The Future of Workplace Financial Wellness: Improving the Benefits of Benefits
Editor's note: This is the last of a series of five blog posts from the Workforce Financial Stability Initiative (WFSI) at Washington University in St. Louis (funded by the W. K. Kellogg Foundation) and Prosperity Now discussing workplace financial wellness. To learn more, visit Prosperity Now’s website for actionable resources for employers and WFSI’s website for research on approaches to building financial wellness at work.
While most conversations about workplace financial wellness center around specific financial products and services, there’s so much more employers can do to promote employees' financial wellness. We believe that the future of workplace financial wellness, especially for low- and moderate-income (LMI) workers, lies in understanding how existing benefits and work conditions could be improved to promote employee financial well-being and complement newer financial wellness benefits.
For example, Gap modified some work scheduling practices in a 2015 pilot. They implemented five strategies including establishing stable start and end times for shifts, improving consistency in associates’ schedules and offering some associates a “soft guarantee” of 20 hours or more per week. These strategies delivered greater consistency and predictability in employee schedules (which followed through to more consistent and predictable pay) and provided incredible returns to the company. Participating stores saw a seven percent increase in median sales and a five percent increase in labor productivity. Gap stands out as an employer that proactively addressed irregular work schedules as a possible source of income volatility among its employees.
Employees are likely to recognize the value of managerial and compensation strategies in addressing financial wellness at work. According to PWC’s 2018 employee wellness survey, only 49% of surveyed workers said their compensation was keeping up with the rising cost of their living expenses. However, when presented with options for new employer benefits, even the most popular option, “financial wellness benefit with access to unbiased counselors,” only garnered interest among 25% of respondents. Why aren’t there more widely appealing solutions? It could be because the proffered solutions (new employer benefits) don’t fully address what employees would value from employers.
Prosperity Now’s interviews with young workers offer insight into what workers might value. When asked how employers could help improve their financial lives, connecting them to information and advice was just one idea offered by interviewees. Higher wages and benefits that subsidized or reduced typical expenses were much stronger recommendations, suggesting that employees might find it easier to see valuable solutions in those domains.
While the Gap example illustrates how changing work conditions can help stabilize income, there are also opportunities to rethink how common employer benefits can support employee financial well-being. Tax-advantaged savings accounts, such as health savings accounts (HSAs) and flexible spending accounts (FSAs), are also worth exploring. These accounts are available through most large employers and offer them advantages, such as savings on payroll taxes. And by allowing employees to use pre-tax dollars to pay for health and child care expenses, some employees can save money. Unfortunately, as currently designed, most LMI workers reap little (if any) benefit from these accounts.
The WFSI team’s recent research on Dependent Care FSAs (DCFSAs) explains why. DCFSAs are intended to help with child and elder care costs and are touted as “a smart, simple way to save money when taking care of loved ones.” The WFSI team found several program barriers for LMI workers, but the most striking was in its fundamental structure. DCFSAs, like FSAs and HSAs, require employees to seed the account through payroll deductions, pay out-of-pocket for covered expenses and then seek reimbursement. For LMI employees with limited financial slack, program participation means they have less take-home pay and must spend more to benefit from the program. It’s a double-hit, and there’s evidence to suggest that DCFSA participants experience additional financial strain. In the study, use of DCFSAs by LMI employees with young children (age five and under) was associated with bank account overdrafts.
Fortunately, employers can help make DCFSAs and other tax-advantaged savings a more productive financial wellness benefit for LMI workers. Amongst several action areas detailed by the WFSI team are two things employers can do to soften the double-hit. First, employers could provide “seed money” to accounts so employees can start the plan year with a balance for immediate reimbursement. Employers could also implement processes for direct payment such as providing account-linked debit cards or automatic transfers to providers. Both are strategies readily available to employers either through their spending account providers and fintech startups like Alice.
As we close this blog series on workplace financial wellness, we’re excited about the increased interest and developments in workplace financial wellness. We’re grateful to the employers and financial wellness providers who are championing this cause. And we’re hopeful that the future holds even more innovation to make employee benefits and work conditions a holistic infrastructure that supports financial well-being for all workers.