With temperatures dropping and prices continuing to rise, many employers are looking at ways to support staff who are impacted by the cost of living crisis and those who get into financial difficulties. Financial strife is associated with poor health and one in four employees report that money worries affect their ability to do their job, so there is a business as well as a moral case for providing support. But employers need to consider carefully how they will do so, and the legal and practical implications of doing so.
Advances of wages
One of the most straightforward options is for employers to provide advances of wages for staff who are struggling to meet unexpected costs. With around 10% of the UK population having no savings, the cost of Christmas will be keenly felt and it might only take a broken boiler or car breakdown to create real financial difficulties for employees.
There are various apps which allow employees to draw down advances of wages (usually limited to wages they have actually accrued up to the date of draw down). However, employers should take care when introducing these schemes. Advances of wages are not counted towards minimum wage calculations for the period in which they are received, so employers need to check that employees do not receive less then the applicable minimum wage for each pay period. Employers and staff should also be aware that variable pay can result in reductions of Universal Credit payments, which could leave the employee worse off, particularly if it takes a while for their correct payment level to be reinstated. Employers should consider carefully how to set up these schemes so that they provide support without exacerbating employees' financial difficulties.
Loans to employees
Alternatively, employers may wish to consider making loans to employees to help them through short-term financial difficulties. However, again there are legal and tax implications of doing so and employers need to ensure that they comply with all relevant requirements. Loans to employees above a threshold of £10,000 or which are lower than HMRC's prescribed interest rate are taxable benefits which need to be declared to HMRC and will be taxable. Employers also need to ensure that the arrangements are fully documented to ensure that the repayment provisions are clear (including ensuring that any deductions from salary are properly authorised). In some cases, consumer credit legislation will apply, meaning that employers need to comply with additional obligations.
Employee hardship fund
Larger employers may wish to set up a hardship fund to which employees can apply. Typically these are operated as charitable trusts, which has tax advantages. However, there are specific requirements for a trust to have charitable status where the beneficiaries will be employees and their families - the trust must be for the purpose of alleviating poverty. Charitable status also has significant governance implications, including personal liability of trustees in some circumstances, and will require significant time to be invested at the outset.
Employee wellbeing
Supporting employees' financial wellbeing is an important part of an employee wellbeing strategy. Training managers and taking steps to normalise conversations about money worries at work can help to break down stigma around financial distress. Employers will want to make sure staff understand the benefits they offer and how to access them.
Whilst not providing financial advice to employees, employers can provide very valuable signposting for employees, including to benefits advisers, the Government's Money & Pensions Service and debt counselling charities such as StepChange - this may be a good starting point for smaller employers wanting to help staff this winter.
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