As Scotland and the rest of the UK grapple with pandemic recovery, inflation and the cost of living crisis, supporting employees' financial wellbeing is becoming an increasingly important part of retaining staff and building a positive workplace culture. We look beyond pay rises (which struggling businesses may not be able to afford) at seven ways in which employers can support employees through this time and the potential impact on productivity and profits if not enough is done.

Why should employers be concerned about the financial wellbeing of their staff?

Money worries can have serious negative impacts on employee productivity and engagement. One study suggests that poor employee financial wellbeing can cost employers the equivalent of up to 17% of salary costs.

According to the Financial Capability Strategy for the UK:

• 25% of workers have lost sleep over money worries;
• more than half of employees say that current financial worries stop them from performing at their best; and
• 46% of employees say that financial pressure affects their relationship with their manager.

There are also clear links between money worries and mental wellbeing.

And, of course, these concerns can lead employees to look elsewhere for roles where they may be paid more. Recruitment and retention are key to business stability as even employees who enjoy their roles may be financially incentivised to move on when they face a squeeze on their disposable income. 

Employers should also consider whether they really need to have any eligibility criteria to access the support they offer. For example, could you make access to (some) enhanced family leave and pay a day-one right? That can significantly reduce the risk of changing jobs for new starts even if they do not end up relying on the benefits. 

What can employers do to help support the financial wellbeing of their staff?

From an employee's perspective, a salary increase may seem like the easy fix and, indeed, if employers are in a position to do so, they may consider offering employees a pay rise to help offset rising inflation. However, many employers are not in a financial position to do so and offering higher remuneration alone does not necessarily solve all financial wellbeing worries.

Below, we suggest some alternative options employers may be able to consider if they cannot afford significant pay rises. Some of these alternatives still have a cost to the employer but may be more affordable than significant pay rises.

1. One-off payments

Employers may consider offering their employees a one-off payment to help with the rising cost of living. Some employers are considering offering this at the start of winter to help relieve the expected further increase in energy bills.

Payments can also be paid monthly and referred to as a "non-consolidated bonus". This gives the effective benefit of a pay rise for a single year but is separate from basic salary, meaning it will not be counted as part of a salary and, importantly, when the following year's pay review comes up, the non-consolidated element is not included as part of the basic salary starting point upon which rises are assigned. 

2. Introduce discount schemes and vouchers for employees

Employers may be able to offer employees a benefits package that helps salaries go a little further every month. Examples of these include:

• employee rewards and perks;
• access to special discounts;
• health insurance; and
• budgets for expenses, including for childcare, transport, workplace lunches and gym membership.

These schemes and vouchers may cost employers some money, but the benefit to employers can sometimes be greater than paying the cost as additional salary.

3. Help with working from home expenses

As many organisations have now introduced hybrid working practices, many employees may opt to work from home more frequently to save on travel costs. Employers may consider offering a travel grant to employees – especially if there is an expectation that employees work from the office on a semi-regular basis – albeit this will often be a taxable benefit.

For many employers, working from home policies have also reduced the need for large office premises, with some taking advantage of this and moving to smaller premises in a bid to cut costs. Employers may consider taking advantage of some of the resulting savings by reimbursing employees' reasonable working from home expenses, including their Wi-Fi bills, home office equipment and heating. 

4. Offer private meetings and sessions on money management

Employers may consider offering a commercial financial adviser to their employees – appropriate due diligence is required and any arrangements between the adviser and the employer should be made very transparent.

5. Provide training to senior staff so that they can support their colleagues

If a group of senior staff are given the tools and knowledge about financial wellbeing, they will be better placed to discuss and help employees with financial concerns.

6. Salary sacrifice schemes

These schemes are tax-friendly incentive arrangements that enable employees to save money when building their pension or buying products such as laptops and mobile phones in exchange for a reduction in their salary each month. Employees do have to accept that they will be paid less each month but it may help them manage their expenses if the money is going towards buying something they intended to purchase anyway.

The cycle to work scheme is another example of a scheme to which employers can sign up. It helps reduce the cost of employees buying a bike, especially when bike prices are increasing and supply is restricted.

7. Early wage advance/on-demand pay options

We are increasingly seeing employers exploring new payment structures such as early wage advance/on-demand pay. These allow employees to draw down part of their earned salary before pay day. Doing so can alleviate pressure if unexpected bills come in. However, the FCA guidance on such arrangements is clear that it is important for employers to ensure that proper safeguards and support are in place to avoid employees becoming overreliant on such advances. This is particularly important if that could lead to employees having insufficient funds at the end of the month to meet core financial obligations, such as mortgage/rental payments, or incurring unexpected charges. Despite these risks, the ability to access money when it is earned, and not have to wait until the end of the month, does give employees greater control of their money and more flexibility.

Of course, the rise in the cost of living will impact businesses and organisations in a multitude of different ways. Many businesses will be focusing on how to balance their books and cut costs. However, they should also be alive to, and give consideration to, how the cost of living crisis will affect their employees and how they can help reduce the difficulties – even if just a little.