Need to know:
- The pandemic has spurred many employers to reassess not just what they can pay their employees but how pay can be delivered more flexibly, with growing interest in innovations such as affordable loans, salary advance and access to earned pay.
- There is recognition, however, this needs to be underpinned by financial wellbeing tools and resources, especially around better budgeting and management of day-to-day finances but also savings, investment and retirement planning.
- Employers are increasingly taking a household-level approach rather than just focusing financial wellbeing support on the individual employee.
The furore over the government’s proposed 1% pay rise for nurses may have caught the media spotlight when it comes to post-pandemic pay strategies but, for many employers, the conversation around pay over the past year has been about much more than just flat or non-existent settlements.
On the one hand, yes, it is clear money is still tight for many employers, even if there are some signs of optimism for later this year. On the other, the pandemic has spurred them to reassess not just what they can pay their staff but how pay can be delivered more flexibly and, crucially, how employee financial wellbeing can be better supported alongside this.
Tim Perkins, co-founder of Nudge Global, says: “There is a lot of innovation in this space right now. Whether it is earned wage access or payroll loans or things like give-as-you earn, which we have seen a resurgence in of late, or, with savings at record levels and an increased focus on stock market investments, save-as-you-earn, which is having its moment in the sun as well.”
The pandemic has prompted more interest in direct financial support such as affordable workplace loans, salary advance or earned income schemes, agrees Richard Sweetman, senior director at Willis Towers Watson. He highlights the consultancy’s report The future of financial wellbeing, published in May 2021, which found more than a third (34%) of employers were looking at introducing one of those benefits in the next two years. “Nearly 50% of employers potentially will have one of those solutions in place in the next two years,” he predicts.
Employee support
The use of technology, real-time data and data analytics was transforming how pay was delivered even before the pandemic, but the financial stresses of Covid-19 have fuelled demand for, and interest in, flexible pay mechanisms and solutions, echoes Peter Briffett, chief executive of Wagestream.
“A lot of employers are now seeing flexible pay as a really, really important benefit for their staff. When we first started doing this, we thought it would only be something wanted or needed by organisations that had a lot of shift working. But, actually, we’ve found it is becoming increasingly popular with salaried workers too. A lot of employers, too, now use flexible pay as a tool to recruit new staff,” he says. Flexible pay schemes have also enabled employers to fast-track furlough money to employees without having to wait for the next pay cycle, he points out.
While the pandemic has been a very different crisis to the 2008/09 financial meltdown, Jonathan Watts-Lay, director of Wealth at work, argues he can see similarities when it comes to employer thinking around pay, reward and benefits.
“I remember a lot of organisations then came to us saying, ‘look we can’t give pay rises because things are tough, but we do have a good benefits suite, so can you help us to explain to staff that, actually, they can really drive value from the benefits suite?’. I can see some repeating of that going on at the moment,” he points out.
“The other issue we’ve seen is a lot of companies under their financial wellbeing strategies are now looking at it at a household level. They can have an employee who has been fully employed for the whole of the pandemic but perhaps their partner has been made redundant or put on furlough, and so the household income has gone down. We’ve done quite a lot of work with firms putting webcasts together saying, ‘OK, so what can be done to help with that household income issue?’,” he adds.
With many households under some level of financial stress, tools and education to help with better budgeting and better management of day-to-day finances have also been a priority for many employers. “General budget management as a subject area, managing the monthly or the weekly budget, whatever it might be, is something we’ve had a lot of enquiries about,” says Watts-Lay.
On the other hand, for employees who have been in secure work throughout the pandemic but not perhaps had the expense of commuting, eating out or holidays, the financial focus, and where they need support and guidance, may be very different, highlights Jeanette Makings, head of financial education services at Close Brothers Asset Management.
“The pandemic has given people the time and space to focus. We’ve got people who have spent less, we’ve got people who have saved more. But we’ve also got people who have had to use or dip into their emergency fund or have had to delay their retirement. So, there are some positive things as well as some negative impacts,” she says.
Financial education need
Either way, the pandemic has led to a widescale re-evaluation of financial priorities for many, she argues, highlighting the firm’s Expecting the unexpected report, published in March 2021. This found that more than half (57%) of people had either changed or now planned to make changes to their finances as a result of the past 14 months, rising to 73% of those aged 18-34.
This, in turn, is something employers have been responding to. Many are increasingly recognising that, if they introduce innovations such as affordable workplace loans, flexible pay or earned pay access, these need to be underpinned by financial education and wellbeing support, argues Sweetman, and this is a trend that is only likely to accelerate as we come out of the pandemic.
“If you go back three or four years, these types of products or benefits were just a functional facility. All the providers are now beginning to wrap financial education resources around them. So, [they] integrate educational materials into the app that delivers it as well as links to debt counselling services or other types of support; it is all about broadening things out,” he says.
“What financial education does is provide that consistent way of presenting these opportunities to people, so they can then make the decision that is right for them,” agrees Perkins.
“In the past, perhaps some of these initiatives have been sales-led, focused on take-up regardless of whether it is the right service for people. But I think employers and providers themselves do now recognise the importance of having unbiased education underpinning all this,” he adds.
