September 27, 2019
Salary Link Tools: A primer

Being in a tough spot or a hard time is something that happens to most people at some point in their lives. However, when 1 in 3 Australian households aren’t able to raise $500 in an emergency, that is a strong signal of endemic financial stress.

Financial stress affects employers as much as it does individuals. Australian employers lose $31 billion dollars in lost productivity to financial stress yearly.

This begs the question - what can we do as employers, to better support our both our employees and our businesses? 

Enter the ‘Salary Link’ tools as dubbed by The Harvard Kennedy School. 

The ‘Salary Link’ refers to financial wellness benefits that access an employer’s payroll system for income data and repayment.

By utilising the Salary Link, employers can now offer benefits like access to earned income ahead of payday and automatic saving products which significantly improve an individual's financial wellbeing. 

We’ve put together 4 quick facts you should know about this new generation of financial tools.

The problem these tools tackle: financial stress

To understand the value of financial wellness benefits, we must first take a look at the scope of the problem.

1 in 2 Australians live paycheck to paycheck according to research by MLC. This means minor expenses, such as car repairs and medical expenses can spell disaster. Furthermore, PwC reports that financial stress is the #1 employee concern in the workplace and a report by Karrikins (EY) found that the IQ of an average individual drops to a state of “borderline deficiency" when financially stressed. On a productivity level, financially stressed employees lose 46 hours (or 5.75 days) per annum in sick leave and time spent dealing with finances at work due to their financial stress.

Salary Link tools leverage payroll in a new way

Employee benefits which take advantage of the Salary Link, integrate with the employer’s payroll system, giving them two specific advantages:

- The ability to have an extremely granular level of detail into an individual's income and working hours on a day-by-day basis.

-Deductions can be made through the salary link, allowing for automatic repayments.

This allows for existence of two key tools:

- Early access to earned wages. Employees are able to access a portion of their income as they earn it, as the salary link gives real-time information on earnings accrued. Whatever is withdrawn is simply deducted from their incoming paycheck.

- Automated savings. A percentage of an employee’s pay is automatically sent to a savings account before they are paid.

Helps employees avoid predatory debt and manage expenses 

Managing day-to-day expenses such as car registrations becomes much simpler with early access to earned wages. By allowing employees to draw down a portion of their incoming paychecks, expensive alternatives with high interest and late fees such as credit cards and payday loans can be avoided. Furthermore, an employer-sponsored safety net increases an individual's level of perceived security as it essentially acts as an emergency fund.

However, to truly achieve a level of financial security, having savings is critical.The problem is if people have to actively think about saving, then they probably won’t do it. Automated savings removes the need for discipline, allowing for a simple, low-effort way for all employees to consistently save.

Bottom line benefits

Salary Link tools may sound great in theory, but are their results quantifiable? 

According to the Harvard Kennedy School report ‘The Power of the Salary Link’ , salary link tools “show tantalising potential for significantly reducing employee turnover and saving millions of expense dollars annually at large employers” in addition to making implementing companies “employers-of-choice” and that “the inchoate harms caused by financial stress on employees would be reduced.'' In addition, the same report found an average reduction of 19% in employee attrition for implementing companies.

Bennie LiuSeptember 27, 2019
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