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A focus on pay literacy — the ability for employees to have a clear understanding of their paycheck and benefits so they can make better financial decisions — could help organizations improve their workforce’s overall wellness. Read nine benefits of prioritizing pay literacy in your workplace.
What if the biggest obstacle to your team’s success wasn’t a lack of skills or motivation, but something much more fundamental?
According to Calm’s 2024 Voice of the Workplace Report, financial woes are the No. 1 stressor for employees. Right now, any one of your workers may be wondering:
- Will I lose my home if I miss another mortgage payment?
- Can I afford to keep my car on the road?
- How much longer can I delay this medical procedure?
- If I can’t pay for day care, what will happen to my children?
This stress is compounded by the fact that nearly two-thirds of employees report living paycheck-to-paycheck.* Luckily, you have the power to help.
A focus on pay literacy — a vital piece of financial literacy — could help employees unlock a clearer understanding of their finances and offset the stress that harms their focus, productivity and engagement.
What is pay literacy?
Pay literacy refers to our knowledge over every component of our paychecks, including taxes, benefits, earnings and deductions. It also covers how we access and manage our pay-related data.
Pay literacy lays the foundation for employees to build a strong understanding of their total compensation and make informed decisions about their money. To put it plainly, pay literate employees know:
- how earnings are calculated
- what deductions are taken
- how benefits impact take-home pay
- what each line item represents
- how compensation is structured
Why is pay literacy important?
According to a PwC survey, financial stress makes employees:
- less energized at work
- less likely to feel a sense of belonging
- less likely to share the same values as their company
- less likely to recommend their company as a great place to work
- less proud to work for their company
Workers lose 7.3 hours on average of productivity each week, costing U.S. employers potentially $183 billion annually in lost productivity and engagement, according to The State of Financial Well-being report by BrightPlan.
Left unchecked, a lack of pay literacy can lead to:
- increased payroll errors due to misunderstandings around the process
- compliance issues and costly penalties related to payroll regulations
- irreparable harm to a company’s culture and reputation
What are the benefits of pay literacy?
By promoting pay literacy, employers can help reduce financial stress, improve job satisfaction and, ultimately, create a more engaged, productive and satisfied workforce.
Let’s start by exploring the benefits of pay literacy to employers.
Benefits of pay literacy to employers
1. Reduced administrative burden
Imagine the impact on your already-packed schedule if you had to field a constant stream of calls and emails from employees seeking clarification on their pay. Each inquiry would require careful attention and resolution, taking time away from tasks like onboarding, expense reimbursements and compliance.
When employees have a clear understanding of their pay, HR is no longer bogged down by basic process issues and can instead focus on strategic initiatives that drive lasting business success.
2. Improved payroll accuracy
According to Ernst & Young research, a 1,000-employee company could waste nearly $1 million correcting common payroll mistakes over the course of a year.
Pay literacy helps employees find and fix errors before they:
- force workers to make difficult financial decisions
- harm their mental health
- pose a threat to your bottom line
3. Reduced risk of noncompliance
You know payroll noncompliance can result in penalties, reputational damage and a loss of employees’ trust. Pay literacy helps reduce these risks by empowering workers with the data they need to make informed decisions.
For instance, workers who better understand their pay are also more likely to comprehend the implications of overtime, which can help boost your compliance with the Fair Labor Standards Act (FLSA).
4. More effective total rewards strategies
When employees understand the value of their compensation package, it’s a game changer for employers. Taking a comprehensive approach allows you to create a total rewards strategy that drives business results, aligns with your organization’s objectives and attracts top talent.
5. Improved employee retention
An overwhelming 78% of leaders say their employees’ financial stress led to higher turnover. Accurate and timely pay is the foundation of a healthy employee-employer relationship. But for today’s workers, believing their check is correct no longer cuts it.
Giving workers the knowledge and tools to understand their pay is a powerful way to show your commitment to accuracy, fairness and employee well-being.
6. Increased employee engagement
PwC’s survey found that financially stressed employees tend to be more distracted, less engaged and more likely to seek another job.
This can have serious consequences for employers, including decreased productivity, increased turnover and higher recruitment costs. It’s no surprise that workers who understand their pay are more likely to feel valued, which enhances employee engagement.
7. Higher productivity
Financial stress takes a toll on a workforce’s focus. More than half of employees say it impacts their productivity. Any one person could be struggling with:
- medical expenses
- student loan debt
- credit card balances
- rising costs of living
- child care expenses
Empowering employees with a deeper understanding of their pay can help alleviate financial stress, improve overall well-being and unlock a new level of engagement and productivity.
