Unpacking the employee financial wellness crisis

Most employees today are facing the grim reality of financial instability. Challenges such as stagnant wages, inflation, rising interest rates, an escalating cost of living, mounting debt, and inadequate savings have made financial security seem like an elusive dream rather than an achievable goal.

As of September 2023, a staggering 60% of Americans were living paycheck to paycheck, according to a report by LendingClub . What is more surprising, even those in higher income brackets are not immune to this, with more than 50% of Americans earning above $100,000 per year also living paycheck to paycheck.

The weight of financial stress?

This climate weighs heavy. The American Psychological Association (APA) consistently identifies money as a primary stressor for Americans in their Stress in America survey. For 2023, the top sources of stress for people aged 35–44 was money (77%) and the economy followed closely behind (74%). This stress has a profound impact on people, both professionally and personally.?

A survey conducted by Salary Finance revealed that financial worries are a significant cause of distraction at work, with 48% of employees reporting that financial stress impacts their ability to focus. Furthermore, the APA suggests that financial stress contributes to increased absenteeism, presenteeism, and reduced productivity.

This stress reaches far beyond the workplace, more profoundly affecting individuals' mental and physical health. Studies show that financial stress contributes to increased rates of anxiety and depression. According to the National Institute of Mental Health, individuals experiencing financial stress are more than twice as likely to develop depression compared to those who are not. Additionally, financial stress heightens the risk of cardiovascular disease by 40% and weakens immune function by approximately 20%.?

Current financial wellness programs falling short

Despite the evident negative effects of financial stress and 80% of employees reporting experiencing it, only 28% of employers provide financial wellness programs. Regrettably, many of these programs fall short because they fail to address the primary source of employees' stress: their day-to-day bills.

Typically, financial wellness benefits are focused on future financial goals such as building savings or planning for retirement. While these are important for long-term financial planning, they fail to assist the majority of employees who are struggling with immediate expenses. According to the 2023 Workplace Wellness Survey by the Employee Benefit Research Institute , employees find building an emergency savings fund and paying monthly bills just as stressful, if not more so, than saving for retirement.

The solution: unlocking liquidity through tax

The obvious solution? Offering employees more money in their paychecks.?

Last year, the IRS reported that about 105 million Americans overpaid their taxes, with the average tax return amounting to over $3,000. This represents an opportunity where benefits and payroll providers are uniquely positioned to make a difference. With april, benefits and payroll providers can offer employees unprecedented control over tax withholdings. With paycheck optimization, employees get the choice of more money in their pockets each month or a lump sum at the end of the year. Through april’s Paycheck Optimizer, users opted to add an average of over $500 annually to their paychecks. This money can cover bills, unexpected expenses, pay down debt, or be invested in financial goals, instead of being held interest-free by the government until tax season.

In fact, 45% of Americans aren't even aware of how much tax is withheld from their pay. Money they’ve earned is hiding in plain sight and for many that cash is the difference between meeting their daily expenses or not. It marks the difference between enjoying financial security and grappling with the physical and mental toll of insecurity.

By offering tax optimization, benefits and payroll providers can more effectively support employees through increased liquidity and control, ultimately helping them achieve a more holistic version of wellness - one that supports them financially, mentally and physically.