The Chartered Institute of Payroll Professionals (a company incorporated by Royal Charter) IPP Education Ltd (a subsidiary of the Chartered Institute

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1 The Chartered Institute of Payroll Professionals (a company incorporated by Royal Charter) IPP Education Ltd (a subsidiary of the Chartered Institute of Payroll Professionals) Registered No (England) VAT No

2 Contents Executive summary...3 Background information...4 Why use a credit union?...5 Research...6 What has the CIPP done so far?...9 Next steps...10 References to support statistical evidence...11 Company Information...11 cipp.org.uk Page 2 of 13

3 Executive summary The CIPP has been working with a number of partners to encourage saving through payroll to ensure employees do not have to resort to pay day loan lenders. The partners include, payroll software providers, employers, credit union organisations, credit union trade bodies and the Department for Work and Pensions. The CIPP has produced two webcasts of a planned suite of webcasts; one for the payroll service providers and one for employers to introduce saving through payroll. From the research conducted via an electronic survey, the majority of respondents were employers. Whilst a number of industries were represented, the highest number of responses was received from the financial, manufacturing and local government sectors. The majority of responses came from those responsible for paying more than 251 employees. Just over half of respondents currently offer a savings scheme, and of those 70% are using credit unions for saving and for providing loan arrangements for their employees. Disappointingly 41% do not currently offer a scheme. However, when analysing the reasons for this there are more encouraging results, with a number not ever having considered a scheme, either because employees haven t asked or the business just hadn t thought about it. Some of these employers also expressed an interest in seeking further information to better understand credit unions. Of those who offer a scheme, they highlighted there were some payroll administration burdens, but none that couldn t be overcome with good procedures in place. There was a high percentage of employers who offer a scheme to assist with employee well-being and to help them save for that rainy day. The CIPP will continue to work with its partners, to provide more information for employers on how they can set up a credit union scheme, reduce any admin burdens further and raise the profile of saving through payroll, rather than employees having to use expensive pay day loan companies. cipp.org.uk Page 3 of 13

4 Background information Over the last year there have been many media reports on the pay day loan industry. Often the general public will ask why people use them and the truth of the matter is, many feel they have no choice as they are trying to make it through to the next pay day. One question asked of the CIPP is whether the Institute is just concerned with helping employees to avoid pay day loans? The answer is no! The CIPP s vision, headed up by CEO, Lindsay Melvin, is to see more people saving for that rainy day but, at the same time having the opportunity to obtain a competitive loan when needed. Automatic enrolment has shown that the government s strategy of using inertia i.e. automatically enrolling people into pensions means they are less likely to opt out, has so far been fairly successful. So can the same principle be applied to saving through payroll? Whilst the CIPP is not suggesting employers automatically enrol people into a saving scheme, the CIPP can help employers to try and encourage employees to save. If employers offered employees a facility of saving via their pay, evidence suggests that when monies are taken from pay, employees tend not to miss it, whereas when they receive their net pay and have to save manually they find it more difficult. There is more the payroll industry can do to encourage saving through payroll. This is an opportunity for payroll departments across the UK to help their employer with their Corporate Social Responsibility, recruitment and retention, absence rates and of course to offer facilities to their employees. One way of saving is via a credit union. Stress can be difficult to manage in the workplace and it makes it even harder when it isn t as a direct result of the employer as there is very little they can do to help and yet the employer is the one who suffers. This might be due to a loss of productivity or through absence, so could it be, it is in the employer s interest to support those who have debt worries? 33% of people are more likely to develop mental health issues where debt is a struggle and 20% of employees currently take time off work due to debt worries. These are significant numbers. cipp.org.uk Page 4 of 13

