We have all seen the headlines—more than 16 million people have filed unemployment claims in the US— and those in low-wage or hourly jobs are more likely to be impacted economically. Even if you have been able to maintain your workforce, it’s likely that finances are weighing heavily on employees’ minds—73% of Americans report that the pandemic has reduced their income. The likelihood of your employees experiencing a financial shock has exponentially increased in the last few months, either due to loss of income from a side gig or a partner’s job loss, or new unexpected expenses, like supporting family members who have lost income.

In these tumultuous times, an engaged, present, loyal workforce is needed more than ever to allow your company to weather this storm. For those employees feeling the economic impact of COVID-19, an emergency cash benefit can be a key aspect of employee financial security. New research has found that emergency cash can have tremendous benefits for employees and companies alike.

An emergency cash benefit provides workers who experience a financial emergency with a quick cash grant in a moment of need. This allows a worker to avoid major disruptions like missing work, high-interest debt, or skipped rent payments. Emergency cash benefits can be formal established employee hardship fund programs, like Levi’s Red Tab Foundation, or more informal programs run by human resources departments. The IRS designated COVID-19 as a “qualified disaster,” opening the door for employers to provide “qualified disaster relief payments” for the pandemic. This determination, along with several innovative offerings from fintechs (e.g., Canary), make emergency cash benefits for employees tax advantaged, and quick and easy to get up and running.

While typically thought of as a benefit to be used for natural disasters, the unprecedented circumstance of this pandemic may alter the lens on what constitutes an emergency: for lower-income employees, an everyday expense like rent or food may well become a pressing financial hardship.

An HR executive at a company where 80% of employees are non-exempt described the importance of the company’s hardship fund as a lifeline for workers: $1,500 to get a car repaired to get to work, or money for a security deposit on an apartment so they are not homeless. In this case, employees paid the fund back–as little as $25 a paycheck–but the immediate infusion of cash allowed them to keep coming to work, and reduced their worries about meeting basic everyday needs.

Commonwealth has executed two research projects on emergency cash: a collaboration with the Aspen Institute evaluated established employee hardship funds and a collaboration with The Workers Lab tested emergency cash infusions for gig workers. In that research with the Aspen Institute, a majority of people who received grants from employee hardship funds said the funds made them less distracted and less stressed at work and 72% of employee hardship fund recipients were more likely to stay with their current employer than leave for a company without hardship funds.

Both studies also found positive psychological benefits for both people who received the funds and also for people who just knew the funds were available to them. People who received funds reported being less stressed and having the mental space to problem solve. For people who just knew the hardship funds were available to them, they knew that someone had their back.

Elements of a Successful Emergency Cash Program

In general but particularly during COVID-19, employers should focus on their employees’ specific needs and situations in order to make the funds as effective as possible. Commonwealth’s research indicates emergency cash is most effective under the following conditions:

• Match the Grant Size to the Need: The more fully a grant covers an emergency, the more impactful it is on a person’s long-term financial life. When emergencies were fully covered, 40% of recipients were able to return to their pre-hardship financial lives; without full coverage that number dropped to 5%.
• Empower the Employee: Giving employees cash assistance and allowing them to decide how, when, and for what to spend it helps generate a sense of mutual trust. Empower employees to make their own decisions about how best to use the funds.
• Expand the Definition of an Emergency: Many employee hardship funds have specific definitions around what constitutes an emergency. During COVID-19’s economic fall-out, expanding that definition may be necessary to be effective. Things that may not have been an emergency six months ago–rent payments or food, for example–may be acute needs now.
• Simplify the Process: During COVID-19 in particular, making it quick and easy to get funds is essential to make an impact. Limit documentation barriers and make the process efficient and clearly communicated.
• Provide Cash Quickly: Emergency needs are often acute. Employees are less satisfied when it takes more than two weeks to deliver assistance. Receiving funds quickly — before the initial financial hardship is further aggravated by late fees and penalties, expensive borrowing, or harm to the recipient’s credit score — improves their financial impact.

During the challenging economic fall-out many lower-income and financially vulnerable people are experiencing during the COVID-19 pandemic, emergency cash programs can play a key role in maintaining financial stability. They can also provide positive business benefits for companies, with more engaged, productive employees. Thoughtfully designed programs that take the needs of employees into account are key for success.

Editor’s note: This blog post was originally published by BlackRock’s Emergency Savings Initiative on savingsproject.org. Commonwealth is an industry expert partner on the this initiative.