In 2018, financial services company Conferma Pay referred to employees as“America’s Invisible Bank." It’s a vivid turn of phrase that captures a very real problem. According to the report, businesses “borrow” $1.6 billion per month from their employees. Companies are, in fact, relying on their employees to pay out of pocket for things like hotel rooms, gas/mileage for business use, and software subscriptions.

This story from an office manager shows the impact this has on individual employees when their bosses lean on them too much to shoulder the burden of work expenses:“[Our receptionist] . . . showed me a spreadsheet of all her trips during the month of June, and at roughly .15 a mile (depending on gas prices), it added up to over $60,” the office manager notes. “She only makes minimum wage to begin with and gets 32 hours a week.”

‍The problem isn’t necessarily intentional. Following the status quo is an easy trap for finance teams to fall into, viewing the current expenses process with how it’s always been done rather than how it could be done.But the truth is, there is so much more finance teams could be doing to take the financial pressure off their employees, especially considering the serious, negative invisible costs associated with employee reimbursement—each with their own domino effect.

The intrinsic problems of the “Employee Bank”

Employers often treat their employees as a bank for two reasons: 1) they don’t want to constantly lend out company credit cards or 2) they don’t have enough money to cover company expenses at the moment. This set-up is quite common. In fact, 72% of employees aged 18-34 pay out of pocket for work-related expenses and then wait for reimbursement. While the process might be “normal,” it’s not ideal or sustainable. When employers rely on the expense reimbursement process, employees are essentially serving as a bank without bank benefits. They’re providing the company with interest-free loans. This arrangement doesn’t benefit the employee in any way. In fact, it often damages their own personal cash flow. And, even worse than a bank, the set-up offers no guarantee that employees will be reimbursed. Instead of a loan guarantee note, employees are left carrying the financial burden of company expenses and the hope that their purchases will be reimbursed. The expense reimbursement model has many long-term pitfalls that outweigh any short-term benefits for the company.

It puts a strain on employee finances

According to the Conferma report, the average amount that employees spend on work-related expenses equates to $111 per month. That might not sound like a lot, but put the number into context for typical company positions: the national median salary for a junior account executive is $40.2K, or around $2.5K per month after taxes. The median salary for a customer service representative is $33.7K or around $2.3K per month after taxes. Once you deduct common living expenses from these salaries, such as rent, student loans, retirement, health care costs, and utilities, $111 is a sum that becomes crucial for many employees to stay financially afloat. According to Conferma Pay, forty-five percent of employees “state that the time taken to get their expenses repaid has left them with less money to spend on personal items in the short term.”This practice puts a strain on younger employees in particular, because they tend to earn less and have personal expenses, such as student debt, that restrict the amount of extra cash they have lying around. These employees might also feel less empowered to speak up if they can't afford the expense because they don't want to jeopardize their job. Thirty-five percent of employees aged 18-34 would even take a loan froma friend or a family member to cover a business expense if they didn't have personal funds on hand. Once they do front the money, it takes one to two weeks on average for employees to get reimbursed, if they get paid back at all. This financial burden causes a negative chain reaction in other areas of the workplace.

It introduces psychological stress

When employees can’t cover their own financial needs due to company purchases or are constantly worried about reimbursement, their mental well-being is affected. Conferma Pay found that two in five employees have suffered from stress due to delayed reimbursement. Stressful work hours and heavy workloads are leading causes of workplace stress, but poor mental health due to financial issues is also a major problem. Adding another level of financial pressure on employees only serves to fan the flame. Concerning the primary demographic impacted, fifty-eight percent of workers 18–34 years of age experience mental strain due to the delay in repaying expenses. Psychological stress imposed by finances can then create an avalanche of other employee problems, such as employeeemployee burnout, turnover, absenteeism, and productivity losses, which all silently impact a company’s bottom line. According to one study, employees struggling with stress costs companies about eight total days per month. American businesses are also losing $500 billion per year due to employees’ personal financial stress, according to a Salary Finance survey of more than 10,000 Americans. In addition, employee stress increases health care costs for companies, as well as hiring costs when stressed employees leave and new workers have to be brought in.

It damages employee productivity

With the amount of productivity issues caused by the “employee bank” approach, companies can’t depend on employees' personal financial situations to move forward with business operations. According to a study by Colonial Life, “50% of workers said they lose between one and five hours of work time each week due to stress,” and this lack of productivity is costly. The study found that with 128.5 million full-time employees earning, on average, $21 per hour, employers are losing billions on stressed, unproductive workers. On top of the stress-related productivity issue, another productivity problem rears its head: Employees may stop purchasing necessary expenses altogether because of a) the fear of not getting reimbursed at all or b) the length of the reimbursement process. Forty-nine percent of employees said “they would stop spending money on a business expense if they had to wait a significant amount of time to be repaid.”Considering that two out of three employees currently pay out of pocket for work-related expenses, things like business travel, client hospitality, and marketing activities all have the potential to come to a screeching halt if employees don’t cover them. Employees also then lack the tools or resources to successfully complete their tasks. And when operations suffer internally, external opportunities such as new business are lost, impacting the company’s financial health.

Eliminate expense reimbursement

Companies that fail to reimburse employees quickly (or at all) only increase employee stress and decrease employee productivity. The practice is not only detrimental to company processes; it’s unsustainable. The average employee may not have the financial capacity to continually cover company expenses, nor should they be expected to. By restructuring their purchasing process, businesses can empower employees to spend confidently — without having to lean on the Bank of Beth from Sales.