5 Why use a credit union? According to the Association of British Credit Unions Ltd, worldwide there are over 40,000 credit unions in 80 countries around the world. In Ireland, over 70% of the population belongs to a credit union. According to the Money Advice Service, credit unions are a cross between a co-operative and a bank. They are set up by people with a common interest, such as where they live or work, and offer low-interest loans, savings and sometimes bank accounts. They ve been around since the 1940s but in recent years have become increasingly popular among savers and borrowers. Credit unions operate with three main aims, these are: To encourage members to save regularly; To provide loans at low rates; and To help members in need of financial advice and assistance. cipp.org.uk Page 5 of 13

6 Research The CIPP received 43 responses to an electronic survey it conducted. Whilst this is not a significant number it does provide important information to aid the CIPP in understanding what more it and employers could do. The majority of responses (81%) were from employer representatives with 19% representing the payroll service provider industry. Those involved in the financial services industry (book-keeping, accountancy and payroll), Local Government and the manufacturing industry had the highest representation. 80% of respondents stated they were responsible for paying more than 251 employees. 39% of employers employed between 251 and 1000 employees, with 8% employing more than 10,000 employees. 63% of payroll service providers are responsible for more than 5,000 payments. A number of pay frequencies are operated, with the majority having 4-weekly, monthly and weekly payrolls. More than 95% of respondents process a monthly payroll(s). Just over 50% of respondents currently offer a saving scheme where deductions are made via the payroll (53% of employer respondents and 62% of payroll service providers). 5% are currently considering offering a savings scheme. Those who are considering offering a scheme are all looking at a credit union. Disappointingly 41% of respondents stated they did not offer a scheme (41% of employer respondents and 38% of payroll service providers). cipp.org.uk Page 6 of 13

7 When those who stated they didn t offer a scheme and were not considering offering a scheme the following themes have emerged: Administration will be too time consuming and insufficient resource; A small employer so never seen the need to consider; Employees have never asked; Previously offered a saving scheme but as so little take-up not worth continuing; and Offer an alternative for example share-save scheme. There was however some employers who said they just hadn t considered the option before, but would like further information on the schemes available. The payroll service providers either didn t have sufficient resource to offer this service, or couldn t see any commercial value in doing so. The CIPP has been working with a number of payroll service providers to encourage them to not only offer a saving scheme such as a credit union facility, but also to provide the service without additional cost to their clients; work continues in this area. Interestingly, those employers who currently offer a saving scheme through the payroll, whilst recognising there were some administration burdens advised, once robust procedures and processes were put in place, the burden was minimal and manageable. The CIPP acknowledges there are additional processes for payroll and is working with software providers and the credit unions to keep any burdens to a minimum. It is worth noting some respondents commented that the small burden was worth it to help employees save and to access competitive loans. Of those who currently offer a savings scheme via the payroll, 70% do so, via a credit union (local and industry specific), others use an external partner for example a bank scheme or have an in-house solution for example a pay day advance scheme. Over 60% offer a loan facility via their saving scheme, with some including mortgage lending. The survey asked those who currently offer a savings scheme via the payroll what they believed the advantages of doing so were. The following themes emerged: Low interest rates where loans used; Employees can only borrow so much against what they have saved so encourages saving, you can t have one without the other ; Easy, safe and a much more cost effective way of obtaining loans; Helps lower paid staff budget more effectively when processed through the payroll; It encourages good saving practices in many young employees to plan for the future, it also helps with employee retention; Seasonal savings schemes e.g. Christmas clubs help employees manage what is quite often and expensive time of year; Helping employees avoid pay day loans; Great inclusion to a remuneration/benefits scheme. When the respondents were asked whether they would continue to offer a savings scheme, 100% said yes. One concern from a payroll service provider was Is it really an employer s responsibility to manage employees finances. Is it not a bit nanny state? The CIPP s response is, whilst it isn t an employer s cipp.org.uk Page 7 of 13

