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A Different Option

Thursday, November 3, 2016
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Despite what good news you may have heard about today's recovered U.S. economy, far too many workers are laid up with some serious financial illness.

The Federal Reserve's A Report on the Economic Well-being of U.S. Households in 2016 finds 46 percent of adults say they either couldn't cover an emergency expense of $400, or would cover it by selling something or borrowing money.

Two other reports published last year by the Pew Charitable Trusts find, respectively, that 55 percent of households don't have enough liquid savings to replace a month's worth of lost income and that, of the 56 percent of people who said they're worried about their finances, 71 percent are concerned about having enough money to cover everyday expenses.

Yet another -- a study commissioned by EdAssist and conducted by Kelton Global -- points the finger directly at student debt > as a major culprit of financial stress and retirement unreadiness. Be they grads starting out or baby boomers nearing retirement, 72 percent of all people with < student debt say it impacts their daily lives, forcing them to give up on dream jobs and further education. Nearly half (49 percent) say they're so stressed, they'd prefer help with school debt over budgeting, credit-card debt and even retirement. And 47 percent say they're looking for help from employers, including in searching for a new job.

It's probably not even worth mentioning that most of these beleaguered Americans are living paycheck to paycheck. It's also probably not worth mentioning that many are still unable to cover basic living expenses.

We know this level of financial stress impacts productivity, not to mention morale, especially among workforces with a high volume of lower-income employees, such as in retail and hospitality. Latest studies -- including those from the American Medical Association, MetLife and Financial Fitness -- put the cost of financial stress at around $5,000 per employer per year. The stories are out there, many in past issues of this magazine. And most focus on financial-planning services, automatic 401(k) participation and increases, and retirement education as employers' best options for helping their most in need.

Well, it so happens there's another avenue some organizations are starting to explore. The subject of one of this issue's features, Help in Advance, it involves the very simple process of paying employees pre-paycheck for the income they've already worked for -- in other words, the hours they've already accrued. Unlike advance loans and so-called "payday loans," these newer modes of supplying workers with much-needed fast cash don't charge the high interest rates of the past. Nor do they require Social Security numbers and layers of administrative approval.

Why? Because the handful of companies putting these systems out to market to facilitate such transactions work directly with the employers based on the latter's willingness to simply provide proof of hours worked. Employers don't front the funds, they pay nothing for these voluntary benefits, and employees don't have to pay an arm and a leg to receive them.

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Of course, some controls need to be put in place to account for the cost and risk of the service, and to ensure money will be there for employees to pay for other emergencies down the road. For instance, one supplier, PayActiv of San Jose, Calif., whose co-founder I had the pleasure of interviewing for our recent Top HR Products contest, provides up to 50 percent of available earned income per loan, at a $5-per-loan charge to employees. (His product, PayActiv App, was named one of our 10 winners, I should mention.)

This co-founder and chief operating officer, Ijaz Anwar, left me with some things to think about after we talked. For one, as he said, "it's expensive to be poor," when you consider banks are averaging $35 billion a year in late fees and another $17 billion in overdrafts.

"Why can't you just give people what they have earned, what is rightfully theirs, when they so desperately need it, and help them avoid these penalties?" he said to me, adding that it can mean "dignity for these struggling people who can't even qualify for a credit card."

Clearly, there are also benefits for employers in advancing earned pay for time accrued -- in terms of retention, reputation, absenteeism -- and, yes, productivity and morale.

Doesn't such a simple and straightforward approach to such a plaguing problem that appears to be good for all parties involved deserve, at the very least, your consideration?

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