Between a global pandemic, rising climate disasters, geopolitical crises, and the ripple effects they’ve had on world economies over the last few years, more and more people are finding themselves strapped for cash, as survey findings suggest that more people are concerned about what they have put away than ever before.
In the US, for instance, 68 percent of people are worried that they wouldn’t be able to cover their living expenses past one month if they were to lose their primary source of income—including almost nine in 10 Gen Zers. And this worry is well-placed, as new data shows that more than half of Americans wouldn’t be able to cover even just a $500 emergency expense, while more than a quarter of Americans have no emergency savings whatsoever.
As Mark Hamrick, Bankrate senior economic analyst, explains, “it’s clear that the less-than-optimal economy, including historically high inflation coupled with rising interest rates, has taken a double-edged toll on Americans.” While a growing number of Americans now say it’s imperative to have an emergency fund, thanks in large part to the economic uncertainty impacting not just the US but nations around the world, it’s these same economic factors that are preventing people from being able to set anything aside, Bankrate survey data suggests.
As a result, more employees than ever before are now turning to their employers to gain some sense of financial stability they so desperately crave. Findings from Betterment at Work’s 2022 Financial Wellness Barometer show that a whopping 93 percent of respondents now say it’s at least “somewhat important” that their employer offers a financial wellness benefit—a 68 percent jump from the year before—and to prove it, additional findings revealed that nearly three-quarters of respondents said they would be willing to leave a job for an employer that offered better financial wellness benefits—including almost a third who said they would consider making a move specifically for an employer that offered an emergency fund.
Thus, as a record-breaking number of people get tossed around by a whirlwind of humanitarian disaster without a cushion or safety net to break their fall, an increasing number of employers are now looking to offer subsidies and other emergency funds to help.
Employee Assistance Fund: Its Various Names and Characteristics
Employee relief fund; employee assistance fund; employee emergency fund; employee emergency relief/assistance fund; employee compassion fund; “taking care of our own” fund: all of these (and more) are names given to employer-sponsored financial assistance programs in which employees in need can seek extra monetary support in the event of an emergency or unforeseen and uncontrollable circumstance. It’s a tactic already used by big names like CVS Health, Amazon, Koch, LVMH, Starbucks, and more in an effort to attract and retain talent as large swathes of the workforce continue to leave their employers for competitors who offer better pay and better financial benefits.
As Mary Ellen Gornick, Senior Vice President of Global Services at Workplace Options (WPO), explains, these funds are established “when an organization decides that they want to contribute to some expense that, for whatever reason, they think is a high expense for their employees. While they don’t want to cover the entirety of the expense—as that would be too cost-prohibitive on their part—they set an amount that they will cover, and then they set criteria around what will be covered [and who is eligible for coverage].”
According to Givinga, such funds are often set up as disaster relief, as a permanent ongoing program, or they start off as disaster relief and later become permanent—which is often the case now as climate disasters continue to unfold at significantly faster rates, outpacing humanitarian aid employed to abate their impacts on targeted communities. Events or circumstances often covered by these funds include:
- Home catastrophes or natural disasters, I.e. hurricanes, fires, floods, tornadoes, etc.
- Wars or geopolitical conflicts, I.e. having to flee or evacuate one’s home or home country, losing a home as a result of terrorist or military actions, etc.
- Serious medical emergencies, I.e. illnesses, injuries, or accidents affecting the employee or an immediate family member that result in a loss of work and out-of-pocket or unaffordable health care expenses; care and resources for a chronically or critically ill immediate family member that result in loss of work.
- Other undue hardships not caused by applicant, I.e. unaffordable child care or elder care costs, rent and utilities payments, student loan debt, theft, loss of dual-income, military deployment of spouse or domestic partner, funeral expenses, etc.
While genuine compassion and concern for their employees is certainly at least partly behind employers’ motivation for offering employee assistance funds, essentially, the theory driving such programs is that financial wellness—or, more specifically, financial stress or uncertainty—has a considerable effect on workers’ overall health and wellbeing, which leads to costly ramifications for their employers.
