The Rocky Road to Financial Recovery

Facing disaster-related expenses, employees in financial hardship have few places to turn.

One option for immediate expense coverage is a payday loan, which charges high-interest rates for small personal loans. While these loans can provide immediate relief, they come at a significant cost. A 2015 study by the Pew Charitable Trusts found that 12 million Americans take out payday loans each year and spend $9 billion on loan fees. The interest rates on these loans are significantly higher than credit card rates: Debt.org says they effectively range from a 300% to 500% annual percentage rate (APR).

If an individual can’t afford the emergency expense, chances are near certain they cannot afford the extra cost of high interest, which is part of the cycle that keeps economically disadvantaged groups in a state of financial strain.

In addition, many (but not all) major companies give employees the option to take a hardship withdrawal from their 401ks, which alleviates the 10% penalty that would typically apply to a withdrawal. There are, however, drawbacks to this option: First, employees are not allowed to repay any money withdrawn back into the plan. Employees also must provide documentation to their company as evidence of the hardship need, which can violate personal privacy. Furthermore, some hardships don’t qualify under IRS rules, such as burial expenses or prevention of eviction or foreclosure.

Emergency financial relief programs allow companies to offer charitable grants to their employees and other key stakeholders during times of disaster and hardship. These direct cash grants can help cover the cost of evacuation or repairs. There is no interest, and there is no hit to long-term savings and retirement. They are a lifeline to individuals in need, and when done right, they protect the privacy of employees and ensure equitable access across the workforce. In providing emergency financial relief grants, companies can deliver timely support and help bring an end to cycles of poverty and disadvantage. And research shows it is a solution employees want: 47% of workers said an employer-sponsored emergency fund would entice them to leave their current job for a new opportunity.

Disasters create opportunities to rebuild better and stronger than before. This is as true for our infrastructure as it is for our people. Companies can facilitate this process by offering their workforce financial support when it is needed most.

Davida Rivens is the Managing Director, Growth & Development at E4E Relief She has been a driving force at E4E Relief for more than a decade, playing a leading role in the growth and development of the organization that now serves 140 companies and 6 million individuals worldwide. She has a passion for service and a deep commitment to creating workforce solutions that meet the needs of all populations.

The good news: There is another option for companies that decide to support their employees in the wake of disaster – emergency financial relief.

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