Anyone who has ever experienced money worries will know it’s impossible to keep them out of the workplace. But one of the latest employee benefits trends brings debt more uncomfortably close to the office.
There are now dozens of loan providers in the UK marketing their services directly through employers. Their clients include large retailers, facilities management and even financial services businesses, and the Financial Conduct Authority’s (FCA) crackdown on high-interest lending last year has made it one of the fastest-growing areas of loan provision.
Employers participating in the schemes make information about loans available to their staff, often as part of a financial education programme or via internal social media. The loans are fulfilled by a third party, which works with the employer to administer the loan through payroll deduction. The loan reverts to the provider if the employee leaves their job, but this should not affect the repayment schedule.
The relationship between employers and loan providers is often unclear, but there is no suggestion businesses are benefiting financially from the schemes. Indeed, many view it as an altruistic employee benefit since the short-term, relatively low-interest nature of the loans – interest rates vary from less than 4 per cent to 19 per cent depending on the circumstances – is a lot easier on employees’ wallets than most payday lenders.
The backdrop to the shift is the broader erosion of disposable income. The Royal Society of Arts estimates at least 70 per cent of the UK’s working population is “chronically broke”, with almost 41 per cent having less than £1,000 in savings. The Money Charity revealed last year that UK borrowers were paying a total of £140 million per day in interest, while the average household debt has reached £58,948, including mortgages.
For some, involving employers in payday loans is a positive way of removing the taboo of discussing money at work, and since the employer is only facilitating rather than providing the loan, its involvement should be minimal. But others are worried it subverts the employer-employee relationship, could lead individuals into broader debt and may be a way of excusing chronically low pay.
“Some employers still feel money issues are personal, but employees bring it with them when they show up to work,” says Vishal Jain, CEO of FairQuid, which offers loans through employers. “By offering flexible benefits such as loans, you’re saying: ‘We’re here to help you’.”
Jain founded what he describes as an ethical lender in 2016 and says having employers administer the loan lessens employees’ concerns and lowers overall costs. Not everyone who takes out such a loan is in chronic debt, he adds – some might have been hit with an unexpected bill – and they often value the idea their employer is being supportive.
Heidi Allan, head of employee wellbeing at Neyber – one of the biggest names in the market – agrees the conversation is “really opening up.” She says: “Before, there was a nervousness about people not being seen to encourage debt, but employer conversations are evolving.
“It’s just about finding an ethical, transparent provider and communicating what’s there to the workforce.”
Sceptics, however, fear involvement in an employee’s finances could break the psychological contract – particularly in situations where individuals fall behind on payments.
“I think it’s quite a risky strategy and it’s not something I would advocate for companies I work with,” says executive remuneration coach Jean-Pierre Noel. “Individual debt is really that – it should remain individual, and I think helping employees avoid getting into debt in the first place is probably the better strategy.”
Jo Thresher, director of financial educator Better With Money, warns there is a danger of inadvertently legitimising payday loans: “Debt consolidation products are being heavily marketed to the HR industry and for those in financial difficulties they do have a place, but it is vital that those employees get education, practical and emotional support and not just a product.”
“Any form of borrowing needs to be considered in terms of whether it is providing a genuine solution or masking a bigger problem,” says a spokesperson from charity StepChange. “For employers, one of the questions might be whether demand for such borrowing might call for intervention of a different kind such as signposting to free debt advice.”
The likes of Neyber and FairQuid offer financial education and helplines alongside their products; others may have fewer support mechanisms. Organisations need to think about the issue holistically, adds Charles Cotton, senior reward consultant at the CIPD. “What you’re trying to do is say ‘We understand bad or unexpected things happen, this can help you get out of it. It’s not so you can take on more financial products.’”
The FCA does not hold data on the number of organisations currently offering employer loans, but the recent rise in utility and council tax bills mean their number is only likely to expand. And for Cotton, that means employers need to ask a salient question before they get involved: “If people get into financial difficulty, is it linked to how much you’re paying them? Is it their levels of financial awareness or is it just bad luck?”