Payday loans a financial cancer

22 July 2014

Payroll professionals know all about tax, childcare and other hot topics at Westminster. Now they want to do their bit to help workers avoid payday loan sharks.CIPP’s Lindsay Melvin explains.

“We are moving into the reward space – we believe that in three or four years’ time you will have a reward manager who will manage the payroll, the pensions, the benefits, the lot,” he explains.

“We think in the future every employee will get a reward statement – a number of businesses do this already – so that the employee understands the value of what their employment means.

“They understand that they receive pay, but also what they get through, for example, gym membership or car parking.

“They understand the value the business is placing on them, and there should be an element of choice. Do I buy extra leave because of my family situation? Do I buy additional pension? There should be flexibility in the package but also an understanding of what your package means – that will be the way of the future.”
Melvin also wants theCIPPand its members to foster a culture of “saving for a rainy day” through payroll, in part to tackle the growing payday loan industry. He is sincere in his belief that innovative payroll ideas can transform the way businesses help and protect their employees, and boost productivity into the bargain.

“I believe payday loans are a financial cancer which is growing fast,” he explains.

“There are two ways of dealing with it. One is to try to manage the cancer and the other is to stop it rising in the first place.

“Taking a legislative route is trying to manage it. We also need to focus on trying to stop it.

“If you look at the stats on this, people tend to use a payday loan because their washing machine breaks, for example. They have something very urgent they need to deal with.

“Businesses and companies can actively using payroll to help their staff save for the rainy day.

“Money that is not in your pay packet because you are saving it, you don’t miss, to a certain extent.

“Companies and businesses need to be linked into either a local credit union or the credit union of the trade they are in.

“When you have that link, you then try to encourage your workforce to use the credit union to save for the rainy day. Then when the washing machine does break down they can get the loan from the credit union.

“You need to switch the traffic away from payday loans to credit unions.”
It is not just encouraging a culture of saving that payroll can help with. Melvin says companies need to cultivate a holistic approach to their employees.

“The key thing one has to remember is that you get better performance in the workplace if you treat someone as a person, and value them in terms of their domestic arrangements. If a business thinks about the person as a whole you will get a much more efficient worker.

“I would like to go beyond that. I want businesses to take a positive attitude towards education on personal budgeting and finances, and also education in terms of healthy living and exercise. My thought is a ‘kite mark’ for companies to achieve by doing certain things such as flexible working, financial education, providing a credit union facility.

“There is no doubt that the return on investment is there – all the research shows that. You are not actually asking for much of an investment from business but people do not necessarily think through that wider picture, which is why I am keen to have some kite mark approach to encourage business to do this.”
The government is increasingly turning to payroll to implement its policies on everything from pension auto-enrolment to child care to paternity and maternity leave.

Melvin says that new laws on shared paternity and maternity leave (Shared Parental Pay and Leave) “is going to be a problem from an administrative point of view”.

“I understand you can do a week on/week off scenario in a set pattern. Even so you can see that for small businesses, having someone come back from maternity one week and then going off a week and coming back the next week is going to be a nightmare. How will you manage their tasks during the alternate weeks, of course the parents and business have to agree the patterns but this in itself might be time consuming?

“I don’t think government has thought it through. In terms of larger companies with more resource, there is more scope to cover.

“But a lot of businesses in the UK are SMEs where in reality people will not be able to do that, albeit theCIPPdoes support the government’s attempts to try and provide a better work/life balance for working parents.”

TheCIPPsees its role as educating as many groups of people as possible about “the basics” of pay, tax and related issues.

“We have a programme for schools educating kids on the basics,” says Melvin.
“What does your payslip mean? Is your lunch hour paid? What do you do on your first day in work? “We now have a payslip app and have an audio payslip tool that helps with payroll education.

“We work withPFEGand with other charities in the education sector and have started a forum. We are also running a free event for charities to support them with auto-enrolment. We are doing quite a lot in different areas.”

On auto-enrolment, there is an even bigger challenge to help companies meet their new legal requirements.

“We have been doing through a group called Friends of AE, getting pension providers, payroll etc. to think how to get a common focus and agenda.

“Pensions minister Steve Webb came to our last AE event. Our biggest concerns are the number of businesses who will be staging over the next two years – there will be a huge influx into the marketplace – and SMEs might not have the resources to manage AE. We are working on education standards on AE admin. We would like to have an apprenticeship stream within AE. We don’t want SMEs to suddenly realise they have to stage and then have to pay a consultant £1,000 a day, if we can have a flexible workforce to manage admin that will help no end.”

Tory MP Ben Gummer is one of those who suggested, just before the 2014 Annual Budget that merging tax and national insurance (NI) will simplify tax and help taxpayers better understand how much they pay. George Osborne has since been reported to have said if the Conservatives are elected in 2015 they will merge NI and PAYE into one system.

Melvin is sympathetic.

“I can see from my own point of view a lot of merit of just having a tax that encompasses NI; it would certainly help simplify the payroll.

“In ourCIPPqualifications, in the first module, we cover why NI was there in the first place and how in theory the funds from one pot go to one thing and from another to another. But in reality if you were to survey people in their 20s and 30s they would not have a clue what NI is for.”

Melvin is a bracing antidote to the image of payroll professionals as paper-pushing backroom people. He is passionate about dealing with payday loans.

“I run theCIPPand I am innovative and forward-thinking in my ideas. I have a vision of where I want us to go and I have a fantastic workforce and management team who see the picture I am trying to paint and are behind me. The board also totally support that.

“I believe especially through credit unions we can make a difference in society and we have a real passion to actually stop the financial cancer at its roots. In our conference in the autumn we are having a global look at payday loans with people from different countries attending. It is a big agenda.

“The thing that has motivated us is the surveys on the people who use payday loans. 91% have health issues. 60% are on medication. Many have relationship issues. Therefore there is no doubt that people’s work performance is affected by worries about personal debt. A lot of companies don’t think about that. Active education on one side and the credit unions on the other side is the best way to go.

“We are passionate and adamant we are going to make a change on this one. My dream is that every business in the UK will link to a credit union. We have been looking at what the barriers are.

“Often the HR person can see the value, but in terms of payroll, where there is a perceived administration burden it can often deter the profession from embracing certain initiatives; although the landscape is changing I am pleased to say.

“We have created a suite of educational tools, such as webcasts, and we have now got major payroll outsourcers behind us.

“We are working very hard to make sure the credit unions understand the payroll side. If the procedures are followed the work involved is minimal and the return is massive.”