Employee Financial Troubles and Your Workplace

Drowning in BillsAs I write this article, the worries over a double dip recession are mounting.  It appears that our economic recovery may be losing its steam.

Companies that are struggling to stay afloat are doing so with a reduced workforce of people who, many times, are performing their jobs without having had a raise or bonus in a long time.   Meanwhile, the costs for food, gas and general living expenses are on the rise.

The result is that debt is increasing.  As managers and business owners, we are seeing many of our employees struggling to pay their bills.  Consumer debt is employee debt, and it has an impact on the workplace.  

That impact has many forms:

  • Increased employee stress, distraction and depression
  • Increased risk of employee theft
  • Increased pressure on employers to provide employee loans and payroll draws
  • Increased use of employee credit checks
  • More debt collectors will be calling for our employees at work

Resources for your cash-strapped employees:

Many employees today, regardless of income level, may find themselves in a difficult financial situation.  People all across the wage spectrum are declaring bankruptcy and are seeing their homes foreclosed.

In order to help employees handle the stress, distraction and depression that come with financial instability, employers need to know where to refer their employees for help.  A great resource is at our fingertips through United Way.

  • Employees can dial 211 to speak with a Referral Specialist who will discern the nature of their needs and refer them to suitable resources in their area.
  • If employees are calling from a mutli-line line phone in the office or from their cell phone, they need to dial 866-736-9634.
  • The resources available include rent/mortgage assistance, transportation, affordable housing, food and clothing banks, and other financial assistance.

We are not expected to solve our employees’ problems, of course, but providing them with the tools to solve their own troubles enables them to focus on the work at hand.  It also creates an environment of compassion within your company, which can be a much-needed respite for people suffering from financial strain in their personal lives.

Debt collectors and skip tracers:

The Fair Debt Collection Practices Act and Washington law provide protections to consumers from unfair debt collection practices.  However, the law does allow a debt collector to contact the consumer’s employer under certain circumstances.

The debt collector may not tell the employer that the employee owes a debt, and there are restrictions on how often they can call an employer.  If you or your staff are being badgered at the workplace by an employee’s debt collector, they should be told to stop calling, and if the calls don’t stop they should be reported to the appropriate authorities.

Employers should also be aware that calls may come from skip tracers.  Skip tracers work for credit agencies to attempt to locate a debtor who has skipped out on a debt.  They will call an employer and try to reach a current or former employee.

It’s important for managers to remember to never give out personal information about employees, both current and former.  This includes their:

  • Phone numbers
  • Addresses
  • Social security numbers
  • Current places of employment

If you are unsure of the purpose of the call, it’s best to take a message and pass it on to the employee, rather than give out the employee’s contact information.

Employee loans or payroll draws:

Our clients occasionally ask us how to handle employee requests for loans or payroll draws.  These requests have become more frequent as the economic woes continue.

Employee loans are generally a bad idea:  We have fielded questions from employers wondering what to do after they’ve provided a substantial loan to an employee, who then failed to pay it off before quitting.   As the employer of an employee who fails to repay a loan, you do not have any avenue to recover the debt, except through Small Claims Court.

A draw, which is an advance on pay already earned, is a safer option (although it’s not without its pitfalls):  The issue with payroll draws is that an employee often starts to dig themselves into a hole, using up their pay earlier than normal, and needing another draw against the next pay period.  It’s best to set a company policy limiting payroll draws — for example, limiting them to no more than one every six months — in order to prevent this problem.

A few quick guidelines for issuing draws:

  • A draw should never be given for more than the employee’s net pay.
  • Always document every draw in writing.
  • Require the employee’s signature on a statement that acknowledges their understanding that the money will be coming out of their upcoming paycheck.

Performing employment-related credit checks:

Another thing that comes up frequently is the issue of performing credit checks on job applicants.  The theory is that an employee with financial difficulty is more likely to steal from their employer.

There are some very important things you need to know about credit checks:

  • In 2007, the state of Washington made an amendment to the law which allows employers to conduct credit checks on current and potential employees.  The law now requires that the reasons for the credit check be substantially job related.  (In other words, you are allowed to check your bookkeeper’s credit, because they handle your company’s finances.  However, you may not have the right to check the credit of a receptionist whose job duties are in no way connected to company finances.)
  • You must obtain the individual’s written permission prior to conducting a credit check.
  • If an adverse action happens as the result of a credit check (such as someone not being hired or promoted) you are required to notify the individual in writing, provide them with a copy of the credit report, and tell them which company provided it.  This gives them the opportunity to correct erroneous information on their credit record.

Congress is considering the Equal Employment for All Act which would create similar requirements on a national level.  There are concerns that broad implementation of credit checks have a disparate impact on minorities, violating the discrimination protections in Title VII.  Employers in our state will be ahead of the game by complying with the state regulations when the federal regulations come forward.

In these difficult economic times, we are likely to see more employees with blemished credit records.  Some of our clients want to see great credit histories for their customer service reps, as they handle clients’ credit card information over the phone.  While we can understand the reasoning behind this, these are typically lower paid positions, and demographically, these are the folks who are struggling now.

It becomes more and more problematic to find candidates with the unblemished credit histories to fill these jobs, and it’s likely that this will only get worse.

The wrap-up:

The challenge for us, as employers, is figuring out how we can help our employees cope with diminished financial resources.  We need to put internal controls in place in our businesses that protect our companies, in order to end our dependence on credit histories as a placebo to give us a feeling of security.  Clearly, requiring unblemished credit detrimentally reduces the size of the useable labor pool.

The CPA firm that you use is a great resource to review your company’s internal processes and controls, and to advise you on how to improve them and to establish internal safeguards to protect your company.

The experts tell us that the good times won’t be returning any time soon, so we all need to assist our employees in coping with the demands of the economy, while protecting our corporate assets.

Originally published in the Kitsap Peninsula Business Journal.

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