Workers’ deteriorating finances are wreaking havoc on their personal lives, spilling into their professional lives and hitting their employers’ bottom lines, too.

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Workers are stressing out over their finances — and its costing employers billions Back to video

Employee financial stress is expected to cost companies more than $40 billion in lost productivity this year, according to a new report by the National Payroll Institute. That figure is a huge jump from the $26.9-billion hit in 2021.

“On average, a financially stressed worker spends nearly 30 minutes every day dealing with their financial situation and not on the business tasks at hand,” says Peter Tzanetakis, the institute’s president. “Over the year, that’s over three weeks of lost productivity per employee.”

Almost three-quarters of workers admit to devoting part of their workdays to thinking about or handling money problems, the annual survey says. And they are very aware these worries are impacting their job performance, with 46 per cent of stressed staffers saying it’s taken a toll on the quality of their work.

Productivity aside, financially stressed workers are also more likely to skip work, lose motivation, have trouble interacting with co-workers or even quit their jobs, which is a sobering thought for hiring managers struggling with labour shortages. “There is a key business case for why employers should pay attention,” Tzanetakis says.

Previous research by the institute showed that working Canadians’ financial health has deteriorated this year. The number of those living paycheque-to-paycheque grew 26 per cent in 2022 from 2021, and many are taking on more debt and saving less to get by.

That shouldn’t come as a surprise. Year-over-year inflation hit a peak of 8.1 per cent in June, and only decelerated to 6.9 per cent in September, according to Statistics Canada data. But the price of necessities such as food continues to skyrocket. Grocery prices were up 11.4 per cent in September, the most since August 1981.

To add to the pain, the Bank of Canada keeps implementing interest-rate increases to tame rising costs and has raised rates by 350 basis points so far this year. That’s taking a toll on wallets as mortgage and debt payments rise in lockstep. The central bank in October hiked rates by another 50 basis points, bringing its benchmark to 3.75 per cent. The banks were quick to pass on the increase, raising their prime lending rates to 5.95 per cent from 5.45 per cent. No wonder folks are feeling the pinch.

Most workers likely think their employers should hand out raises to help them cope with the surging cost of living. But companies say they can’t afford to implement wage hikes that match the rate of inflation. Even if they could, they’ve been cautioned against doing so by Bank of Canada governor Tiff Macklem, who in July told an audience of entrepreneurs that they shouldn’t bake high inflation rates into wages. Doing so could cause inflation to become “entrenched,” senior deputy governor Carolyn Rogers warns, making it harder for the central bank to wrestle it back to its two per cent target.

That implies employers will have to turn to tactics beyond salary increases to boost employees’ money health and stop further productivity cuts. The National Payroll Institute suggests companies consider offering financial counselling as well as encourage employees to save more by setting up automatic savings plans through payroll or even going so far as to match employee contributions.

Doing nothing means employers can expect more erosion to productivity in the year ahead. As staff shortages persist and a recession looms, weakening productivity is likely the last thing business owners want to spend their time worrying about.

This story was first published in the FP Work newsletter, a curated look at the changing world of work. FP Work newsletter to receive it in your inbox every Tuesday.