Help staff avoid new year money problems

12 Jan 2018 By Cathy Bryant and Hannah Waterworth

What can HR professionals do to help alleviate employees’ post-Christmas financial worries? Cathy Bryant and Hannah Waterworth report

Christmas overspending can leave employees with serious financial worries. According to the Money Advice Trust, 5.5 million Britons are likely to fall behind with their finances this new year. And the CIPD has found that money worries are the biggest source of stress to UK employees, affecting workers' job performance, concentration, absenteeism and overall productivity.

In a 2017 MetLife UK survey, 34 per cent of employees said they were distracted while at work because of financial worries, and almost a third admitted to having time off to deal with money problems. Some 90 per cent of employers agreed that financial concerns have an impact on employees' work performance, according to the Financial Advice Working Group.

Employers can offer several options to help alleviate employees’ stress from financial worries, and in turn increase the productivity of their workforce. 

Advice and guidance 

One way businesses can help their staff steer clear of financial difficulty is to recommend places where they can access good financial advice. Many employees feel that they can trust their employer more than other providers. Pointers towards well-established, trusted sources of advice could be provided via the company intranet, other web-based portals or hard-copy leaflets and guides.

Cash advances 

Some employers offer staff the option to take cash advances. The employer agrees to pre-pay some of the employee's wages with a view to this being deducted from their future salary. This provides a lower-risk option than payday loans, which often have high interest rates and harsh penalties for late payment.

Cash advances might be a particularly attractive proposition to employees around Christmas time, but companies should tread carefully and agree with employees in writing that their next month's wages will be reduced (to prevent unlawful deduction of wages – see below). 

Employers should be careful not to facilitate a vicious cycle of loaning that could do more damage for those in serious financial trouble and reduce the employee's productivity in work. For salary advances, PAYE tax and class 1 NICs must be applied on the amount advanced at the point of payment.

Interest-free loans 

Another option for employers is to offer interest-free loans. These loans are not treated as taxable earnings of the employee if the total balance outstanding on all the loans does not exceed £10,000 during the tax year. If the £10,000 limit is exceeded, a benefits-in-kind tax charge and class 1A employer's NICs will be payable. 

Employers can only make lawful deductions from an employee's wages where it is: 

  • required or authorised by legislation;
  • authorised by the worker's contract; and
  • consented to by the worker in writing before it is made. 

To ensure the loan will be repaid gradually, especially if the employment is terminated, businesses should include a clause in the contract stating their right to make deductions from the employee's salary for the repayment of any outstanding loan (including over the last few salary payments where there is a longer notice period). Setting out a loan agreement would also be advisable. 

Buyback of holiday 

Finally, employers could offer a holiday sell back scheme. This is only practicable for companies that provide more than the statutory minimum 5.6 weeks' holiday per year, because an employee who sells part of their statutory minimum holiday has not actually given up their right to take it, potentially causing complications for the employer should the individual change their mind and want to take the holiday, or if their employment terminates that leave year. It could work for contractual holiday above the 5.6 weeks.

Providing financial benefits, assistance or guidance makes employees feel that their employer cares, building loyalty and stronger relationships, and translating into higher productivity and staff retention. 

Cathy Bryant is a legal director in the tax law team, and Hannah Waterworth is a paralegal in the employment law team, both at Blake Morgan

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