Are Your Employees Living Paycheck to Paycheck? - Brief Article

Workforce, Dec, 2000 by Victor D. Infante

In the event of a delayed paycheck, six out of ten American workers would find themselves in dire circumstances, according to a survey prepared for ADP payroll services.

"The United States is in the midst of the longest economic expansion in its history," says the ADP report. "Prosperity has never been higher and unemployment is at historic lows. Yet in spite of this, many Americans are still living paycheck to paycheck. In many cases, their economic resources are so tight that even if their paychecks are just a few days late, they will be forced to cut back. In many cases these cutbacks involve life's basic necessities--groceries and rent."

The report shows that a one-week delay would cause 40 percent of American workers to cut back on critical payments, including rent, mortgage, credit card, and utility bills. Worse still, 26 percent would be forced to cut back on food for themselves and their families. "Seven out of eight American workers with incomes under $25,000 would be negatively impacted," says the report, compared with three in four who have incomes between $25,000 and $50,000 who would have a similar experience."

"The likelihood of having a critical impact," observes the report, "is significantly higher among those with lower incomes...Higher incomes do not avoid critical impact either. One in four (24 percent) with incomes $50,000 or more would face these problems if their pay was late."

Along with the report, ADP provides five suggestions that HR professionals might want to pass on to employees in order to prevent paycheck-to-paycheck problems:

* Don't give the IRS an interest-free loan: Changing the withholdings on a W-4 will put extra money in a paycheck (suggest speaking to the payroll manager about changing withholding status). That extra money could be in the bank account or other savings vehicle earning interest.

* Sign up for direct deposit: Wages paid directly into savings or checking accounts allow you to start earning interest as soon as your paycheck is deposited. Opt to have part of your pay deposited into a high interest-bearing money market account.

* Commute tax free: Take advantage of pre-tax transportation allowances that are offered by your employer. They may even pay for transportation benefits outright.

* Favor flex-spending plans: You can have pre-tax deductions taken out of your paycheck and put into your own flexible spending account. This money can be used for certain medical, dental, or dependent care expenses that aren't covered by your insurance. Remember, with a flex-spending plan, you'll need to spend all the money you've put into your account by the end of the year.

* Relish retirement plans: Even if you are one year out of college, set up a retirement account such as a 401(k) or 403 (b). You can put as much as 15 percent pre-tax money into retirement plans. You could retire with more than $1 million in the bank.

"These are important guidelines for workers across the U.S.," says ADP. "Too many of us are just one paycheck away from catastrophe."