Charles Cotton, Performance and Reward Adviser, CIPD. 

‘…for increasing numbers of working families around the country, the promise of social mobility through “hard work” as a route out of poverty alone is failing to deliver.’ That’s the sobering conclusion of a recent IPPR report, No longer ‘managing’ The rise of working poverty and fixing Britain's broken social settlement

Its analysis of official data finds that:

• Rates of working poverty have grown steadily over the past 25 years, from 13% to a new high of 17% in working households before the arrival of the pandemic in early 2020.  In London, 22% of working households live in poverty. And among families with three or more children, the rate has reached a record high of 42% (up more than two-thirds over the past decade).
• For families with one full-time and one-part time earner, the chances of falling into poverty doubled over the past two decades – from 5% to 10%.
• Even for households with two people in full-time work, the chances of being dragged into poverty have more than doubled, rising from 1.4 % to 3.9%.
• Single parents, single earner couple families and large families are worst affected by rising working poverty.
• Couple households with one full-time earner now have a poverty rate of 31% (up from 19% in 2003/04), a level that is almost as high as working households where nobody works full-time.

The national living wage has not kept pace with the rise in the cost of living

While the recent increases in the national minimum wage and the introduction of the national living wage have both increased household incomes, they have not kept pace with the rise in the cost of housing, childcare and other essential goods and services.

And the IPPR isn’t alone in finding an increase in working poverty. According to a recent study by the IFS (https://www.ifs.org.uk/publications/14196 ), 8 million people living in working households are now in relative poverty. And there are other indicators that financial distress has risen during the pandemic, such as the use of foodbanks, the incidence of economic abuse and the number of calls for debt advice.

The report also highlights what the financial consequences of the pandemic have been for low-waged workers. For example, one individual it spoke to reported: "I’m definitely spending more money on energy. As we are mostly at home it’s constant use of energy and wi-fi to keep the children entertained. I’m also spending more on food as the children are not at school. My daughter usually gets free school meals as she is in P2 in Scotland. I’m also spending money on craft stuff and printer ink for home-school that I would never [have] bought before.

But why should the people profession care about poor employee financial wellbeing?

Why should employers and people professionals care?

In addition to the implications that increasing rates of in-work poverty has for social cohesion and the economy, there are business reasons why we should care. CIPD research from 2017 found one in four employees said money worries had impacted on their ability to do their job. By 2021, this proportion had increased, with LCP finding almost one in three saying money worries were impacting their work. Reduced work performance was usually seen in fatigue caused by lack of sleep, not being able to focus on tasks, having to take time off from work, as well as higher levels of mental stress.

Poor financial wellness can lead to lower levels of employee productivity, innovation, or customer service, as well as higher levels of absence or workplace accidents. In total, CEBR (2018) estimates that low financial wellbeing costs businesses in the UK as much as £1.56m. But what does good employee financial wellbeing look like?

Our 2017 study asked workers what they thought was important to their financial wellbeing. It listed many options, but the most common were being paid a liveable wage, being paid fairly (both of which were constant across demographics, such as age or sex), being able to save for the future (more popular among younger workers) and paying down debt (more common among older staff). So, any employee financial wellbeing policy should start with a liveable wage and fairness as these appeal to most people, irrespective of their age, sex, job, or other characteristics.

More and more employers are facing up to their responsibility for employee financial wellbeing

The pandemic has acted as a spur for many employers to make employee financial wellbeing an organisational priority. The CIPD 2021 Reward Management survey, which assessed the impact of the pandemic on reward, finds 42% of employers have explored how the COVID-19 and economic crisis have financially impacted their staff. It also finds that 12% of organisations have introduced an employee financial wellbeing policy because of the pandemic. Taking the total number of employers with such a policy to around half of our sample.

The same survey also asked those without a financial wellbeing policy what the common reasons are for not introducing one. These concerned priorities (49% say senior management don’t see this as a priority), resources (27% say senior management do recognise the need, but just don’t have the time, money or expertise to create one) or uncertainty (for instance, 21% aren’t sure whether employees want such a policy; while 20% aren’t sure if such a policy would contribute to employees’ wellbeing).

In addition to this, our CIPD 2021 health and wellbeing survey finds that 41% of organisations say their employee health and wellbeing activity now promotes financial wellbeing to a ‘large’ extent or a ‘moderate’ extent; while 35% now offer financial education and support (for example, access to advice/welfare loans for financial hardship) to all employees. This percentage is higher than the 27% recorded in 2019 and the 32% in 2020, so the direction of travel is up.

Employers can help offset the poverty premium that those on low pay face

The IPPR report argues for greater priority to be given in welfare and economic policy to bringing down the high costs of housing, childcare and other essential goods as a proportion of household income, as well as reforms to genuinely ‘make work pay’. While the report’s focus is on what the state can do, there are many things that employers and their HR teams can do too.

The most important thing an employer can do is pay a fair, secure and liveable wage, but the statistics prove that this is not enough. Employers may not be able to bring down the living costs that keep so many working people trapped in poverty, but they can help to alleviate some of their workforce’s money worries and offset the ‘poverty premium’ that those on low pay face. For example, in terms of housing, this could include low-cost loans for rental deposits and essential furniture, help in getting the best household utility and insurance deals, and paid leave to move home. Flexible working can help cut the price of commuting on public transport, as well as helping to reduce child costs. Employers can also help with travel through offering loans for bus, train, or tube season tickets, or through a bike scheme. They can also help with other essential costs, such as food – this could range from providing a subsidised staff canteen, to providing luncheon vouchers or discounted shopping vouchers.

There are three simple, low-cost things employers can do to support financial wellbeing

• Let your workforce know that they can get free, confidential and independent money and debt advice from the government’s Money and Pensions Service, which has recently rebranded its customer-focused support to ‘Money Helper’.
• Check your workforce is aware of all the benefits you offer and how to make the most of them. For instance, you might offer an employee assistance programme, which could be another useful source of financial information.
• Show your concern and help to break down the stigma associated with money problems by beginning a dialogue with employees about the financial challenges and opportunities faced by them and the business.

While the above actions aren’t as significant as some others, such as paying people a wage that they can live on; carrying out an equal pay audit to check pay decisions are fair; or offering training and development so people are able to maximise their earning potential; they are something that can be done relatively quickly and cheaply.

In future blog posts I’ll explore what else HR teams can do to help improve employee financial wellbeing. What is your organisation doing to support financial wellbeing and help make work a more reliable route out of poverty? Please share your stories in the comments below.