The Hidden Costs of Employee Financial Stress … and How You Can Help

By PrismHR

By Jennifer Kush
Business Development Executive

Over the past few years, there have been major shifts in the workplace. The pandemic made us re-evaluate what’s important, and the value of taking care of the well-being of our employees has re-entered the spotlight.

Besides potential health scares, the weight of personal finances on workers is mounting. Inflation, the cost of living, student loans and health care debt are all growing concerns weighing on the minds of workers.

Eighty percent of employees say that it’s essential for their company to meet their needs based on which stage of life they are in. Employers that embrace the dynamic makeup of their team and provide a diverse mix of financial wellness tools to meet the needs of various generations in the workforce significantly improves loyalty, engagement and performance. While the competition for recruiting and retaining talent is very much alive, this can play a pivotal role in why a worker stays with or joins your organization.

If you are part of the traditionalist or baby boomer generations, you are more likely to be focused on saving for retirement. If you’re a younger generation, you may be repaying student loan debt or saving for your first home. While generational needs can be very different, one thing that remains the same is that their personal finances are top of mind. And we all agree that our employers should help.

Bank of America’s 2022 Workplace Benefits Report found that 80% of employees think their employers should play a role in supporting their financial wellness. When employers prioritize the well-being of their workers, it makes them feel supported and valued, which boosts productivity and loyalty. That’s a win-win.

This chart from the PwC 2023 Employee Financial Wellness Survey is telling. It shows the many ways that financial stress can impact the individual—from self-esteem to interpersonal relationships at home and at work.

It’s astounding to see the correlation between financial stress and the impact it can have on different facets of your employees’ overall well-being. While personal financial struggles may be the core issue, we should also think about the relationship it can cause with employees increasing their other benefit usage to react to the implications in other areas of their lives.

Financial stress often increases benefits usage as well, which can cost your business more money over the long term. For example, perhaps an employee’s cash flow struggles are causing high blood pressure, which is causing them to use their health insurance plan more frequently. Or, if a financially strapped employee is experiencing less sleep because of worry, they may be less productive or attentive at work, which affects productivity—and likely your bottom line as well.

So, let’s dive into the four biggest hidden costs. And what you can do as an employer to help.

1. Productivity

Just under two-thirds (62%) of employees are stressed about their financial situation. When you’re living paycheck to paycheck as 64% of Americans do, it can be easy to get distracted by thinking about your personal finances while on the job. Financially stressed workers are nearly five times more likely to be distracted at work, according to the PwC 2023 Employee Financial Wellness Survey. And those distractions are costing U.S. businesses about $4 billion in lost productivity each week.

2. Absenteeism

The symptoms of financial stress are estimated to cost businesses between 20 and 29 productive days a year or between 9% and 13% of their payroll. When finances are tight, your employees may not have the funds for gas or transportation between paychecks. Perhaps they take an increased number of sick days because of stress. If you don’t think personal finances play a role in employee absenteeism, think again.

3. Health Benefit Usage

Almost 7 out of 10 (68%) of U.S. employees feel their personal finance issues affect their health. The stress of worrying about your finances can take a toll on your mental, physical and emotional state. Sleep loss, headaches, a rise in blood pressure, anxiety—these are all ways that your finances can impact your health. And the consequences are serious. More doctor visits, new medications and the need for therapy or mental health support are all benefits that you as an employer will have to invest in.

4. Employee Turnover

A little more than 3 out of 10 employees are often or constantly looking for a new job that pays more. While businesses can’t always afford to raise pay, there are programs you can deploy, including Earned Wage Access that empower employees with access to their pay when they need it. Investing in programs that help your workers shows your empathy for their personal situation and improves their loyalty.

OK, so we’ve talked about a few of the hidden costs financial stress can have on your business. Now, let’s look at ways you can turn things around.

What’s Causing Doom and Gloom

Want to know what your employees are financially stressed about?

Ask them!

Take the pulse of your workforce in an annual or biannual survey to see what stressors or goals they have for their financial future. Anonymous questionnaires are also a great way to see what your employees value and how much they feel supported by you as an employer.

While understanding the views from your employees in what they are looking for assistance with or struggling from, it’s also important to use that information for the greater good. Make sure your employees know that they are being heard, and research ways you can put that feedback into action. Communication is a two-way street, and letting your employees know their opinions are valuable by assuring them they are being looked into, evaluated and put into action, creates a healthy dialogue and reciprocated value.

Another item to incorporate into your toolkit for understanding what is causing financial stress to your employees is by addressing it during exit interviews. While they may no longer be working at your company, knowing if, perhaps, a lack of wellness benefits or learning opportunities contributed to their departure, can help you retain the employees you do have.

Know Your Generational Workforce Makeup

Understanding where your employees are in their financial journey—whether it’s a Gen Y worker who might be saving to buy their first house or a baby boomer who might be thinking more about retirement—helps frame the services and support you offer. We aren’t all in the same life stage or stressed about the same issues. Discover what’s important to your workers and knowing the makeup of your workforce can be key to cracking that code.

Leverage On-demand Pay and Financial Education

Financial education is key to having workers feel empowered over their financial decisions. Investing in coaching and advisory programs, and educational tools puts your employees in the driver’s seat of their own financial journey.

Over the past few years, the rise in on-demand pay has given workers a sense of independence and relief. On-demand pay gives employees the ability to access their earned wages between paychecks should they need to. This not only helps their immediate cost crunch but also leads to increased engagement in the workplace.

Earned Wage Access, or on-demand pay, can be a relatively new term to a lot of people. So what is it? Earned Wage Access is revolutionizing payroll infrastructure. Employees are no longer bound by weekly, biweekly, semimonthly or monthly pay periods. With EWA, they’re free to access a percentage of the wages they’ve already earned whenever they want.

To put it another way, you can think of EWA as an interest-free advance on your employees’ wages. Companies typically add on-demand pay to their benefits to help workers who might be dealing with cash flow issues. And it’s quickly becoming an established business practice.

Most employees who use Earned Wage Access (89%) report having less financial stress. As the 2022 PrismHR Partner of the Year, we’ve seen a major uptick in the need for this benefit in the workplace, and PrismHR clients have access to ZayZoon’s on-demand pay for no cost!

Communication Is Key

What’s a good benefits program if your employees don’t know about it? Many employees don’t realize the variety of services readily available to them from their employer beyond the standard medical and dental programs. Make it a focus to communicate with your employees through their benefit portal, emails, quarterly newsletters and even webinars or live training sessions.

Why invest in benefits if no one knows about them?

When you’re facing financial strains, your situation can seem dire. Rest assured, there are benefits and programs that your employees can utilize and you can leverage. And there’s no time like the present to get started.

Jennifer Kush is a business development executive on the sales team at ZayZoon focusing on building partnerships in the PEO sector. With past experience in employee benefits, Jennifer brings unique insight into how our PEO partners work and what is needed to bring value to their clients. Her favorite part of her job is making deep connections with others to understand their business to bring value to their financial wellness offerings.

Jennifer remotely works from Phoenix and enjoys reading true crime thrillers, traveling, walking her dogs and cheering on her daughters at their sporting clubs.