One unfortunate consequence of the pandemic was that many workers became indebted. Now, they have trouble making ends meet while also paying their debts. But the pandemic also spurred the rise of many new small and midsize businesses, which could be the perfect solution to the problem of worker debt.
Many Americans are living with significant household debt, and it can have an adverse impact on their work. Workers who are dealing with overwhelming debt are more likely to become distracted to the point that their productivity is impacted. They may also begin to look for jobs that can help them get out of debt, either thanks to higher compensation or more overtime opportunities. That means employees’ debts are an employer’s concern too — but what can small business owners do to help?
The 2022 Workplace Wellness Survey by EBRI and Greenwald showed that 80 percent of employees are bothered by their debt level. Worst of all, 78 percent expressed their biggest concern regarding their finances is high-interest credit card debt. The second-highest concern was health-related debts (57 percent), followed by student loan debts (50 percent).
This increasing severity of this debt spiral is attributed to a stagnation in median household income. As an uncertain economic outlook dominates headlines and talks of an impending recession continue, employees who are managing debt may have reason to be concerned.
Did you know?: Median household income in 2021 was $70,784, a 1 percent decrease from the previous year and an 8 percent decrease from 2019. When inflation is taken into account, the purchasing power of the average American consumer has declined significantly.
The best way to see how SMBs can help employees reduce their debts is to understand what’s in it for the business. Reducing workers’ debt is mutually beneficial for them and for their employers.
For businesses, having employees with less debt means reduced employee turnover and better productivity, both of which improve the business’s bottom line. For employees, besides the obvious financial benefits of becoming debt-free, the benefits include reduced stress levels and burnout, leading to more satisfaction in the workplace, better long-term health and more.
Let’s dive deeper into these benefits.
When workers are overwhelmed with debt, it may drive them to look for a better-paying job, which could result in higher employee turnover. Owners of small and midsize businesses sometimes believe that losing and rehiring an employee will not be as expensive for them as it would be in larger companies, but employee turnover can cost twice as much as the initial investment of hiring them.
The impact of employee turnover depends on which management level your business commonly loses employees from. In the case of C-suite executives, your company may lose up to 213 percent of the salary of the worker you have to replace. A lot of time and resources go into shaping a single candidate so they become fit for a role, so filling in the shoes of someone who left in the middle of the business cycle is a more expensive option.
Your business also incurs vacancy and hiring costs due to an associate leaving. Even so, the costs that hurt your business the most are different from those measurable in dollars. They’re the intangible costs — the loss of knowledge and skills that may not be replenishable and the disruption of the connection established among team members who remain.
Providing the necessary benefits for employees to lessen their debts will also help SMBs maintain the same quality of work and performance they expect to realize throughout the business cycle. When employees work for a company that doesn’t give adequate compensation, there is a tendency to create an environment where workers are apathetic and have little to no regard for the general welfare of the business.
Furthermore, a pile of debt is a major source of stress and distraction for employees. They’ll have a hard time concentrating on their work if their minds keep drifting away thinking about whether or not they’ll be able to make the next payment on their mortgage or their car, or if they’ll lose their lines of credit. Therefore, helping employees out of debt will go a long way in improving their focus, helping them be more productive at the same time.
Debt produces stress and stress is a major health concern, as it can lead to high blood pressure, heart disease, obesity and diabetes. On top of that, working under the constant stress of a massive debt also makes work much harder to manage, leading to reduced work quality and quicker burnout. Burnout itself is a known threat to safety in the workplace and could jeopardize your entire operation. Burnt-out workers tend to be more aggressive and careless, as well as less empathetic and trustworthy, all of which are bad for business.
Last but not least, helping your employees out of debt will significantly increase their level of job satisfaction. Their gratitude will turn them into advocates for your company, attracting other skilled workers who will add value to your business. You won’t make it onto the list of best places to work if your employees are all drowning in debt.
SMBs may have less capital than big corporations to embark on major employment benefits that sustain workers’ needs, but there are ways they can be of real help to indebted employees. If you are a small business owner, here’s how you can help employees who are struggling to pay off their debt.
Financial literacy is an essential part of any worker’s know-how. No matter how significant the compensation offered by the business may be, it will only be enough if the worker knows how to allocate that money to pay off debt. While what employees do with their salary is not their employer’s responsibility, your business can still make the extra effort by helping workers learn how to manage their money efficiently.
Free and paid courses on debt and money management that help workers understand the basics of financial literacy. Enrolling your employees in such programs can educate your workforce and help them do more with every dollar. Debt courses can help your employees handle their finances well and decrease their debt without leaving the company to search for other horizons.
Another way to help workers resolve their debt issues is to allow them to work extra hours on top of their usual shifts. This fills the business’s need for additional hands while giving the workers the extra funds they need to pay off their debt instead of looking for a second source of income. If the business is at a point where any support is required to achieve its objectives, allowing employees to work an extra hour or two may be an economically viable solution that works both ways.
Flexible overtime work setups are ideal, especially for SMBs that can only hire a specific number of people, but may need additional help at certain hours of the day. However, workers must be compensated accordingly for the total number of extra hours they will render for the company, including bonuses as part of the overtime work. Because this arrangement is mutually beneficial for the business and employees, many companies have adopted it.
One reason why workers leave a company is because they don’t feel adequately rewarded for the hard work they put in. If you add substantial debt to that dilemma, the possibility they’ll leave their position is strong. This is why SMBs should learn to appreciate employees’ growth and provide a raise whenever it is deemed worthy.
Giving salary increases to employees that have been consistent with their performance and added value to the business also conditions them to be more motivated to work.
A 401(k) loan grants employees access to their retirement account if they need immediate funds for an emergency. For many employees, this type of loan can be a lifesaver, especially if they have a lot of debts to pay and not enough money to do so.
401(k) loan plans are employer-sponsored, so the business has the right to choose whether or not to offer this type of benefit to employees upon hiring. Many job-searching employees look for this advantage because they value employers who can provide immediate funding for their debts, even if that means taking out a loan to pay for them.
Employee Assistance Programs aid employees who struggle to manage their finances, among other things. One feature of EAPs is counseling to ensure employees are in the best shape to work. This includes debt counseling and management help to get them in good financial shape.
SMBs can invest in an efficient EAP to help their employees face obstacles inside and outside the workspace, including the likelihood of sustaining large amounts of debt.
The decline in workers’ loyalty to their respective companies and the resulting employee turnover may be attributed, in part, to high levels of debt and workers’ inability to cover that debt with their salaries. SMBs, one of the fastest-growing aspects of the business world economy after the pandemic, have a role to play in minimizing this increasingly common issue.
Taking care of employees’ financial welfare has positive effects that ripple through the entire business, which makes it a smart strategy for any small or midsize business today. When employees are educated on debt management and have the opportunity to make money while adding value to the company, their goals and the business’s objectives are simultaneously met.
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