Could debt sabotage your workforce?

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IVA,’ ‘Trust Deed,’ ‘Attachment of Earnings’ – as a business owner or HR manager, these are phrases you’re likely to be hearing more of relating to your workforce. Debt has traditionally been an employee’s own issue, left at home and not expected to affect their work – but with problem debt statistics reaching an all-time high, now could be an appropriate time to think about how those issues impact your business.

What does the statistics say?

It’s extremely likely that people in your workforce are experiencing financial problems.

  • There are over 8 million people in the UK who are struggling with their levels of debt.
  • Around 40% of the adult workforce have less than £100 in savings.
  • 75% of people will experience a large unexpected cost every year.
  • The average household owes around £13,000 – without considering mortgage debt.

Unsecured household debt is at its highest level since the financial crash of 2008 – and worryingly, an analysis shows that this debt is generally not a result of lavish spending, instead, a pattern of persistent lending to help many individuals make it through the month. Without the savings to offer a buffer zone when things go wrong, risky borrowing is sometimes the only answer.

The impact

A recent study explored the relationship between personal finances and the workplace. These were some of the responses from HR professionals:

  • 83% say personal finance problems have an impact on employee performance.
  • 26% say debt impacts their company’s overall productivity.
  • 24% are aware that financial worries lead to sickness, absence and poor punctuality.
  • 47% notice that employee’s ability to focus on work tasks is reduced.

Interestingly, this study was performed across a broad range of industries – indicating that the debt problem faced in the UK spans all sectors and pay scales.

The link between financial and mental health

Particularly in the last 10 years, medical professionals have increasingly highlighted links between debt induced stress and reduced mental well-being. At the lower end of the spectrum this won’t necessarily manifest as a diagnosed issue for individuals, instead, companies tend to see a pattern begin to play out:

  1. Increased fatigue – Time spent handling debt issues combined with the sleeplessness that is often associated with low-level anxiety almost always reduces an employee’s ability to maintain good health.
  2. Reduced effectiveness – As team members individually struggle to apply their usual levels of effort to work team productivity begins to diminish.
  3. Lowered morale – The resulting impact sees morale dropping across the company – inspired initially by individual’s own issues – but spreading to be a general discord.

A pattern like this can be devastating for a small business or team – and an often-held perception that debt issues are a ‘dirty secret’ means few businesses get the chance to intervene when it’s important. Many people facing debt issues feel isolated and unable to talk.

Remove the shame

While debt feels like a taboo subject for many people, it shouldn’t be. Statistics show that the vast majority of people in the UK have some level of debt – and huge numbers of those people will experience some issue with that debt during their lives.

As an employer, it’s useful to offer a realistic view of debt. The shame associated with financial problems often comes from a perception that excess spending or an unaffordable lavish lifestyle has been the instigating factor. Although this is rarely the case, people feel far more comfortable talking about their debt issues if they believe that the person listening isn’t judging them – however, the debt has been accrued.

How can you offer support?

Creating a particular culture in your workplace is never going to be a quick job – but neither is trying to build bridges with a workforce that is feeling the impact of debt amongst its ranks. Whether you’re a larger business with an HR department – or a smaller business with directors that look after certain roles, demonstrating that there is an open door for staff communication is vital.

Beyond hoping that people come to you, you can invite discussions about debt. If employees aren’t keen on talking in person, sending an email that ‘normalises’ financial issues can be the catalyst for talking.

While most people understand that companies have provisions in place when a person is unable to work because of sickness – fewer people think that their employer would be interested in supporting around debt problems, despite the fact they can quickly lead to illness.

What can you say?

In an email or newsletter, you could offer a case study of how you have supported around debt issues in the past – you don’t have to have a specialist debt counselor in the business, you could simply explain that there is a provision in place for people who need support, that could be:

  • Private areas where people can make calls/emails relating to their money worries.
  • Time out of the office to work around any meetings/arrangements relating to debt.
  • An open door to discuss HR and payroll implications in confidence.
  • The possibility of flexible working hours to alleviate costs associated with working (childcare, travel costs, etc)

This is not an exhaustive list, you may be able to think of company specific alternatives that would be helpful to employees who are facing money issues.

There are also numerous employee assistance programs your business could offer that will provide specialize debt support. That can support around budgeting, signposting to companies who offer specialist debt solutions or counseling for when the symptoms of coping with debt become too much.

Why should you act?

Levels of debt in the UK are at extraordinary levels – the numbers of people who are repeatedly borrowing because they cannot make it through the month are higher than they have ever been. It is medically proven that debt contributes to illness – both mental and physical.

Even if you were in a position to do so, upping salaries is not the answer. Instead, a fresh view of debt and its impact on your business is needed. It is vital that businesses acknowledge debt as being the gateway to sickness, reduced productivity and low morale. If you’re willing to reach out to your employees and offer an ear for the difficult conversations, the performance of the business will thank you for it.