Pay transparency: Empowering and supporting employees’ financial wellness

As people seek to improve their financial wellbeing, this lack of understanding of how to effectively manage and optimize their pay hampers many. (Photo: Shutterstock)

When people think about the concept of pay, their feelings are often rooted in logistical considerations: how much and how often do I get paid? As long as their salary is paid on time and for what they believe is right, people tend to stop worrying about the process. They do the same cursory check when the next pay period begins, but they don’t dig any further to gain insight or make changes that could result in additional savings or value.

However, as the world continues to suffer the effects of a global pandemic and workers demand more support and flexibility from employers, the concept of pay needs to evolve in parallel. From job loss to increased medical bills, recent events have shown the need to face unexpected expenses. In fact, as of the spring of 2020, employees made the need for an emergency savings fund a top priority, realizing how ill-prepared they were.

Related: 10 Measures to Take to 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 teaching them the basics and encouraging them to use self-service tools to manage their salaries and benefits. The idea is to empower workers to better understand their salary, see their income / expense patterns over time, and make real-time adjustments to meet their financial goals.

Identify areas of confusion

ADP research shows that the digitization of pay has changed the way people think. Direct deposit has become the preferred payment method because of its convenience and reliability. Many full-time workers generally trust their employers to deliver consistently accurate and timely pay. This trust has reduced employees’ inclination to review their salaries. The pay is then reduced to what they expect for each pay period, preventing them from seeing or understanding potential errors and causing them to miss opportunities to save more or manage their money better to their own support financial goals.

This confidence often extends to tax calculations as well, with many people feeling that taxes are beyond their control. So why question them? Taxes are often the biggest weak point in understanding their paychecks, as people are often confused about how state and federal withholding amounts are calculated, or how they vary based on life change or location. Without understanding how taxes are calculated, people may not really understand the benefits of choosing benefits that take advantage of pre-tax dollars or how factors such as moving could affect profits.

As people seek to improve their financial wellbeing, this lack of understanding of how to effectively manage and optimize their pay hampers many. This separation gives employers an opportunity to rethink the wage experience they offer their employees to provide more visibility and support.

Promote existing financial programs

The first step in empowering people to strengthen their financial wellbeing is to educate them about the financial programs and benefits available, and to help them take advantage of those they may not have considered. Commuter benefit programs, for example, allow workers to extract input tax money to cover their monthly travel expenses and parking. Health savings accounts also allow employees to set aside input tax money to cover deductibles, co-payments, and other medical expenses not normally covered by insurance. And 529 plans will help people save money on future higher education spending.

Promoting salary transparency can help people better understand how to take advantage of these benefits and how to best allocate their salary. For example, employers could offer people the ability to calculate how their take-home wages would change if they added more to their 401K, switched health insurance, or worked more hours. These insights can turn payment from a periodic process into a flexible, real-time tool to improve financial wellbeing.

Redesign the salary experience to engage and support talent

Once employees understand how their salary is calculated and the various actions that could emerge, employers can use new tools to optimize and manage their funds. One example is the use of savings prompts, which can help people understand wage increases and take appropriate action. For example, if a person works overtime, they expect their income to reflect 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 encourage people to save? Imagine receiving this prompt:

“You did 10 hours of overtime this week which increased your salary by $ 156.35 above your weekly average. Would you like to transfer all or part of the money to your savings account? “

The end goal is to give people more visibility and tools to help them manage their financial travel in other ways. When employees feel more financially secure, they will feel happier and less stressed overall. That often means they are more engaged at work and better positioned to reach their full potential.

Cheryl Lewis is Vice President of Product Management and Strategy of Next Generation Payroll at ADP.

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