Credit Union Payroll Deductions for Scottish Employers

25th September 2016

In a report by Scottish Government published earlier in 2016 entitled "Scotland's Credit Unions - Investing in Our Future" The First Minister Nicola Sturgeon wrote a letter to employers as follows -

Dear
As First Minister of Scotland I am delighted to be able to offer this letter in support of the
work of credit unions and at the same time encourage the uptake of payroll deduction
schemes for employees with credit union accounts.

Credit unions make an invaluable contribution to providing financial services and products to
a wide range of customers. This includes those facing financial exclusion, but also includes
people from all walks of life and all income levels who find that access to loans and savings
through a credit union helps them get - and stay - on top of their finances.

There are over 100 credit unions in Scotland with a combined membership of over 375,000,
holding £448 million in savings and lending £275 million. With 7% of Scots using a credit
union, Scotland has the fourth highest proportion of credit union membership in Europe, and
our credit unions are part of a global movement with a proven track record which serves 217
million people in 105 countries. In countries like the United States - where 104 million people
use credit unions - partnerships with employers are a critical aspect of the success of credit
unions and deliver significant benefits for businesses and employees alike.

The Scottish Government recognises the valuable role played by credit unions in building
financial health by providing financial services and products to a wide range of customers.
To support that role, Fergus Ewing, Minister for Business, Energy and Tourism, launched
Scotland's Financial Health Service and set up a credit union working group to consider
ways to promote and support credit unions in Scotland further. Encouraging a savings
culture via payroll deduction and access to other services such as affordable credit has been
identified as a key route not only to building and strengthening Scotland's credit unions, but
also an innovation which can have significant benefits for employers, staff and the Scottish
economy more widely.

Payroll deduction offers a simple, convenient route to saving and repaying loans for minimal
cost to the employer, and provides a valued staff benefit which can help recruitment and
retention of staff.

The benefits include:
• Helping staff join a credit union and thereby building credit unions' capacity to help
financially excluded consumers in communities across Scotland is a significant
demonstration of a company's corporate social responsibility.
• Establishing a payroll deduction arrangement with a credit union is very simple and bears
minimal costs for employers. Many of the largest outsourced payroll providers will provide
this service for no additional charge.
• Saving via an automated payroll deduction savings arrangement helps people save more and
build a buffer to cover unexpected expenses.
• The ability to access credit and repay loans in affordable slices direct from payroll helps
employees stay away from high cost lenders who may damage their financial wellbeing.
• Credit unions have operated successfully in Scotland for almost 50 years and have grown
rapidly over the last decade. They are authorised and regulated by the Prudential
Regulation Authority and the Financial Conduct Authority, and savings in a credit union
are covered by the Financial Services Compensation Scheme up to £75,000 per person -
exactly the same protection as savings in a bank or building society.
The credit union sector is extremely important in changing and improving the lives of our
people and communities. Businesses partnering with credit unions and promoting savings
and loans via payroll deduction is a win for all parties, with a proven benefit to credit unions,
businesses, employees and the Scottish economy more generally.
So I am urging employers across Scotland to get in touch with a credit union to explore
establishing a payroll deduction relationship with a view to improve financial health and
boosting the productivity of Scotland's businesses.

Nicola Sturgeon

Employers are not restricted to operating a scheme with just one credit union, but can
enter agreements with a variety of local credit unions to offer staff the choice of holding their
savings in the local community.
34. In the most successful credit union sectors around the world, the recognition of credit
union membership as an employee benefit and widespread understanding of the advantage
to employers of their staff having access to regular savings and affordable credit have taken
root. This has led to many successful partnerships with employers and a culture in various
industries and workplaces where credit union membership via payroll deduction is considered
a standard employee benefit.
35. This is especially true in the United States, where over 100 million people are credit
union members (America's Credit Unions, 2015), and most credit unions emerged from
employment-based common bonds. There has long been a recognition in the United States of
the interlinked relationship between employees' financial wellbeing and their productivity -
and therefore, the contribution that a financially healthy workforce makes to an employer's
profitability.
36. Research by the United States credit union think tank, the Filene Institute, reported that,
‘There is a close relationship between employee financial health, productivity, and employer
profitability,' and that the result of a financially capable workforce was, ‘less absenteeism,
fewer accidents, less job turnover, lower benefit costs, and higher profits.' The report also
concluded that, ‘employees who are financially secure are also better able to learn, change,
and grow with the company,' and that, ‘when employers realize that employee financial
problems result in lower production, they see that it is more expensive to ignore money
problems than to confront them.’ (Filene Research Institute and The Center for Credit Union
Innovation LLC, 2002).

Employers can highlight to their staff the benefit of automatic regular saving in reducing
stress linked to financial worries. Working Group representatives highlighted the following:
• Payroll deduction is a simple process with administration largely handled by the credit union,
not the employer;
• The contractual relationship is directly between the credit union and the member of staff
therefore there is no risk to the employer regarding loan repayments and saving security. The
employer only acts as a conduit for the transfer of funds;
• Helping staff to join a credit union and thereby building the sector’s capacity to help financially
excluded consumers in communities across Scotland is a significant demonstration of a
company’s corporate social responsibility;
• Saving via an automated payroll deduction arrangement helps staff to build a buffer to cover
unexpected expenses;
• The ability to access credit and repay loans in affordable instalments direct from payroll helps
employees stay away from high cost lending which may damage their financial wellbeing;
• Savings in a credit union are covered by the Financial Services Compensation Scheme up to
£75,000 per person - exactly the same protection as savings in a bank or building society.

The full report can be seen at http://www.gov.scot/Resource/0049/00493888.pdf
http://www.gov.scot/Resource/0049/00493888.pdf

In Highland and Islands employers contact Hi-Scot Credit Union at http://www.hi-scot.com/

https://secure.hi-scot.com/onlineMembership.asp?section=1