?

According to a May 2015 Federal Reserve survey, approximately half of Americans cannot afford a $400 emergency expense without selling something or borrowing money. How should employers consider their role in helping employees during times of financial hardship?

Monday, May 2, 2016
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My parents raised my sister and me with a wonderful understanding of how to effectively manage money and plan for the future. Their advice ranged from Shakespearean quotes ("Neither a borrower nor a lender be") to counsel on setting aside six months' worth of salary for emergencies to a mandate to plan for retirement from the time we received our first paychecks.

These early lessons in what HR executives now call financial literacy led us to believe most people were fiscally prepared. It seems, however, that almost half of Americans are not ready for even a $400 emergency without selling something or borrowing money, according to a May 2015 Federal Reserve survey.

Historically, employees in financial distress found themselves turning to their employers to borrow money -- most often in the form of a payroll advance. According to the Society for Human Resource Management’s survey, 2015 Employee Benefits: A Research Report, this option is increasingly less available to workers. Payroll advances by companies decreased between 2011 and 2015 (from 21 percent to 13 percent).

So, on one hand, we find HR leaders backing away from making employee loans through advances while, on the other hand, a small percentage (3 percent or fewer) of employers are offering their staff assistance with the cost of elder care and student-loan repayment.

In the spirit of empathy toward their employees, helping with caregiving expenses and student-loan repayments are wise things for employers to consider providing.

Forty-four percent of workers currently are or were recently in some stage of caregiving, which lasted four to five years and cost employees $10,000 to $30,000 each of those years in extra out-of-pocket expenses. While we typically picture a 49-year-old female worker as the person providing support to older relatives, the American Association of Retired Persons and the National Alliance for Caregiving reported in 2015 that almost 25 percent of family caregivers are millenials.

While caregiving and its expenses have a widespread impact on the entire employee population, student-loan-repayment assistance largely applies to staff below the age of 35. And the topic of employers helping millennial employees with student-loan repayment seems to be the benefit topic du jour.

Media coverage of student indebtedness consistently pops up during the May graduation period with most highlighting a loan-repayment figure that’s more than twice the amount borrowers had to pay back two decades earlier. However, we’re beginning to see some new reports that student debt is only a barrier to achieving key life milestones -- such as buying a home, getting married and having kids -- for a significant minority: college dropouts.

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Over the next several columns, I will look at the state of employee finances and ways HR leaders can tailor their companies' policies, procedures and benefits to address workers in need. But, before I begin this series, I believe it’s important to close with some philosophical considerations that every employer needs to consider, including the following questions: Does the company want to help its employees with financial hardship? How does the employer want to define hardship? How can companies repackage current benefits such as tuition reimbursement, subsidies for employee-owned devices, employee-purchase-discount programs, and transit subsidies into a financial-assistance benefits category?

Carol Harnett is a widely respected consultant, speaker, writer and trendspotter in the fields of employee benefits, health and productivity management, health and performance innovation, and value-based health. Follow her on Twitter via @carolharnett and on her video blog, The Work.Love.Play.Daily.

 

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