Picture: HR Executive

Faizel Patel – 03/09/2020

(Twitter: @FaizelPatel143)

The COVID-19 pandemic has had a severe impact on economies and financial viabilities of individuals including the poor and vulnerable.

If your organisation has staff who are financially stressed, you are losing out on productive working time.

In fact, as many as half of all financially stressed employees spend three hours or more at work each week thinking about or dealing with personal financial issues.

That’s almost half a working day lost each week.

Some employees may be tempted to take out a payday loan: an instant, short-term cash advance against their next salary check. These can help in emergencies, but can also leave borrowers indebted for years. The lenders target people without credit cards — often those with the worst credit — and charge these so-called risky borrowers much higher interest rates.

Research has found that these types of short-term loans are associated with higher body mass index, waist circumference, C-reactive protein levels, and self-reported symptoms of physical health, sexual health, and anxiety. In other words, they literally contribute to a person’s ill health.

Paymenow Managing Director, Deon Nobrega says what makes matters worse is that payday loans often result in those who are among the most destitute end up stuck in a cycle of debt.

“Yes, families can eat, but these loans are often rolled over, accruing high levels of interest each month.”

Another possible consequence of being stuck in debt is that people may feel that they have no choice but to raid their pension funds to the extent allowed by the law. This, says Nobrega, is counter-productive, as this just places more financial strain on people’s shoulders.

Fortunately, there is something that you, as a responsible employer, can do to help. Early and responsible access to wages is an effective solution that will remove that weight off your staff’s shoulders, and lead to several work benefits, including:

• Improved productivity & engagement

50% of financially stressed employees spend three hours or more at work each week thinking about or dealing with personal financial issues.

• Reduced administration

A service provider that does the heavy lifting and administers the process with a user-friendly payroll-integrated app cuts down on administration because it is real-time and alleviates transaction and request processing.

• Reduce absenteeism & health care costs

It is estimated that more than 70% of doctor visits are due to stress-related health problems. What’s more, 55% of stress is money related.

• Retain & recruit better

Offering a benefit to improve employee financial health and security helps retain and attract high performing talent.

• Curb theft & fraud

Employees who are financially stressed are more prone to steal from their employers or colleagues in the workplace.

• Access to finance

Early and responsible access to money that an employee has already worked for is a good way of bringing them further into the formal economy. In fact, Paymenow’s research shows that the average user only cashes out about 12-15% of earnings, even though they have access to an average of a quarter of their salary. This shows that the financial literacy that’s baked into the model has ensured responsible usage of earned wages.

• Cashflow positive

Because it is possible to have a service provider fund the advances during the month, employers do not need to worry about cashflow intra-month to process advances or loans.

• Legal compliance

Employers who currently give loans outside of the requirements and protocols of the National Credit Act are in contravention of the law. Using a reputable service provider ensures legal compliance and reduces reputational damage.

Paymenow’s Head of Business Development, Bryan Habana says by advancing money that an employee has already earned ahead of the next official payday, companies can help their staff avoid a debt trap, which will help them move to a point where they are financially healthy

“Paymenow specifically incorporates financial wellness education into our app to ensure we help people to go from a debt to a savings mindset.”

As the ongoing economic fallout of the coronavirus plays out, responsible employers need to work with their employees to ensure they do not fall prey to irresponsible loan sharks out of sheer desperation. Early and responsible access to earned wages is one way they can do this.