And this theory is well-founded: as research from the Federal Reserve posits that employee financial stress costs employers an average of $5,000 per employee, per year, in lost productivity. For a mid-size employer with about 200 employees, that’s a whopping $1 million loss that could easily be avoided with the right mechanisms in place—hence, the pull toward emergency funds. Studies show that even small cushions of just $250 to $700 can help employees to “stave off a calamity like eviction,” and effectively restore or safeguard their financial stability, the New York Times reports.
With this clear and straightforward solution in mind, many organizations have now started to expand on what they consider to be undue hardships deserving of financial support, providing full or partial reimbursements to assist their workers with a wide range of personal expenses, such as:
- Adoption, surrogacy, or family-planning costs
- Child, elder, dependent, and pet care
- Gender affirmation surgeries
- Transportation and lodging fees for medical appointments
- At-home office equipment and technology and internet fees for remote workers
- Health and wellness expenses (I.e. gym memberships, guided yoga or meditation, cooking or exercise classes, and personal trainers)
- Tuition, course fees, job training, and other educational/professional development opportunities
The way many employers and HR experts see it: the more employees can manage day-to-day spendings and focus their energy on future goals like buying a house, saving for retirement, paying off large debts, sending children to college, and being able to afford to take major vacations and other expensive luxuries, the more productive and focused they’ll be at work. Thus, no matter what the cost may be that’s weighing on their employees’ minds, employers are starting to offer funds and subsidies as a way of destigmatizing asking for help, streamlining the process of receiving help, expediting the time it takes for workers to recover following an emergency or unforeseen circumstance, and enhancing their recovery in the effort to maximize employee performance and organizational success.
How Funds are Structured
As Gornick asserts, it just isn’t cost-effective or plausible for employers to cover the entirety of emergency or major spendings—neither for all circumstances nor for all employees. Instead, in order to develop and administer an effective employee fund, employers will need to:
(i) Conduct research on what specific events, emergencies, or hardships are impacting a large portion of their workforce.
(ii) Calculate their savings and determine just how much they can invest in an employee assistance fund.
(iii) Establish criteria and requirements employees must meet in order to be considered eligible for funding and to successfully apply and be approved for funding, as well as limits on how much an employee could potentially be awarded, how many times they can apply, and how often.
For instance, Gornick explains, “many companies have said ‘Okay, we’re going to set $5,000 or $10,000 or maybe even $15,000 [as the maximum amount employees can receive] in the event of a foreign adoption.’ What the policy would say, is that the organization will give [an employee] this benefit up to a certain amount, and [they] might have to be a full-time employee working a certain number of hours a week to be eligible, and that [they] could only use this benefit once, or maybe twice.”
From there, employees would need to adhere to a formal application process, oftentimes in which they are expected to show proof of financial hardship due to “the unexpected nature of the qualifying incident,” and not for reasons of their own, by providing supporting documents not limited to:
- Mortage statements
- Lodging receipts
- Insurance claims
- Medical documentation
- Police, Fire, or other official incident reports
- Death certificates or obituaries
This, according to Gornick, is in order to weed out those who may not really be eligible in efforts to conserve funding for those who are most-deserving. “One of the reasons why [these funds are distributed] post-expense is because employers ask applicants to submit all of their documentation and [proof of] their expenses. In the case of adoption, [for instance], very few of those are actually distributed because the numbers are showing that there’s maybe 2 percent of individuals in an organization that actually go through with adoption—they might start looking at it, but they don’t always go through with it. So, they’ll look at attorney fees, home study fees, and travel costs as a way to say, ‘We want to make sure these are legitimate expenses.'”
Oftentimes, what many employers will do, Gornick adds, is outsource fund administration to industry professionals like WPO who can assist in ensuring that distribution of funds is fair, effective, and efficient, in addition to helping with program design that gives employers and their workforce convenient access to policies, claim statuses, and fund amounts.
“What [employers] often do is they want someone else to check the receipts and check what’s being distributed to make sure that there are legitimate fees, like if they say they’ll cover legal and a certain amount of travel costs, then they want to make sure that what is submitted matches what they would cover. And in that event, they would contact WPO [so that we could review those expenses. And then, [if everything looks good], WPO would then say to the organization, ‘this person is OK to pay. We’ve reviewed everything and everything is proper in this submission,’ and ‘You can go ahead and distribute that check for [X amount].'”
