Best Practices: Two Ways to Use Existing Workplace Benefits to Fund Emergency Savings

Best Practices: Two Ways to Use Existing Workplace Benefits to Fund Emergency Savings

Wednesday, April 22, 2020

COVID-19 exposed and exacerbated many financial challenges workers were already facing.  Included among those challenges are access to emergency savings and the ability to fund those savings through the workplace.  While the long-term impact of COVID-19 on the workplace is uncertain (and unfolding in real time), it is reasonable to assume that workplace benefits are likely to be reevaluated and that benefit budgets for the remainder of this year and 2021 may be constrained as we return back to the new normal.

There are creative ways that employers may be able to support emergency savings for their workforce right away and can do so without necessarily adding additional cost to their benefit programs. Some employers have already launched emergency savings initiatives using split payroll deposit where a portion of the workers wages are placed into a savings account or offering an after-tax short-term savings vehicle attached to a retirement plan (aka “sidecar savings”).  While these are useful developments that should continue to be explored, there may be additional creative ways that an employer can help workers build emergency savings, without adding new benefit costs.  Below we outline two such ideas.

1. Excess Balances from Paid Time Off Programs

Following the COVID-19 outbreak a number of organizations—primarily large employers—took steps to enhance their paid time off (PTO) programs, including expanding their sick pay benefits.  This serves as a clear recognition that PTO, and all its iterations, are a core financial health benefit akin to compensation.

And while we are living in an extraordinary moment, in most years American workers with access to workplace paid time off programs accrue more time off than they use.  For example, a study found that in 2018 workers left 768 million days of unused vacation time on the table.  Of those unused days, 236 million were forfeited completely (likely under a workplace use-it-or-lose-it policy that does not allow for time to be carried forward into the following year).  These forfeited days are equivalent to nearly $65.5 billion in unused accrued paid time off or about $571 per worker.

Paid time off is an important part of worker compensation and overall financial health benefits. Workplaces should certainly continue to encourage individuals to use their time off programs, but the reality seems to be that under normal circumstances most workers leave time and earned dollars on the table. What if those earned but unused days could be redirected to an emergency savings program?

For example, one strategy workplaces could deploy would be to automatically direct annually forfeited PTO balances into an emergency savings vehicle.  Another option, where PTO balances can be carried forward, an employer could give the worker the choice to move part or all of the carry-forward balance into a savings account.  

PTO balances are already earned and accrued dollars, so there is not necessarily a new line item expense added to a workplace benefit program if those dollars are redirected into a different financial health benefit.  Thinking creatively about how to repurpose unused but earned benefits to help fund an emergency savings program may help workers better prepare for the next emergency.

2. Wellness Incentive Programs

Many workplaces have broad wellness programs that aim to help workers live healthier lives.  A common pillar of workplace wellness programs is financial health.  Through these wellness programs employers may offer an incentive, including cash payments, as a way to promote engagement with the program.  Close to 86% of employers that offer wellness programs use financial incentives, including cash payments, with an average financial incentive of close to $800.   

Research has also shown that incentives can increase participation in wellness programs by as much as 20%.  The value of increased participation is that it can help boost health and productivity and reduce healthcare related expenses, which is why the financial incentives are often seen as a potential cost mitigation strategy.  What if these financial incentives were directed, at least in part, into a savings account?

Having funds to manage an unexpected emergency can help workers better manage their overall stress and reduce the costs associated with increased financial precarity. One way an employer can help support emergency savings is to direct wellness incentive dollars into a savings account.  This could be done by directly allocating some or all of the wellness incentive to a savings account or giving the employee the ability to direct their incentive into a savings vehicle.

The above strategies may not work or be applicable in every workplace, but helping individuals, especially those who are most vulnerable, build short-term savings can pay dividends in the long run for workplaces and their workers.

This is part of a “Best Practices” series exploring ways employers can help their workers with emergency savings.

Learn more about partnering with BlackRock’s Emergency Savings Initiative.

BlackRock’s Emergency Savings Initiative

BlackRock announced a $50 million commitment to help millions of people living on low- to moderate-incomes gain access to and increase usage of proven savings strategies and tools—ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by their Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multi-layered approach to address the savings crisis. UPS, Uber, Mastercard, Etsy, Brightside, Arizona State University, and Acorns have joined BlackRock’s Emergency Savings Initiative to help their employees, customers, gig workers, and college students take the essential first step towards long-term financial well-being.