Tesco workers will be able to receive a portion of their wages ahead of payday as bosses look to help ease the burden of the cost-of-living crisis.
The supermarket says its new scheme will allow 280,000 UK employees to receive up to 25% of their contractual pay early, with the primary aims being to help staff with soaring bills and avoid the need to take out pay day loans with extortionate interest rates.
Workers will be allowed one advance per pay period and will be charged £1.49 per use of the service, which Tesco is partnering on with Salary Finance, a financial services & education provider.
Tesco's UK people director, James Goodman, said: "We hope this helps to support colleagues, particularly in the run-up to Christmas."
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The firm had previously announced that, this month, the basic hourly rate of pay for staff would increase by 20p to £10.30 - or £10.98 for London workers.
Tesco’s initiative comes at a time when UK wages are rising at their fastest pace in decades, yet soaring inflation means workers are still facing financial struggles.
The latest data from the Office for National Statistics (ONS) shows that regular pay rose by 5.7% in the year to September 2022, which was the fastest growth since 2000, excluding the pandemic years when people’s pay automatically rose following the end of furlough.
However, when adjusted for rising prices, wages fell by 2.7%. The UK unemployment rate also rose slightly to 3.6% in the three months to September, up from 3.5% in August, according to the ONS.
A good template for firms to follow?
The most direct and obvious way to support your employees with financial wellbeing is above-inflation pay rises. But with inflation breaking record high after record high this year, it is impossible for many firms to implement a real-terms pay rise. As such, schemes like Tesco’s, which is an example of an Employer Salary Advance Scheme (ESAS), might be an alternative for many HR leaders to consider.
But how effective are they? And should firms concentrate on the root cause of financial issues instead?
Charles Cotton, Research and Policy Adviser, Performance and Reward at CIPD, says that ESAS can be a useful way for employees of dealing with an unexpected financial emergency.
“ESAS can help individuals avoid having to take out high-cost credit, or asking for emergency financial aid from friends or family, and instead allow employees to cover emergency need from their own earnings,” Cotton writes on the CIPD website.
He adds: “However, while ESAS can also alleviate the symptoms of in-work poverty, the CIPD recognises that they are not designed to address the root causes, such as low pay.”
Financial wellbeing strategies
Cotton explains: “To be truly effective in the workplace, such schemes need to be embedded into a financial wellbeing strategy, which encompasses such elements as a liveable wage, a guarantee of enough hours to receive a liveable income, fair pay, the opportunity to save for the future, benefits that give support during an emergency, the opportunity for career progression, financial education, etc.
“Early pay access on its own is not a substitute for a workplace financial wellbeing strategy or a secure and liveable income. However, people professionals should help their employers explore whether paying workers more frequently – such as fortnightly or weekly, or allowing early payment on an ad hoc basis – would help individuals manage their costs more effectively and absorb financial shocks that would otherwise send them into debt. This could be done by asking employees directly for their views, such as through a survey, forum, or their representatives. Indirectly, it could be done by examining the organisation’s people data, such as requests for wage advances, feedback from the employee assistance programme provider, absence levels, etc.
“While this move might increase payroll expenditure, it might also reduce the expenses associated with employee financial anxiety, such as reduced productivity. It might also improve perceptions of the employer and product brands among employees, customers, and investors.
“If it’s not possible for an organisation to pay its people more frequently, then it should consider allowing them to access their earned pay early in the event of an emergency. The organisation should put safeguards in place to ensure that they do not encourage employees to adopt inappropriate financial habits, such as by limiting the frequency and the amount that can be accessed early, signposting relevant financial information and guidance, paying for financial advice, providing financial awareness courses, etc.
“People professionals can help encourage take-up of this kind of facility by building cultures of trust, training line managers to support their teams in a non-judgemental way and encouraging more open dialogue about financial worries.”
Cotton concludes: “The pandemic has highlighted the issue of employee financial wellbeing. It is important that employers recognise the importance of this issue, and that HR can create a strategy that is both aligned and integrated with their organisations’ business and people strategies.”
Another option would be help with financial education as a benefit. Offering staff sessions with financial advisors, or simply organising training on financial management could make a marked difference, especially as part of a bigger benefits package aimed at alleviating financial pressures.
Just do something
Regardless of whether you agree with the concept of cost-of-living payments, or are exploring other financial wellbeing options, the key is that organisations take some form of affirmative action to ensure that staff aren’t suffering financially. One-off payments may not be the most effective tool, however they’re at least some form of affirmative action. The UK looks likely to head into a recession from which it may not recover for over two years; in this time, staff will be relying on their employers to help, however they can.