This is done a lot of times to eliminate fraud, Gornick explains, but sometimes employers may enlist the services of a third party in an effort to protect employee privacy and maintain confidentiality, considered to be important benefits of employee assistance funds, as they allow organizations to unobtrusively help employees as a way of working around the stigma surrounding help-seeking and struggling financially. To that end, Gornick states, “there are some organizations that will also say to WPO ‘would you distribute the money, and then we’ll repay you?’ Because then they’re completely hands off.”
Benefits of Employee Assistance in 2023
Offering financial support to employees isn’t just the right thing to do—and furthermore an integral part of fulfilling one’s duty of care—but it’s also a critical way of maintaining organizational success and stability in 2023. Over 40 percent of employees—and upwards of 80 percent of those who admit to being stressed about money—believe it’s their employer’s responsibility to help them achieve financial security, and roughly two-thirds of them believe that an employer-sponsored emergency savings fund is the way to do so.
As rates of stress around money and personal exceed those not seen since the 2008 financial crisis, with anywhere between 60 and 90 percent of the workforce estimated to be ‘financially-stressed,’ how employers step up to the plate and demonstrate a commitment to their employees’ financial, and in turn, holistic wellbeing will determine how well they perform in terms of profitability, productivity, retention, and talent acquisition.
To that point, the following are some key benefits that boasting an employee assistance fund can offer employers:
- Improved retention. New PwC survey findings assessing trends or factors driving career change have revealed that economic factors like higher salaries and financial wellness benefits are behind roughly two-thirds of current job-seekers’ motivation to look for a new job, as financially-stressed employees are proven to be more than twice as likely to leave their current roles. This comes as financial services provider SoFi at Work and HR research advisory Workforce Intelligence have found that more than four in five workers say that financial stress negatively impacts their job satisfaction.
To combat this, experts argue that financial wellness boosts via charitable giving and emergency funding can improve employers’ ability to engage current employees and make them feel valued, which in turn motivates them to stay. In fact, a study from the Limeade Institute found that employees who felt cared for were more likely to stay with their employer for the next three years, while a whopping 94 percent claimed they felt more engaged when their employer demonstrated a commitment to their wellbeing.
- Enhanced performance and increased productivity. Financial stress is proven to have considerable ramifications on worker output: according to survey findings from Salary Finances, financially-stressed workers are six times more likely to not finish daily tasks and 5x more likely to have lower quality of work. This comes as roughly seven in 10 employees admit that anxiety over their finances makes it difficult to focus on work. On average, it is estimated that financially-stressed employees spend over 25 percent of their workday worrying about money (for an average loss of 4 hours in productivity each week), costing US employers alone more than $500 billion each year.
With these costs in mind, the justifications for supporting employees financially couldn’t be clearer: as workers unanimously agree that receiving financial aid from their employers motivates them to work harder, enhances their engagement, and improves their productivity; while researcher from MetLife suggests that financially-healthy workers are statistically more productive than their struggling peers.
- Lower absenteeism, presenteeism, and an overall healthier workforce. Financial stress doesn’t just weaken employees’ performance and productivity; it also weakens their immune system. According to SoFi at Work, approximately four in five workers say that financial challenges have a negative impact on their mental and physical health, while findings from Salary Finances show that financially-stressed workers are eight times more likely to struggle with insomnia, four times more likely to suffer from depression, and three and a half times more likely to experience anxiety and panic attacks. As a result, studies have uncovered a direct link between financial stress and a series of health conditions like heart disease, diabetes, chronic migraines, and more.
This, according to employees and HR managers alike, can all have a considerable impact on attendance and employer healthcare spending. According to PwC, employees who maintain that financial stress has severely or majorly impacted their mental health are seven times more likely to say that it has also had a severe to major impact on their attendance at work. And according to experts, illnesses or injuries experienced by financially-stressed workers are likely to result in increased rates of absenteeism or presenteeism within the workplace, as these employees are less likely to seek treatment due to fear of high costs, which in turn can inspire more severe (and more expensive) accidents and injuries in the workplace.
