According to a new report by CIPP, if more companies offered payroll loans, UK workers could save more than £250 million.
For many workers across the UK, every month is just that little too long. When the previous month’s wage packet is exhausted, more and more people have been turning to payday lenders to make ends meet. The eye-watering interest rates charged by some loan companies did lead to a crackdown and today you’ll pay, at most, £24 to borrow £100 for 30 days. Still high, but perhaps not quite as high as it was.
Of course, many people in debt reach the end of the 30 days and are unable to pay the average loan amount of £300 back. The FCA reports that around 1 in 8 don’t pay back short term loans in full – and that’s when the interest really starts to pile up.
The CIPP estimates debt to short term loans is costing workers £252 million in needless interest payments every year. Credit unions already offer short term loans at considerably more preferential rates than the typical payday lender. And now the Co-op has launched a payroll loans service that enables Co-op colleagues to borrow from payroll and pay the money back from salary.
Benefits of payroll lending
This isn’t, of course, a new concept. The idea of asking for an advance on pay has been around for as long as pay packets. But what is new is the contrast between the payroll loan interest rate and that of the alternatives.
The Co-op’s lending partners are charging 7.9% interest, a big reduction on rates available elsewhere, and 63,000 of its employees could benefit. That’s good news for workers, but what’s the upside for a business like yours? Is setting up your own payroll lending scheme worthwhile?
Certainly, there’s an administrative burden on busy payroll departments in either setting up or administering such schemes. But the payback can be significant. According to the HSE, 12.5 million working days were lost to stress, anxiety and depression in 2017, and financial worries are a leading cause of all three.
Reducing financial pressure improves wellbeing and productivity. It reduces the risk of accidents, the likelihood of staff theft and protects worker morale. And when staff come to answer the perennial question in the staff survey about whether ‘my company cares about me’, a payroll loan scheme can be a clear example that the answer should be yes.
A payroll lending scheme doesn’t have to be good news solely for your staff. It could be money in the bank for your business too. If you’d like to explore more about the practicalities of setting up a payroll loans scheme, talk to our experts now.