Should employers offer emergency savings accounts?

Financial stress continues to weigh on Canadian workers at home, leading many to take their personal financial challenges into the workplace and ultimately causing productivity concerns.

According to the Employee Benefit Research Institute (EBRI)’s 2023 Workplace Wellness Survey, US employees reported wanting emergency savings accounts included as a job benefit.

Peter Tzanetakis, president and CEO of the National Payroll Institute, believes the issue still stands. In fact, he underscored it’s gotten worse, particularly in Canada.

“Financial stress has reached new highs,” he said, pointing to data from Canada’s Financial Wellness Lab that found four in ten working Canadians are financially stressed, with many saving less than 5 per cent of their pay - or nothing at all.

So should emergency savings accounts become a standard part of workplace benefits? Tzanetakis sees a clear and growing demand for employer-supported emergency savings accounts, grounded in both survey data and the financial realities facing Canadian workers.

“There clearly is an indication from employees that this is something that would benefit them,” Tzanetakis said.

Despite this, uptake remains low, with few employers offering such programs and limited employee participation. He cautioned that the absence of savings is pushing individuals toward high-interest debt options like credit cards and lines of credit, which only worsen financial stress.

“All the data really points to this short-term need for funding emergencies and having that buffer,” Tzanetakis said.

Meanwhile, Dimitri Poliak, principal at Normandin Beaudry, agrees the time is ripe for rethinking benefit design.

“We’ve certainly seen with our own clients a strong and growing focus on engagement with plan members, building on their financial literacy and really bridging their personal needs with the ongoing support systems that exist,” he noted.

Meanwhile, some experts also suggest that workplace emergency savings programs have shown a strong return on investment (ROI) for employers.

But implementing emergency savings isn’t as simple as adding a line item to a benefits package as Poliak emphasized that employers must first understand their workforce.

“The first step is to truly understand where employees are coming from,” noted Poliak. “Uncovering the source of the need is important and then these emergency savings [accounts] or the engagement strategies can help achieve the outcomes.”

Tzanetakis sees emergency savings as a response to a structural shift in expectations with working Canadians looking to their employers to do more. Yet, he emphasized only one in seven workers feels their employer is doing enough to help them with rising living costs.

Poliak doesn’t dispute that sentiment. But he cautions against quick fixes as he emphasized emergency savings should be viewed as the "first line of defence" for unexpected life changes or career disruptions.

In Canada, emergency savings accounts are typically represented through Tax-Free Savings Accounts (TFSAs) but simply labelling a TFSA as an emergency savings solution might not deliver the results employers hope for.

“A TFSA is incredibly effective as a long-term savings vehicle,” he said. “I think managing the message is important.”

Instead, he highlighted a broader, layered strategy. One that consists of financial literacy, tailored communication, and access to tools like TFSAs or non-registered accounts that can support budgeting, debt management, and short-term savings in the workplace.

“What’s been resonating and effective is starting with strategically assessing the plan sponsor needs as well as the member context before we can communicate them,” he said. “Each employer needs to go through the exercise of assessing what is relevant and important within their own population and how that can be reconciled against their existing programs.”

Where Poliak focuses on design and engagement, Tzanetakis brings it back to payroll implementation.

“Employers need to pay attention to financial stress,” he asserted. “The amount of time employees spend on the job dealing with and stressing over their finances equates to $54 billion lost productivity each year across the economy,” he said, adding that figure has doubled since 2021.

The question of how much to save also comes up often. Tzanetakis emphasized that while there’s no fixed dollar amount employers should aim to deduct for emergency savings, any contribution can make a difference. He also pointed to the alarming number of Canadians who could struggle to come up with even $2,000 in an emergency, leading many to turn to high-interest debt instead.

“Those who are getting out of the financially stressed cluster are starting to save in the neighbourhood of over 5 per cent of their gross pay to go into their savings,” he explained. “The cost of having people financially stressed far outweighs the cost of implementing these in the workplace,” he said.

Notably, it’s also operationally feasible for plan sponsors, noted Tzanetakis, as most payroll systems can direct portions of pay into separate accounts. In that case, it’s up to the employer to determine if they choose to set that up. But it’s also partly an educational piece too.

“We’re not seeing a huge take-up of these ‘pay yourself first’ programs,” he noted, adding some US employers have gone further, using automatic enrolment to encourage participation.

“That does require some legislative changes, but at a minimum, here in Canada, we should at least encourage these,” acknowledged Tzanetakis.