On the other hand, by offering employees financial assistance in times of need, employers can ensure that employees are able to receive immediate medical assistance to avoid long-term or chronic health conditions when disasters strike, and can stabilize employees’ finances enough so that they are able to sleep better, eat better, and avoid otherwise preventable absences from work.
- Maximized talent attraction. Entering the workforce during a global pandemic and a time of worldwide economic instability, Gen-Z workers are understandably more concerned about their financial wellness compared to older generations. In fact, nearly three-quarters of employees have reported feeling financial anxiety specifically regarding student loan debt, a burden that is no doubt at the forefront of most Gen-Z workers’—as well as Millennials’—minds. That said, it should come as no surprise that nearly two-thirds of young workers believe that employers should help them achieve higher levels of financial wellness post-pandemic. And offering an emergency fund is a way to do this, according to more than a third of employees who say they would consider switching jobs if the new employer offered one as a benefit. Thus, in order to attract and retain new talent, especially as Gen-Z and Millennial workers are expected to soon make up 25 and 50 percent of the global workforce, respectively, offering an employee emergency fund may be a good way for employers to set themselves apart and boost their attractiveness.
- Higher profits; greater customer loyalty, satisfaction, and attraction. Providing financial assistance to employees when disaster strikes doesn’t only attract talent, it also attracts customers. Findings from Aflac’s Corporate Social Responsibility Survey reveal that over three-quarters of consumers are motivated to purchase from organizations that demonstrate a commitment to making the world a better place, which includes how employees are treated and cared for, and by extension, how organizations contribute to community health and economic stability.
- Optimized diversity, equity, and inclusion. Potentially one of the most important benefits that offering an employee assistance fund can provide to employers is the optimization of the organizations’ DEI strategy. Just as wealth and economic opportunity are not distributed equally amongst everyone in society, neither do disasters affect all people equally. Instead, decades worth of studies have shown that historically marginalized groups such as women, racial and ethnic minorities, Indigenous Peoples, persons with disabilities, lower-income communities, youth, and others, are often disproportionately impacted by disasters of all kinds.
For instance, while Black or African American people in the US may have the lowest overall risk from natural hazards, they are nevertheless shown to be at the highest risk of the adverse effects of such disasters, including homelessness or displacement, financial ruin, serious or chronic health conditions, and more. This is largely due to past and ongoing racist practices, from redlining to inadequate funding for capital improvements and infrastructure; poor access to food sources, healthcare, and emergency services; less access to education or opportunities for professional and economic growth; and, in cases of disasters, significantly less access to government-sponsored disaster aid.
As a result of such disparities, research from American Progress has found that Black people are already about twice as likely to be behind on bill payments, “which reflects their more precarious financial situation—that is, [that they] are more in need of short-term savings because of their day-to-day financial struggles,” which creates a highly insecure economic situation for many racial and ethnic groups.
Similarly, just as disasters are shown to disproportionately affect women and children (especially girls), women are much more likely than men to experience financial insecurity, anxiety, and are much more concerned about a looming recession compared to men, new survey findings suggest, due to historical gender inequalities. Among these inequalities include gender wage and employment gaps, fewer legal and economic rights, less access to education, knowledge, and career growth and mobility, and disproportionate caregiving duties. As a result, insights from Bankrate show that women are more likely than men to have more credit card debt than emergency savings and are less likely to be saving for emergencies due to preexisting economic barriers.
While employer-sponsored funds are not a fix-all solution to these inequities—and most certainly take a backseat to much more important benefits and offerings like fair and competitive wages, comprehensive healthcare coverage, professional development and educational opportunities, and extensive childcare support, to name a few—they can provide employees with the financial boost needed to keep themselves out of devastating situations like eviction, loss of employment, loss of childcare, loss of healthcare, loss of energy, food, and other basic necessities, and help stabilize their financial situation so that they can start saving for the future and work their way out of economic insecurity—which will in turn lead to enhanced performance and consequently greater representation in the workplace.