8 responsibility, the impact on business through the employees having debt worries, is. Therefore if by offering employee s an alternative to help them save in the first place and help them avoid getting into debt, this is good for everyone concerned. The following additional comments were received: As a payroll manager working for 23 years in this company and 5 years elsewhere, that it was a good scheme, easy to set up as you only have to have 2 people as signatories to be able to get the money out, I was in it myself and I found it really helpful to have money that I couldn t touch unless I gave notice; paid out at Christmas; Our operatives could have their money at any time providing they didn t put in 1 month and then take it the next; We have a "hardship" loan policy whereby an employee can request an interest free loan. We have GBP limits in place (there are a number of factors, usually we say 40% of net salary but will give more in certain exceptional circumstances) and the maximum repayment period is 12 months. We also ensure that the employee signs an agreement around the loan/repayment terms and confirmation of the action that will be taken if the employee leaves prior to repaying the loan in full; We've been providing credit union services via payroll for 25 years and have never had any issues with any of our payroll partners, all of whom come from different sectors of industry and vary in size; The opportunity to save via the payroll means that the savings are regular and not missed quite so much; Our employees have a far more positive view of credit unions than 'big banks' but we need to offer a choice as some people feel more secure with their money in a regular bank; A SAYE (save as you earn) scheme is an under-used and under-valued way of helping employees put away for that 'rainy day'. My car cost over 340 last month and I struggled to find the money, whereas if we had a SAYE scheme then I could very well have had the money without eating into my monthly living budget ; Make sure employees have formally signed up for deductions. cipp.org.uk Page 8 of 13

9 What has the CIPP done so far? The Institute has spoken with a number of large payroll service providers to ask for their help. Some providers will charge for additional items to be processed via pay and the CIPP is encouraging these providers to not pass on charges for the deduction of savings to a third party provider including credit unions. The CIPP has also met with the Department for Work and Pensions and a number of credit union trade bodies to discuss how the industries can work together to encourage employers to take up credit union offerings, help the administration process for payroll to be with as little burden as possible and understand some of the issues credit unions face when working with employers. cipp.org.uk Page 9 of 13

10 Next steps The CIPP will continue to work with payroll service providers, employers, the Department for Work and Pensions, credit union organisations and credit union trade bodies to provide: A fact sheet on what credit unions are; o Where an employer can find information on credit union organisations; o The process the employer needs to undertake to introduce a credit union; o Further information on how credit unions can help; Work with payroll software providers to look at automation and electronic submissions; and Understand the issues experienced by the payroll industry and the credit unions to find workable solutions for all. cipp.org.uk Page 10 of 13

11 References to support statistical evidence Contact details: Associate Director of Policy, Research, and Strategic Visibility cipp.org.uk Page 11 of 13

12 About the Chartered Institute of Payroll Professionals The Chartered Institute of Payroll Professionals (CIPP) is the only Chartered Institute for individuals working in payroll in the UK, and has a dedicated pensions faculty for individuals responsible for pensions administration and management. Representing over 6,500 members and students, as well as the payroll and pensions professions, the CIPP policy and research team attends government consultation forums to discuss potential changes to legislation and the impact on payroll and pensions in practice. This enables us to ensure that CIPP members and students are amongst the first to hear about changes, and have their say through consultation surveys and responses. As well as providing access to information about proposed changes, the CIPP also provides our members and students with access to support and information to assist them in their career development, and ensure that they are efficient, effective and compliant in their roles, this includes: Advisory service helpline available Monday to Friday which will answer member queries relating to payroll and pensions legislation E-newsletter providing the latest news and developments straight to your inbox PayrollProfessional and TPF Insight magazines which feature news and case studies relating to payroll, pensions and HR Payroll factcard providing all of the key figures needed to run a payroll, whatever the frequency If you would like to find out how membership of the CIPP can benefit you, or sign up for a free trial, please visit membership@cipp.org.uk or call cipp.org.uk Page 12 of 13

13 CIPP t f e. cipp.org.uk The Chartered Institute of Payroll Professionals (a company incorporated by Royal Charter) IPP Education Ltd (a subsidiary of the Chartered Institute of Payroll Professionals) Registered No (England) VAT No