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PayPal employs 23,000 employees. In 2018 the company measured the financial wellbeing of its workforce by surveying a large sample of its hourly and entry-level employees about their financial security.
The survey found that many employees were under financial stress. Almost two-thirds ran out of money between paychecks and struggled to pay bills, revealing that PayPal’s compensation policies were not delivering financial wellbeing for many lower-paid workers.
“This was disappointing,” said Dan Schulman, president and CEO of Paypal in an article for CNN Business. “Although PayPal’s internal analysis showed that it paid at or above market value for each of its employees, the wages were not always sufficient for many families.”
US employees everywhere are under financial stress. Before the Covid-19 pandemic, roughly half of US workers lived paycheck to paycheck. Today, more workers live with precarious finances, struggle to pay emergencies, and carry unsustainable levels of personal debt.
Financial stress has profound human and financial costs. It can contribute to poor physical health, mental health challenges, and substance abuse. In the workplace, it can result in poor workplace performance, more absenteeism, and higher healthcare costs.
This is why employers need to assess employees’ financial wellbeing. It starts by conducting a financial stress test to measure employees’ ability to meet their current needs, cover financial emergencies and plan for the future.
Assessing Employee Financial Wellbeing
Financial stress tests help employers identify and support employees who are experiencing financial challenges.
Similar to exercise stress tests, where patients engage in vigorous exercise to reveal and address potentially life-threatening heart problems, financial stress tests assess employees’ personal financial states and help employees understand their current financial health, spending habits, debt levels, and ability to handle financial emergencies.
Where exercise stress tests save lives, financial stress tests are a first step in helping employees achieve financial wellbeing. They help employees correct course and create realistic plans for creating emergency funds, paying down debt, purchasing homes, or planning a comfortable retirement.
Financial stress tests help employers ensure they are paying living wages and providing adequate benefits. They help employers correct course, as necessary, and design evidence-based financial wellbeing programs that ensure financial stress does not lead to poor health and job performance.
Step One: Prioritize Financial Wellbeing
Employers should prioritize employee financial wellbeing because not doing so has several bottom-line consequences.
Financial stress is all-consuming. It affects sleep, moods, and the ability to focus at work. It’s as central to health and wellbeing as diet and exercise. When not addressed, employees’ financial stress can hurt customer service, product quality and lead to costly employee mental health issues.
Financial wellbeing is increasingly part of good corporate citizenship. Data shows that employers that prioritize employee financial wellbeing more easily attract talent, earn consumer loyalty and see higher stock valuations.
Because financial wellbeing is an emerging field, employers should stay abreast of new research, methods, and best practices. One source is Financial Health Network, a trusted resource for business leaders, policymakers, and innovators with a shared mission to improve financial health for all.
Step Two: Use Effective Models
Because many workers do not want employers to know details about their personal finances, financial assessments must prioritize confidentiality.
Accordingly, employers should retain a credible, mission-driven third party to conduct and analyze survey results. Employers must also be transparent about how they will use the results and commit to addressing key findings.
Make sure to utilize proven methodologies when measuring financial health. Choose an established framework, such as The Financial Health Network’s FinHealth Score® or Net Disposable Income (NDI), to measure what employees have available to invest, save, or spend after income taxes.
Consider programs like Neighborhood Trust, a nonprofit that works with HR departments to help low and moderate-income workers achieve financial empowerment. Its TrustPlus program helps employees take stock of their financial health and work with a live financial coach via phone/Skype.
Step Three: Beyond Budgeting & Retirement Savings
Many financial wellness programs focus on budgeting and financial education and ignore a simple fact: many employees simply do not earn enough money to save for emergencies or longer-term goals like retirement.
Moreover, many employers develop financial wellness programs based on advice from financial advisors that focus disproportionately on long-term investing rather than helping lower-paid employees meet immediate needs.
While helping employees with spending habits and encouraging saving is important, many workers need more immediate help.
Employers must take steps to ensure that financial wellbeing programs are relevant for hourly and lower-paid workers. Financial stress tests are the first step in accurately identifying gaps between actual living expenses and available wages and benefits.
Step Four: Living Wages & Benefits
When workers live paycheck to paycheck, it often means they don’t make sufficient wages. In this case, there’s only one solution: establish a living wage policy based on fair, objective benchmarks.
Living wages ensure employees can cover reasonable living expenses and save for emergencies. Use MIT’s Living Wage Calculator to calculate living wages by zip code, for individuals and families, to ensure your company is paying minimum living wages based on local costs of living.
Research shows that paying living wages is good for business and the bottom line. Zeyep Ton’s book, The Good Jobs Strategy, shows how paying traditionally lower-paid workers well can help companies outperform competitors.
Step Five: Revise Benefits and Programs
Once a company completes its workplace financial stress test and analyzes results, it’s time to take action, which may include revising pay and benefits.
Prior to the pandemic, workers were struggling. Many businesses relied on a steady supply of poorly paid workers who accepted unpredictable and exhausting schedules and inconsistent incomes, which some companies are proving is a bad and unsustainable business model.
PayPal, for example, increased wages for hourly and entry-level employees. Its goal was to increase employees’ net disposable income (NDI) to 20 percent to ensure that after paying taxes and necessary living expenses, workers could save for emergencies and other expenses.
PayPal also launched a comprehensive financial health program that lowered employee healthcare costs, made every employee a stockholder, and offered financial learning and counseling programs.
Rather than making them uncompetitive, PayPal’s efforts lowered turnover with internal surveys finding that more employees intended to stay with the company as a result of the financial wellness initiatives.
Companies need to make employee financial wellbeing central social responsibility efforts, recognizing that investments in worker financial wellness are not only good for employees, but good for the bottom line.
