Pay transparency: Empowering and supporting employees’ financial wellness
Many payroll departments are learning that they can do more for their employees.
When people think about the concept of pay, often their feelings are rooted in logistical considerations: how much and how often will I get paid? As long as their pay is on time and for what they perceive to be the correct amount, people tend not to give much further thought to the process. They make the same cursory review when the next pay period rolls around, but they don’t dig in further to glean insights or make changes that could result in additional savings or value.
But as the world continues to experience the impact of a global pandemic and employees demand more support and flexibility from employers, the concept of pay needs to evolve in tandem. From job loss to elevated medical bills, recent events have highlighted the need to expect an unexpected expense. In fact, employees ranked the need for an emergency savings fund as a top priority during the spring of 2020, recognizing how ill-prepared they were.
Related: 10 actions to take on emergency funds in the pandemic
As employees navigate these new circumstances, many payroll departments are learning that they can do more for their employees by educating them on the basics and encouraging them to take advantage of self-service tools to manage their pay and benefits. The idea is to empower workers to better understand their pay, recognize their income/spending patterns over time and make real-time adjustments to work toward their financial goals.
Identify areas of confusion
ADP research shows that the digitization of pay has shifted peoples’ mindsets. Direct deposit has become the preferred method of payment due to its convenience and reliability. Many full-time workers generally trust their employers to deliver pay that’s consistently accurate and on time. This trust has reduced the tendency for employees to check their pay. Pay then becomes relegated to the amount they expect to see each pay period, preventing them from spotting or understanding potential errors and causing them to miss out on opportunities to save more or better manage their money in support of their financial goals.
That trust often extends to tax calculations as well, with many people feeling as if taxes are out of their control, so why question them? Taxes are frequently the biggest pain point in understanding their paychecks, as people are often confused as to how state and federal withholding amounts are calculated or how they vary based on life changes or location. Without understanding how taxes are calculated, people might not truly realize the advantages of opting into benefits that leverage pre-tax dollars or how factors like relocation could impact earnings.
While people seek to improve their financial wellness, many are hindered by this lack of understanding of how to effectively manage and optimize their pay. This disconnect provides opportunity for employers to re-envision the pay experience they offer their people to provide more visibility and support.
Promote existing financial programs
The first step in empowering people to bolster financial wellness is educating them on the financial programs and benefits available and helping them leverage those they may not have considered. For example, commuter benefits programs allow workers to extract pre-tax money to cover their monthly commuting cost and parking. Health Savings Accounts also allow employees to set aside pre-tax money to cover deductibles, co-payments and other medical expenses not typically covered by insurance. And 529 plans help people save money for future higher-education expenses.
Fostering pay transparency can help people better understand how to leverage these benefits and determine how to best allocate their pay. For example, employers might provide the ability for people to calculate how their take-home pay would change if they contributed more to their 401Ks, switched healthcare plans or worked more hours. These insights can transform pay from a periodic process to a flexible, real-time tool to improve financial wellness.
Reimagine the pay experience to engage and support talent
Once people understand how their pay is calculated and what different actions could yield, employers can leverage new tools to help them optimize and manage their funds. One example is the use of savings prompts, which can help people understand and take action on increases to their pay. For instance, when a person works overtime, they expect to see their earnings reflecting the extra time. The same goes for a person who has received a raise or bonus. But what if payroll systems were designed to consistently prompt people to save money? Imagine receiving this prompt:
“You worked 10 hours of overtime this week, boosting your take-home pay by $156.35 above your weekly average. Would you like to transfer some or all of that money into your savings account?”
The end goal is to empower people with greater transparency and tools so they can manage their financial journeys in a different way. When employees feel more financially secure, it follows that they will feel happier and less stressed overall. That often means they will be more engaged at work and better positioned to realize their fullest potential.
Cheryl Lewis is vice president of product management and strategy of Next Generation Payroll at ADP.
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