Don’t send your employees over the ‘benefits cliff’

More than half of Greater Cincinnati residents in poverty have at least one job, which means hundreds of local companies have employees who need public assistance just to make ends meet.

“I think that was news to many of the employers we work with,” said Meghan Cummings, Executive Director of the Women’s Fund of the Greater Cincinnati Foundation.

It was in that context that Cummings and the Women’s Fund studied the nexus of public benefits and employment benefits. After years of research and input from hundreds of employers and employees throughout the region, the Women’s Fund released an “employer toolkit” earlier this year that offers practical tips for attracting, retaining and engaging frontline workers.

If there is a theme to the 39 tips in the toolkit, it is that traditional employment benefits might need to be tweaked to truly appeal to low-wage workers.

If done correctly, the reimagined benefits can change lives for those in poverty while reducing turnover (and waste) for employers.

”It’s about co-investing with your employees,” Cummings said.

She discussed the employer toolkit last week at the final Cincinnati Works Employer Seminar of 2018. In particular, the tips in the toolkit are meant to help low-wage workers as they approach the “benefits cliff”: the point at which a small increase in wages causes someone to lose a public benefit such as food stamps or Medicaid.

Cummings told the story of a woman who turned down a promotion because she could not afford the accompanying raise. It would have pushed her income over the limit to qualify for public assistance, and the loss of public benefits was greater than the gain in salary.

“This is what people mean when they say, `We are working harder and harder and harder and just can’t get ahead,’” Cummings said. “It came up so much in our research. When we finally got this quantitative research back, it made so much sense.”

According to research by the Women’s Fund, a single mother with one child who makes $5,000 in earned income can qualify for more than $30,000 worth of assistance, giving the household a “true income” of more than $35,000. As that single mother increases her salary to $40,000, the public assistance shrinks to near $0 – so the family’s “true income” rose by less than 20 percent even as the mother’s wages rose 800 percent. (See the chart at right.)

At various points in between, a slight increase in wages causes a complete loss of a benefit, meaning the family’s “true income” drops as the mother’s wages rise. The biggest cliffs are the loss of child-care subsidies and the transition from Medicaid to the Affordable Care Act. Child care could be an even bigger issue in 2020 when new voucher restrictions go into place.

With 1 in 6 Hamilton County residents living in poverty and 1 in 4 Cincinnati residents in poverty, the “benefits cliff” is a frustrating reality for many frontline workers. As employers struggle to fill frontline positions, it is important that they consider how their employment benefits can help negate the cliff.

For instance, tuition reimbursement might be an attractive benefit to a middle-class, middle-management employee who seeks a promotion to management. A low-wage worker likely cannot afford to pay upfront for tuition and may not have the time or support system to pursue an advanced degree.

“If you are thinking about the food you are going to put on the table this week or the stock option 30 years down the line, those are very different needs,” Cummings said. “Let’s be honest, most employee benefits are geared toward a middle-class lifestyle.”

The employer toolkit covers 39 specific employment benefits and practical advice to adapt each of them to appeal to lower-wage workers. The suggestions range from hiring or contracting with a workforce coach to providing bus passes upfront rather than reimbursing employees who purchase them.

“You’re bleeding money anyway,” Cummings said. “You might as well invest it in a virtuous expense.”