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Tuesday, January 31, 2023

How startups can help you win the talent war with tailored employee benefits


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In 2021, nearly 50 million workers voluntarily left their jobs. The median tenure of employees over the age of 25 has dropped from 5.5 to 4.9 years since 2014. On average, employees 25 to 34 now stay at jobs for less than three years.

This isn’t just “quiet quitting.” U.S. workers are ready to move on from their current jobs — and they’re sending that message loud and clear.

In the battle for talent, employer benefits have become an important weapon. Sixty-three percent of employees said they would leave their current company for a job with better benefits — even for equal or less pay. In response, employers are mounting a benefits-led offensive complete with longer PTO, remote work options, fertility support and mental health support.

It’s an exciting time to sell employee benefits

The employer sales channel has inherent and often overlooked advantages. These include a captive user base, employee financial and demographic data, and no consumer price barrier when employers cover the cost. New and exciting products are emerging from the combination of consumer APIs (like Plaid for consumer banking data and Method, Spinwheel and Rightfoot for consumer liability data) and a new cohort of employment data APIs (including Argyle, Pinwheel and Merge). With a deeper financial picture of individual employees, startups can build more tailored benefits products.

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These new APIs and a competitive job market have made the employer channel increasingly attractive. We are particularly excited about two categories that are selling through employers right now.

Earned wage access

More than 40% of full-time employees in the U.S. live paycheck to paycheck. Earned wage access (EWA) services allow workers to receive their pay earlier than the typical biweekly cadence. They represent the latest in a long line of “income smoothing” products that make workers’ cash available sooner. The first iteration of income smoothing was the payday loan, which often caught people in vicious debt cycles through astronomical interest rates.

The next iteration of income smoothing involved B2C cash advances that helped consumers avoid overdraft fees. Companies like Dave and Earnin provide consumers with cash advances of up to $750, with service relying on membership fees and voluntary tipping.

Income smoothing’s most recent iteration is EWA sold through the employer channel. Because employers have access to wages and hours worked, they can provide zero-risk “advances” to their employees. Players like Rain and Tapcheck sell through the employer and charge employees a small fee per advance, while others like Clair and Branch remove cost barriers entirely by relying solely on debit card interchange.

Financial wellness

Financial stress among employees is currently at an all-time high, resulting in high employee turnover and low productivity. Employers are turning to fintech to help alleviate the stress.

Traditional financial advisors are equipped to serve high-net-worth individuals only. However, employers can provide financial advice with no additional cost to employees. This also gives each employee a clearer financial identity, with visibility into salary, 401(k), insurance and equity options. Companies like Northstar and Origin offer dedicated Certified Financial Planners and online tools at zero cost to the employee.

Financial wellness products don’t just take the form of advice. Products now exist for employers to help workers build emergency savings (like Sunny Day Fund) or pay off student loans in the style of a 401(k) match (like Unsaddl). Companies like PTO Genius and PTO Exchange empower employees to use accrued PTO to contribute to their retirement or to pay down personal debt.

What’s next?

When done right, selling via employers can help get products into more consumers’ hands, with benefits for employers and employees alike. As the channel evolves, we anticipate two larger shifts.

We anticipate that more benefits will become portable as job-hopping millennial and zoomer professionals move from company to company, and gig workers seek employment outside of a traditional nine-to-five. Companies like Icon and Manifest help tie retirement plans to employees and decrease the number of abandoned 401(k) accounts.

In the growing gig economy sector, Stride Health and Catch provide insurance benefits to the growing population of self-employed and 1099 workers. Some companies, like Northstar, are moving in this direction by allowing continued access to employer-sponsored benefits after the employee has moved on, and we expect others to follow this trend.

Second, employers will offer increasingly stratified benefits unique to different generations, parental statuses and income levels. Depending on stage of life, employee preferences may differ regarding access to travel benefits (like Donde) versus fertility benefits (like Carrot). In-office employees will care more about commuter benefits like Share Mobility while remote workers prefer access to a service like Deskpass.

Indeed, less than half of today’s workforce is “very satisfied” with their current benefits package. In response, products like Forma offer a set budget alongside a broad scope of potential benefits, allowing employees to choose what is most important to them.

There are real challenges associated with selling a service as an employer benefit, including the inherent difficulties of deputizing B2B customers to run everything from marketing to customer success with your end users. But in the current labor market, employer benefits are an effective way to boost employer retention, productivity and happiness — and therefore, have become an essential tool for HR staff.

John Lin and Sarah Lamont

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