Here’s a simple way to improve your employees’ financial health
Yoga is a popular staff benefit. After work, employees unwind with a spot of group ashtanga. It’s great for building team morale, and even better for keeping employees limber in body and mind.
Bee keeping is booming too. You’ll find hives on the roofs of many City firms.
Both are great. But are they addressing what staff really want? The answer is: it’s unlikely. For a growing number of workers their chief concern is something far more practical: their personal finances.
We all know consumer lending is a serious problem in the UK. So serious that many workers can think about little else.
A PwC report called Precious Plastic: How Britons Fell Back in Love with Borrowing reveals consumer lending has hit an all-time high. Credit card debt, bank loans, peer-to-peer borrowing and pay-day loans rose 9 per cent to £239 billion last year. One in five Brits say they are worried about how they will make future payments.
Naturally, most borrowers hide their money worries. But it nags away. The connection between financial problems and low performance at work is well chronicled. Insomnia can hammer productivity.
So what can you do as an employer?
SalaryFinance is a new platform to help employees reduce the cost of their lending, with no risk or contribution from their company. Repayments are made direct from the payroll. By creating an automatic monthly repayment, paid like clockwork, the interest rate can be dramatically lowered. It’s an effective way for employees to get out of debt quicker.
The Bank of England has offered its staff salary deductible loans for years, as have credit unions. Now a fintech startup, SalaryFinance, co-founded by Google UK former head Dan Cobley, banking consultant Asesh Sarkar, and entrepreneur and social finance expert Daniel Shakhani, is taking the concept to other interested employers, with grand plans.
Here’s how it works. Staff are offered loans up to 20 per cent of salary, subject to affordability. The rate is typically one third of the market average and the aim is to reduce the cost of existing staff lending, rather than introduce new lending.
Everyone gets the same interest rate, irrespective of income and status. There are no fees. The current rate is 7.9 per cent APR, far lower than the average 22 per cent rate offered by the big four high street banks in the UK, for loans less than £5,000, or the outrageous demands of pay-day lenders.
Participants therefore slash their debt burden from day one. Each month a payment is taken from the pay check to repay the debt until it is gone.
It must be stressed that there is no liability for the company. The sole role for employers is to enable the payroll deductions, as they do for pensions, health insurance and other benefits. The SalaryFinance platform integrates smoothly with all major payroll packages.
By making repayments directly through their payroll, workers can dramatically cut the interest they owe and start winning back their hard-earned money
SalaryFinance is able to offer a low rate because of the cost-savings associated with deducting repayments directly from payroll. Administration costs are cut. Missed payments and timing irregularities are eliminated. In essence, the model lowers risk, rather than prices it in. The borrower reaps the benefit.
Now you may ask, if it’s so great why aren’t more firms offering it? “The Bank of England has been offering it for years,” says SalaryFinance co-founder Mr Sarkar. “And credit unions too. In countries such as Brazil, the majority of consumer loans are done through the payroll system, and it is widespread in Italy and the United States. It’s the UK which is behind. We want to change that.”
The way to do that is to show companies how they will benefit by taking part. “Since there are no fees, no liability, and no new admin processes over and above other deductions like pensions, there is no downside for companies,” says Mr Sarkar. “Signing up should be a no-brainer.
“The reason companies ought to offer this benefit to their employees is that it can help to reduce employee stress and increase productivity, benefiting everyone. By making repayments directly through their payroll, workers can dramatically cut the interest they owe and start winning back their hard-earned money. Employers will find the scheme quick and easy to implement thanks to our innovative technology. We urge companies to take a close look.”
The SalaryFinance model is the exact inverse of pay-day lenders. Everything is devoted to offering the lowest possible APR. “Our model, which has been developed by Britain’s leading financial and technology innovators, means we can under-cut other lenders,” says Mr Sarkar.
“Our mission is to be a progressive force for good, offering British workers a fairer, more transparent and more affordable way to borrow. We are dedicated to helping people to lower their repayments and get their debt under control. It’s in our DNA – for every £1 we make, our customers save £25.”
The platform ensures employers don’t know how much each person owes. Participants will demand that level of privacy. “The model is also great for automated savings and it’s an area we are considering,” says Mr Sarkar. “Staff could allocate a fixed amount of their salary to be paid into a savings account each month.”
SalaryFinance is pitching at a big market. More than £15 billion is paid in interest on loans annually. For an average employer with 4,000 staff, and salaries between £25,000 and £50,000, the model can save employees over £500,000 a year or the equivalent of a 3 per cent pay rise. If interest rates rise, employers may feel duty bound to help workers struggling to keep their cash flowing.
For a new company, SalaryFinance has an impressive array of companies already signed up, including FTSE-listed Saga, public sector services company Agilisys and internet retailer AO.
The feedback is also encouraging. Karen Caddick, Saga’s group HR director, comments: “At Saga, we are committed to providing our employees with benefits that will help to make their money go further. We want to provide a positive work environment where our people feel valued and rewarded.
“SalaryFinance is an excellent way to do just that. It will help our staff to make the most of their salaries, to live well and to save for the longer term as well.”