How benefits professionals can leverage payroll tools to advance worker financial security

America is in a savings crisis, with 36% of households being unable to handle a $400 emergency from savings. A Commonwealth analysis of the Federal Reserve Report on the Economic Well Being of Households indicates that the problem is worse for lower-income households making under $60,000, where 58% of people do not have $400 in savings. Within that income bracket, Black (71%), Latinx (69%) and female (61%) employees who are unable to manage that sized emergency indicate that a lack of emergency savings is in fact an issue of equity.

Payroll cards – reloadable debit cards that can be used to withdraw money or make purchases, and eliminate the need for a traditional bank account to get paid – are often the solution of choice for those employees who do not have a traditional bank or credit union account. Payroll card users tend to be younger, lower-income and more likely to be from communities of color, relative to the population of working Americans. In a recent survey by Commonwealth and ADP, low- and moderate-income (LMI) workers said they want and need high-quality emergency savings solutions. And yet, employers surveyed were not aware of the emergency savings features of payroll cards, and did not view them as an employee benefit.

Using payroll cards as a potential emergency savings vehicle – for employers and workers alike – is an opportunity to provide a simple, effective and free savings tool for millions of employees.

An appetite for emergency savings tools

Employers are increasingly concerned about the financial security of their workers – both due to an increasing focus on the holistic well-being of all stakeholders, including employees, and to the fact that employee stress–and financial stress in particular–costs companies $250 billion per year. The needs of LMI workers are particularly acute. Even as employers increasingly recognize the widening and costly issue of employee financial stress, such as lost productivity, absenteeism and health care costs, many find it difficult to identify an effective way to help their most financially vulnerable employees save for emergencies.

The appetite for emergency savings tools among employees exists: in an AARP survey, 71% of employees said they would participate in an emergency savings program if their employer offered it. However, employer-sponsored accounts often focus on retirement, which do not address near-term savings needs. As such, LMI workers – particularly people of color and women – often do not participate in retirement accounts.

To address this segment of workers, a lot of attention is currently being paid in the HR/Benefits community to pay advance (i.e., earned wage access and on-demand pay), but options outside pay advance exist and may be more appealing and effective. A recent American Banker report indicated that two-thirds of pay advance use cases could be solved by an employee having at least $400 in liquid emergency savings on hand. In addition, Commonwealth research has found that Black, Latinx and female LMI hourly workers would take advantage of emergency savings benefits at statistically significant higher rates than pay advance tools.

Addressing the savings needs of LMI workers is a challenge for benefits professionals, but effective, proven tools and opportunities to save often exist within the employer platforms they already use.

Powerful opportunity for payroll tools to offer financial wellness benefits

One widespread feature that has proven to be extremely effective in advancing employee emergency savings is split deposit, which addresses the 93% of the US workforce that are paid by direct deposit. Lower-wage workers who utilize automatic split deposit are 55% more likely to allocate money from a long-term raise to savings than those who manually deposit money into savings, according to a Commonwealth study. The same study indicated that among employees using split deposit, 62% reported having more than $400 in their savings account, and they were significantly more likely to have more than $400 than workers who made manual deposits into savings.

But to be effective for financially vulnerable employees, savings tools such as split deposit must be offered outside of bank accounts alone. While only about 5% of Americans are unbanked, this number is higher among lower-income households, less-educated households, and Black, Indigenous and People of Color households. Payroll tools provide a unique opportunity to reach millions of people living on lower incomes, but these tools must be designed for the needs, wants and aspirations of those who have traditionally been left out of the system.

For LMI employees, General Purpose Reloadable (GPR) debit cards can be leveraged as a proven savings tool. These reloadable debit cards can be used to withdraw money or make purchases, and eliminate the need for a bank account to get paid. Many also offer employees a split payment option on the cards, providing the opportunity to save part of their pay. The design of these savings tools, along with access, is key to uptake for LMI employees.

Payroll providers have created solutions that address the unique needs of LMI workers, providing a savings pocket directly tied to their payroll cards. These solutions typically are offered to employers at no cost and provide a convenient way for LMI workers to build emergency savings automatically, as we found in the Commonwealth and ADP research.

Long the purview of payroll departments, payroll cards provide an opportunity for benefits professionals to provide emergency savings benefits to some of their most vulnerable workers. Many benefits professionals are not aware that these tools are already in the employer toolkit and that they often have features that better meet the needs and wants of LMI employees and how they prefer to save.

The money in savings pockets remains accessible and liquid in order to help employees with shocks to their income and expenses.

Best practices for benefits professionals

Our research has shown repeatedly that LMI employees can save, when offered the right emergency savings tools at the right time. Benefits professionals should employ a number of best practices:

• Offer no-fee options: Payroll cards often come at no additional cost to employers and do not require onboarding a new vendor; workers can leverage free apps to access their funds and savings.
• Offer liquid savings: Research supports that LMI employees in particular desire features that help them save, but also the liquidity and flexibility to withdraw that money when they need it. Many payroll cards come with this functionality.
• Deploy messaging to raise awareness: Employees are not aware that their employer-provided payroll card has emergency savings features that meet their needs because it may not have been communicated it to them.

By leveraging the proper messaging and well-designed emergency savings programs integrated into payroll cards, benefits professionals can add these emergency savings tools to their financial wellness benefit toolkit and enable LMI workers to save.

Nick Maynard is a Senior Vice President at Commonwealth, a national nonprofit building financial security and opportunity for financially vulnerable people through innovation and partnerships to change systems.

Anurag Chandra is a Division VP, Strategy at ADP.