How are cost-of-living increases affecting employee health?

Money jar

Need to know:

Money worries can affect employees’ physical and mental health and wellbeing, with research finding that financial concerns are leading to anxiety, sleep problems and cancelled gym memberships.
Training line managers and promoting an organisation's employee assistance programme (EAP) can help employees access support for financial and mental health issues they might experience during the cost-of-living crisis.
A low-cost health cash plan can provide help with everyday health costs such as dental and optical appointments, physiotherapy and prescriptions.

Struggling to make ends meet can have a devastating effect on an individual’s health. As the cost-of-living crisis takes a hold, employers are looking for ways to support their staff.

Money worries can affect employee health in a variety of different ways. Sarah Brannan, senior consultant at Buck, says: “If an employee is worrying about whether they can afford to buy food or heat their home, it will affect their mental and physical health. Health should be looked at holistically; it’s all connected.”

Under pressure

Research conducted by the British Association for Counselling and Psychotherapy (BACP), the BACP Public perceptions report 2022, published in March 2022, highlights this connection. It found that 44% of employees are anxious or nervous about being able to afford to pay the bills, with 16% saying they are losing sleep as a result of money worries. To help make ends meet, 22% say they have started cutting back on activities, such as gym membership and art classes, that help their mental health.

Poor sleep, lack of exercise and constant worrying are a recipe for health problems. Kris Ambler, workforce lead at BACP, says: “More people are exhibiting signs of physical and mental health problems as a result of the cost-of-living squeeze. “Empoyers need to create an ecosystem of support. A business’s health and resilience are linked to the wellbeing of its people.”

A pay rise is the obvious solution. This would ensure that employee income keeps pace with expenditure but, with businesses coming out of the pandemic in very different states of financial health, it is not an option available to all employers. Carolina Valencia, vice president, HR at Gartner, says: “In the US, we’ve seen some [employers] switching to weekly and even daily pay to help employees get through the crisis. Others are leveraging what they already offer or using their size to add in other benefits at little or no cost.”

Supporting employee health

As health takes such a hit when money is tight, health and wellbeing benefits warrant extra attention. Employee assistance programmes (EAPs) are a particularly important tool, providing advice and support on debt and other financial concerns as well as other areas of mental health and wellbeing.

While an invaluable service, employers need to go beyond simply promoting the EAP helpline number. “Employers need to create an environment where employees feel they can talk about any worries they might have, including financial ones, without fear of repercussions," says Ambler. "Training line managers and leaders and making sure they’re aware of the tools that are available will help them reach out to staff too.”

Benefits such as health cash plans, dental plans and private medical insurance (PMI) are also proving popular. Where employees might be tempted to skip appointments to save money, these enable them to keep on top of treatment costs. For example, a cash plan can cover the cost of everything from dental and optical check-ups through to prescriptions and physiotherapy.

The value of these benefits, especially in the shadow of the pandemic, means Matthew Gregson, executive director at Howden Employee Benefits and Wellbeing, has seen lots of employers extending private medical insurance (PMI) and cash plans across their workforces, including one client which added 14,000 employees to its PMI scheme.

But it is not necessarily a simple fix, especially on a higher premium medical insurance product. “The tax implications can be a challenge," explains Gregson "Faced with a P11D tax charge, employees who are struggling as a result of the cost-of-living crisis might be tempted to opt out. With a lower-cost product such as a [health] cash plan, employers should consider speaking to their local tax inspector about covering the tax charge, even if it means cutting back on cover.”

Financial health and wellbeing

Given the money worries many employees are facing, employers are also focusing on financial wellbeing. Martin Parish, director at Aon, says: “We’re seeing more interest in webinars and group sessions on financial education. Understanding the basics can help employees make their money go further, helping to prevent them worrying about their finances.”

For example, a webinar could teach employees about budgeting or show them how to shop around for financial products, such as insurance, telecoms and energy, potentially saving hundreds of pounds a year. “We also work with the employer to make sure they’re aware of all the benefits they have and that they’re promoting them effectively,” adds Parish. “There are plenty of benefits with a financial or budgeting angle. More home working may mean season ticket loans are less popular now but schemes such as [bikes-for-work], electric cars and discounted gym membership can help employees’ budgets stretch further.”

Many products also come with extras that are often overlooked but could offer value to employees when finances are tight. Discount portals, which are often included on health cash plans, are a good example of this. These give money off everything from holidays and gym membership to supermarket shopping. The savings can make a big difference, says Gregson. “Being able to get 8% off the weekly shop or 20p off a litre of fuel can really help an employee,” he adds.

Whether an employer can afford to introduce new benefits or wants to increase the value of existing ones, raising awareness of what is available is key to helping employees feeling the financial squeeze. “Employers need to communicate their benefits in an engaging way,” says Brannan. “They should also speak to employees and find out what support they might value. The cost-of-living crisis is a real opportunity for an employer to engage with staff and show they care.”

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