8. Increased transparency and trust
Real-time access to pay-related information is crucial for promoting transparency, trust and understanding among your people. This, in turn, can lead to:
- improved employee satisfaction
- increased productivity
- reduced turnover
One way to achieve this is by investing in automated tech that guides employees to approve their own checks. With visibility into their pay and how it’s calculated, you give them ownership of the process and confidence in its accuracy.
9. Better use of benefits
A key factor in employee satisfaction lies in their understanding of benefits packages. When employees know how their coverage and health care plans work, their peace of mind flourishes. Employees with high pay and financial literacy are more likely to make informed decisions about their benefits, which helps you avoid overspending on offerings and better plan for the future.
Benefits of pay literacy to employees
Despite the growing recognition of the importance of supporting employees’ financial well-being, close to half of employers don’t provide any tools to help workers with financial planning and stability.**
However, the benefits of doing so are clear:
Less financial stress
Pay literacy is a game changer for employees. It gives them the power to:
- take control of their finances
- reduce financial concerns
- feel more confident about their future
Essentially, the more they know, the less they stress. And isn’t that what we all want? After all, employees work to get paid. So shouldn’t they be able to make sure they’re paid right?
Increased employee satisfaction and engagement
Similarly, employees who understand their pay and benefits are more likely to feel valued and appreciated by their employer. This leads to a range of positive outcomes, including:
- higher job satisfaction
- reduced turnover
- increased productivity
Your investment in their well-being pays off in a more positive and productive work environment, where employees feel engaged, motivated and empowered to succeed.
How pay literacy affects overall financial wellness
It’s clear that financial stress can have a profound effect, impacting everything from engagement and productivity to mental health and belonging.
Providing employees with the tools and resources they need to manage their finances effectively is essential to achieving financial wellness.
But to make it happen, employers need a way to engage and inform their employees, boost their pay literacy and alleviate the administrative and compliance burdens placed on HR.
How to promote pay literacy in the workplace
Luckily, Paycom has the tools to help promote pay literacy in your workplace.
Our automated payroll experience, Beti®, is at the center of our single software. It automates payroll by self-starting each period, pulling live employee data that affects their pay. Beti also notifies both employees and managers of pending payroll tasks — like missing punches or unapproved expenses — throughout the pay period.
Then it automatically finds errors and guides employees to fix them before payroll submission. This results in:
- improved payroll accuracy
- reduced employer liability
- increased process oversight
- greater pay literacy overall
And because employees know their information best, Employee Self-Service® empowers them to take control of their HR information and processes by providing:
- convenience and accessibility. Employees can complete tasks, like updating their direct deposit information, anytime from anywhere with mobile access.
- transparency and trust. Employees can easily access pay stubs, benefits information and other important details anywhere at any time.
- efficiency and communication. Employees spend less time waiting on HR assistance on routine tasks, and automated notifications and workflows keep employees informed, reducing frustration.
- recognition and development. Employees access performance management tools that provide resources to track progress and goals and encourage feedback. And Paycom Learning offers access to training, upskilling and reskilling opportunities for further development and employee growth.
- improved work-life balance. Employees can swap shifts, review accruals and balances, request time off and quickly access benefit information.
FAQ
How does low pay literacy in the workplace affect employers?
Low pay literacy can lead to payroll errors and costly penalties due to employees not understanding the process, which can harm your productivity and bottom line.
What role do employers play in promoting pay literacy?
Employers play a crucial role in promoting pay literacy. By providing employees with the tools and resources they need to understand their pay, employers can reduce financial stress and improve overall well-being.
How does pay literacy help in tax planning?
Pay literacy helps employees understand their earnings, deductions and benefits, enabling them to make informed decisions about their future and minimize potential errors or penalties.
How can pay literacy help employees plan for emergencies?
Employees with high pay literacy have a greater understanding of their finances, which helps them better plan for unexpected expenses.
What are some tools and resources for pay literacy?
Paycom’s payroll experience, Beti, automatically finds errors and guides employees to fix them before payroll submission. And because employees know their information best, Employee Self-Service empowers them to take control of their HR information and processes.
*A December 2023 Paycom survey of 2,200 U.S.-based full-time employees.
**A September 2023 Paycom survey of 2,200 full-time U.S. employees.
