Financial stress levels for the American worker are at an all-time high.
As employees struggle with issues like increased expenses and low income, their health, productivity, and overall well-being suffer severely — and impact their engagement at work. These high financial stress levels also come with a steep price tag for companies.
According to research featured in Forbes, 80% of employers report that financial stress lowers their employees’ performance levels. Workforce financial stress more broadly costs employers nearly half a trillion dollars annually.
From employee retention to healthcare, financial stress and vulnerability represent real dollars in addition to erosion of workforce well-being and culture.
The cost of financial stress
Based on hundreds of employer conversations and seven years of consumer research, our team at Sunny Day Fund has identified five main factors driving extra expenditures related to your employees’ financial stress:
- Cost of employee turnover
- Cost of lost productivity
- Cost of absenteeism
- Cost of healthcare
- Cost of administering loans and withdrawals
The following “Cost per Employee” in each section is based on annual wages of $36,000 (the latest estimate of median wages in America and in line with what most frontline employees now earn).
1. Cost of employee turnover
Cost per Employee: $12,000
In the midst of the Great Resignation, business leaders are asking themselves how they can better retain their talent. According to PwC, nearly three in four financially stressed workers said they’d go to another employer that cares more about their financial well-being.
When an employee leaves, the employer pays the bill in multiple ways:
- Overtime and agency costs. These are the temporary costs associated with employee overtime or hiring a staffing agency to replace lost capacity when an employee leaves.
- Hiring costs. Hiring costs include posting on job sites, working with recruiting agencies, and conducting interviews and background checks. It takes at least one to two months to hire a new employee and onboard them.
- Onboarding and retraining costs. Onboarding costs are what it takes to get an employee to full productivity, such as another employee training them. This process can take at least six weeks to several months.
According to one study, employers spend between 33% and 150% of a worker’s annual salary during the replacement process. On the low end, all of these costs equal roughly ⅓ of an employee’s $36,000 annual income or $12,000.
Unfortunately, employees are currently leaving jobs in droves, with 55% of workers likely looking for a new job in the next 12 months. If only three entry-level employees leave your organization in one year, you’ll pay $36,000 — or an entire employee’s salary in costs!
2. Cost of lost productivity
Cost per Employee: $3,000
Nearly half of surveyed employees say that finances — worrying about paying bills, for example — have been a distraction at work, impacting their productivity.
The lack of productivity adds up. PwC found that employees who are distracted by their finances at work spend three or more working hours each week or 156 hours per year thinking about or dealing with issues related to finances. At $18 per hour, that lost productivity translates to $3,000 on the low end for one financially stressed employee in one year.
This lost productivity is further reflected in a recent randomized control trial performed in India. Behavioral economists placed a disposable plate factory’s employees into two groups. The only difference between the two groups was that one was more financially unstable than the other.
The study found that the less stressed and more financially stable group produced 6.2% more plates in the exact same amount of time than the financially stressed group.
Financially stressed employees are literally less productive as they have money — not work — on their minds. Their lack of focus can also impact their quality of work.
For example, if an employee is distracted at work, accidents can easily occur. In fact, 60% to 80% of on-the-job accidents are stress-related. One workplace accident can cost an employer up to $42,000!
3. Cost of absenteeism
Cost per Employee: $750
How many times have you received a phone call from an employee saying their car broke down, or that they were struggling with some other financial emergency? Absenteeism (aka not showing up for work) and tardiness can also stem from financial vulnerability.
The Center for Retirement Research at Boston College discovered that employees miss 3.5 days annually because of financial stress — twice as many days as unstressed co-workers.
Because employers have to pay overtime or agency costs in these situations, the cost of these missed days can be $750+ per year for one employee (not including tardiness).
4. Cost of healthcare
Cost per Employee: $1,700
When employees don’t have enough money in their bank accounts, they don’t prioritize preventative health care expenses for things like “tweaked” ankles and chest pains. But this lack of healthcare can be detrimental.
A sprained ankle might not seem worth the $600 bill it would take to get a better cast or an X-ray. However, by not getting actual treatment or medical advice, an employee’s condition can become serious and increase healthcare costs later on. As a result, your employees may be footing a much larger bill later on at the ER.
Without counting the costs of employer healthcare coverage, productivity losses related to personal and family health problems cost U.S. employers ~$1,700 per employee per year, according to the CDC.
5. Cost of administering loans and withdrawals
Cost per Employee: $400-$600
Last, but not least, are the costs associated with administrative tasks carried out by other members of your organization to assist employees who are struggling financially.
From talking with hundreds of employers, we know that HR and benefits personnel spend lots of time processing hardship loans and withdrawals out of retirement savings programs like a 401(k) or 403(b), or a direct emergency loan that’s later garnished from wages. Financially stressed employees are likely to cash out what they have in their 401(k) just to make ends meet (fact: 30% of workers dipped into their retirement funds during 2020).
Not only does this practice hurt your employee’s future, but it’s also expensive for your HR teams to administer. Our research found that personnel spent roughly 8-12 hours each time an employee needed a loan or a hardship withdrawal. This time translates into $400-$600 per occurrence. This does not include additional loan processing or transaction fees that can be an extra $75 to $250 per loan.
According to Sunny Day Fund research, employers report that about 20% – 30% of 401(k) or 403(b) participants have hardship loans or withdrawals. Considering the above costs, this could mean an additional $100,000 of spend associated with emergency loans and withdrawals for a 1,000-employee organization!
And let’s not forget – the more time those HR team members spend on these administrative tasks, the less time they have to grow the organization and its culture, and the more stressful it becomes for the HR employees themselves.
Invest in your employees’ financial well-being with better financial benefits
If all five of the above situations manifest themselves with one financially stressed employee, it could cost your organization up to $18,000 annually. And that’s on the low end. It could be much higher depending on the employee’s salary and financial issues.
Armed with knowledge about the costs of financial stress, take action by implementing appropriate financial benefits.
These financial benefits should go beyond a 401K. Consider emergency saving programs and customizable, quarterly rewards to build employee saving habits. The investment in these plans is worth it. For example, an employer using Sunny Day Fund’s emergency savings plan experienced a roughly 20% higher retention rate compared to industry peers.
Want to lower your own costs and help your employees improve their financial well-being? At Sunny Day Fund, we offer a customizable employer-rewarded savings program to help you engage your employees. Reach out to us at email@example.com and ask about our workplace emergency savings plans.