Fin Levies: The Poor Man’s Noose
You should know about it. It starts with the reality that the majority of low to middle income employees live paycheque to paycheque. Very few have the savings to even weather tiny financial shocks, let alone a full-blown financial emergency. So, quite often between paycheques, a low income employee’s only recourse is to stretch their salary by accessing expensive payday loans which often leads to persistent financial disaster of rolled over loans and endless fees.
This impacts employees in many ways. Health suffers when stress is high. Financial distractions often lead to lack of focus at work. Stress impacts wellness and morale. Given this, a low to middle income employee can hardly be expected to focus as attentively on customer satisfaction if he or she has lost sleep worrying about juggling the rent and school fees, while payday is still a long way away.
As a business executive or HR manager, perhaps you’re not personally exposed to how significant this Fin-Levy problem really is. The evidence is in plain sight as financial services providers profit from our in-between paycheque to paycheque moments through credit card fees, overdraft fees, bounced debit order fees, low balance fees and payday loans.
Case in point: banks make between R500 and R800 million a month from bounced debit orders. When you add up all the financial charges paid by financially stressed employees, it can be as much as 5% to 10% of take home pay. The South African Reserve Bank (SARB) has published a review of the country’s financial stability across key economic sectors, which shows that households are spending, on average, 9.4% of their disposable income on servicing debt – the most since 2016.
FinLevy – what is it?
It is the sum of late fees and penalties charged between paycheques by the financial services industry including payday lenders, established banks and informal lenders. It is a highly regressive levy imposed on those who can least afford to pay it.
So, for employees living paycheque to paycheque, and in dire straits, Earned Wage Access provides a beacon of hope for financial freedom. Level is working with proactive employers who are providing their employees with a tool to avoid this regressive and unnecessary levy.
By offering employees the tools to manage their financial health, they are doing exactly what a good employer does – take care of their employees. With EWA there’s no need for an overdraft on a bank account, or to borrow money or delay an account payment to meet an unexpected expense that has to be settled before payday.
Employees of companies that have partnered with Level Finance on the timely access to earned wages have been able to avoid overdrafts, late fees and other exploitative loans. In turn, employers have seen significant improvements in worker engagement and retention. In fact, across hundreds of employers, our data shows that offering financial wellness that tackles between-paycheque stresses reduces employee turnover and increases engagement substantially.
By stepping up and offering financial wellbeing to their employees, partner employers are in effect repealing the Fin-Levy imposed on their staff.
If every employer did what Level’s partner employers are doing, it would mean that millions of low to moderate income employees would have a tool to manage finances and access earned wages between paycheques. No more payday loans, overdrafts, bounced debit order fees and late payment fees, which translates into a R124 billion stimulus (18 million x R6 900) for those who need it the most; fully paid, and larger than the current employment stimulus package.