Are employee purchase programs with payroll deductions a good idea?
By Jason Steed
It sounds like a good plan: Offer your current and retired employees discounts on products and services from companies that you have existing business relationships with. Then, arrange for employees to have payroll deductions to help them more easily pay for these items (without finance charges, of course). These types of employee purchase programs are quite active in some companies, giving employees a semi-personalized ‘mall’ of products and services to choose from.
In some cases, these programs provide a solution for employees that cannot get credit for a longed-for big ticket item, do not have all the money on hand for an emergency purchase (such as replacing a broken washing machine) and / or would appreciate a much easier way to buy a new item, like a laptop, for their college student. There is certainly some value for both the company (bringing business to their client helps the client be more successful) and the employee (discounts and payroll deduction make payment much easier) with this arrangement. This benefit also gives employers an extremely low or no cost way to deliver direct value to employees by helping them save money on products and services they may be purchasing anyway – but not necessarily from the company that the employer already has a relationship with.
This seemingly “no brainer” employee benefit does have its downsides. Many employees are already underinsured, some perhaps even living paycheck to paycheck, and some people would argue that employees should never buy anything that they can’t already afford, whether it’s a washing machine or flat screen television.
One interesting question is what participants are actually doing with the savings they can get from these purchase programs. Are employees ever encouraged to then contribute more to their retirement plans or buy insurance or other items that can help them financially down the road? Would having that option or information change the value of a employee purchase program?
With all the discussion recently on the consumer driven healthcare – employees making their own decisions on medical insurance based on their individual / family needs – where do other benefits decisions fall? Should there be other consumer driven benefit options, including employee purchase programs?
Due diligence is a very important part of any benefit product offered to an employee, even these types of non-traditional offers. So why not find a way to integrate them? Given the advances in technology over the last five years, why not educate employees and offer them some valid tools to help improve their financial future? Example: “Congratulations! You just saved $1,000 on your new dishwasher. With that savings, you may want to contribute more to your 401k or buy additional life or disability insurance. Here’s how…………”
The bottom line is that employers need to consider all the aspects of having an employee purchase program, and whether its purpose to help employees financially outweighs the potential personal financial mistakes some employees may make. I suggest we work on creating an employee benefits marketplace where all of these different types of benefit components can work together: 1) consumer choice (which automatically brings some personal responsibility) and 2) employer due diligence including the appropriate vetting of programs and the technology platforms they run on. Integrating core and these types of voluntary benefits is the best way to ensure your benefits programs delivers real value to your employees and is truly in their best interest.