Many South Africans are experiencing severe financial challenges, and some turn to unregistered lenders for quick cash solutions. However, if you’re employed, your company might be able to provide some financial assistance.

We all know that South Africans are struggling to make ends meet, but something we might not realise is that many employees are dedicating a substantial portion of their working day to trying to address their financial woes.

This is according to Anton Schutte, financial planning and development manager at Exponential Financial Services, who says that at least 30% of South Africans spend a lot of time during business hours trying to sort out their money issues.

“Employees’ financial worries are causing stress, distraction and ‘presenteeism’, leading to a loss of productivity and compromising their health and livelihoods,” he says.

Different forms of financial assistance

Many employers in South Africa are aware that their employees are struggling to make ends meet, and some have taken steps to assist them.

It’s helpful to understand what these initiatives involve, how they may assist you, and what to look out for to safeguard your overall financial wellbeing.

Financial wellbeing programmes

The most sensible way to assist employees is to roll out a comprehensive financial wellbeing programme, says Johann Peens, a Certified Financial Planner and independent employee benefits specialist.

This includes financial literacy, education, tools, and the input of a financial adviser or planner. “We have multiple solutions and products on the market – but if people don’t understand how they should be used, they won’t grasp the impact they’ll have on their finances,” he cautions.

If an employee regularly seeks financial help from their employer, there is an underlying problem that needs to be addressed.

“This is usually related to either not budgeting properly or not having the chance to improve their skills and potentially increase their income,” says Peens.

“It is critical that employers have honest money conversations with employees to find out what’s sabotaging them and what they can do differently to manage the problem.”

Earned wage access

This benefit is usually linked to an employer through a benefits partner, and it allows employees to access a small portion of income already earned or accrued during the month before payday, says Blessing Utete, managing executive at Old Mutual Corporate Consultants.

In countries that offer these services, the general limit is half of earned wages, but employers can set their own restrictions. In South Africa there are several financial institutions which provide these services including Paymenow and SmartWage.

Utete says smart algorithms determine the amount available to the employee in terms of their ability to meet month-end expenses and debit orders. “This ensures that the accessible amount is purely supportive and doesn’t create a problem for the employee at the end of the month,” he notes.

There is a fee for this service, usually deducted before the advance is paid (that is, subtracted from the total amount received). However, fees are low to negligible, depending on when employees need the money to be paid over – and lower than fees charged on payday loans or other high-interest loans.

In some cases, a fee is charged per transaction and in others, a monthly subscription is paid for employees who make use of a cash advance. For example, PaymeNow charges R50 for a salary advance of R1 000. For a payday loan with a microlender, the fee would be closer to R250.

Earned wage access can provide short-term relief but may postpone an employee’s pain to the next payday. It is most suitable for low-level income earners who rely on public transport and may need small amounts to tide them over. However, it’s not sustainable.

“Receiving a smaller salary next month could create cashflow issues and well as form new habits, causing you to take on an overdraft facility to manage your cash flow, which may create further debt problems,” Peens cautions.

Salary advances

A salary advance is an arrangement where an employer provides an employee with access to a portion of their future earnings before the scheduled payday.

The main difference between a salary advance and earned wage access lies in the timing regarding when the money can be accessed, and the fees associated with each option (it also focuses more on salary earners than wage earners).

“You can request an advance from your employer, typically through your HR or payroll departments, and this amount is deducted from your next salary, with little or no interest or fees charged,” says Utete.

This helps to avoid late fees or penalties for bills, and provides immediate relief in an emergency, he says.

“This type of loan must be managed properly to avoid budgeting challenges and can create a dependency mindset,” Utete warns. “In a worst-case scenario, it can cause a breakdown in the relationship between employer and employee.”

“The general problem with loans is that you’re just ‘kicking the can down the road’ for employees with bad financial habits,” says Schutte, who says the best remedy is ultimately to break the cycle.

Employees may also start to view their employers as a ‘bank’, and employers run the risk of falling foul of the National Credit Act. In addition, offering employees discounts on electricity and similar incentives may just aggravate their problems in the long run.

“Financial education is best, to ensure employees manage their finances well,” Schutte says.

Debt consolidation

There are companies that work with employers to offer financial wellness programmes and these can include options to consolidate debt or even enter debt review if the employee is significantly over-indebted.

Utete says Old Mutual’s Financial Wellbeing Programme, which is available to Old Mutual clients, offers tools that help employees manage their money better.

“Right Track®, provided by Empowerfin, runs a financial diagnosis to identify any reckless lending, prescribed loans, illegal garnishees, and overpriced credit life and insurance policies on an employee’s profile. This helps employees to get out of debt,” he explains.

Employees, however, need to be very careful of offers for debt consolidation where all their debt is consolidated into one loan. In many cases, without the required discipline, employees consolidate existing debt and then still take on new debt. Before long they find themselves over-indebted.

Debt consolidation may offer some preferential rates if offered through an employer, but it usually involves extending the period of the debt in order to lower the monthly installments. This means it takes longer for your debts to be paid off and could increase the total cost of the debt.

Always compare total cost of debt before making the decision. There is never a short-cut to getting out of financial difficulty.

Questions to ask yourself before seeking financial assistance:

1. What has led to the financial emergency or stress forcing me to consider financial assistance through my employer?
2. Have I explored all options available to me through my employer’s financial assistance programme? This includes not only financial assistance but also financial planning tools, budgeting workshops, mental health resources, and stress management programmes.
3. Have I engaged with a financial adviser on these options, understood the game plan, and learned how to manage the risk in the future?

This article first appeared in City Press.