Whether you’re planning to integrate a financial wellness technology solution or a full-on digital transformation effort, here are a few ...
Financial stress and its impact on employee productivity is a topic that has been well-researched by academic financial planning experts. Recently, the concept of financial wellness as a benefit by employers, intended to mitigate the negative effects of employee financial stress, has been making headlines. But why are companies taking notice now? Employers are starting to realize just how much stress is costing companies when financially troubled employees bring these concerns to work.
Employees’ financial stress can be a hidden drain on a company’s profitability. A 2014 report by the Consumer Financial Protection Board discusses research on the impact of financial stress at work. CFPB cites research that found average health care costs for highly stressed employees were increased by $413 compared to those with low stress. In contrast, smoking increased average health costs by $587. The CFPB concluded that employers may be paying a high cost for employee financial stress, but do not recognize it–because a large portion of that expense shows up indirectly as a health care expense.
Academic researchers have used real world data to estimate the costs of absenteeism, presenteeism, and employee turnover specifically associated with financial stress. Absenteeism from work resulting from worry about personal finances represents a problem that has been well documented. Higher levels of financial stress are associated with higher levels of absenteeism. A recent survey of over 5,000 US workers by the company Willis Towers Watson found that employees who are worried about their finances are absent on average for 3.5 days annually.
According to a 2017 Mercer LLC survey, 16% of employees reported spending more than 20 working hours each month worrying about money. The average across those surveyed was 13 hours per month. Other estimates are even higher. Thomas Garman and colleagues peg financial presenteeism and absenteeism costs at 15-20% of total compensation paid to all employees in the businesses they studied.
When employees do separate from a company, the cost of replacing them can be considerable, particularly for those at mid- and upper-management levels. Then there is the cost of lost productivity–Josh Bersin at Bersin of Deloitte estimates that a new employee may take from 1-2 years to reach the same level of productivity as an existing employee. According to researchers at the Center for American Progress, a conservative estimate of the replacement costs associated with both hourly and salaried positions are:
16% of annual salary for high-turnover, low-paying jobs (earning under $30,000 a year). For example, the cost to replace a $10/hour retail employee would be $3,328.
20% of annual salary for mid-range positions (earning $30,000 to $50,000 a year). For example, the cost to replace a $40k manager would be $8,000.
Up to 213% of annual salary for highly educated executive positions. For example, the cost to replace a $100k CEO is $213,000.
Employees are also starting to recognize that they need help with managing their finances, and are looking to the workplace to provide that help. The good news is that employers can take action to help their people gain a greater sense of choice and control over their finances by adding a financial wellness solution as part of a comprehensive benefits package for employees at all salary levels. Doing the right thing for employees can also boost a company’s productivity and profitability.
To find out more about how companies can avoid these costs, click here.