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Saturday, 17 November 2012

“Help, our personnel is having financial problems!” Liquidity issues of their personnel cause headaches among Dutch employers.

2012 has indeed become a hard year for many employers and their employees, like I already predicted  in last year’s article The 2012 Outlook for The Netherlands and Europe:

On the (large) employers, I wrote:

Especially the strong Euro-countries in Europe will suffer from the pain that has been postponed in 2008/2009.The manufacturing industry, the financial services industry and exports will be hit hard as a consequence of stalling demand at the domestic markets, in the Euro-zone and abroad

I expect the leading European economies to shrink substantially in 2012; by at least 2%, but maybe even more. And in contrary to the official planners of the Dutch Central Planning Bureau (, I don’t expect the economy to bounce back mid-2012. I think this recession might last well into 2014 and it might take at least 10 years before the economy returns to 2006 growth-figures again.

And on consumer confidence:

What does happen, is that people spend less money during typical sales periods.They will also postpone spending on expensive luxury goods and durable household appliances that don’t need to be replaced immediately. They will also spend less money in hotels, pubs and restaurants. This will have its effect on industrial production and the food-and-beverage industry

It might sound impertinent, but most of the conclusions in this article, including the rise of unemployment with 3%-4%, are still standing firm: the economy is shrinking, unemployment is rising sharply and consumer confidence is still very, very low.

Especially Building and Construction companies and the financial services industry went through a series of mass lay-offs that left almost no department and company unharmed.

My own principal (the largest bank in The Netherlands) is currently going through mass lay-offs at the Commercial Banking department. Next year Domestic Banking will follow with another series of mass layoffs at a.o. the ICT department.

Rabobank, Royal Bank of Scotland, ASR Insurances and SNS Bank already had their share of mass lay-offs and the signals are probably at ‘orange’ for Aegon, Delta Lloyd and ABN Amro.

I can be short on the situation in the Building and Construction industry: it’s dramatic, with soaring numbers of defaults and mass-layoffs.

All these lay-offs and, on top of that, the new government’s austerity measures and tax increases, make that large numbers of households have to pay more and higher bills with less income. The purchase power of the lower and middle class citizens will be dropping country wide; sometimes with more than 5%.

In this situation, it isn’t very strange that some households already experience so much trouble with paying their bills, that they have gotten in arrears. One of the unfortunate consequences of being in arrears can be that the wages of such a person will be officially claimed by his creditors: a distraint on wages. When an employer receives an official request for a distraint on the wages of one of its personnel members, the employer is obliged to follow it up. This is quite a lot of work.

Therefore such an arrears situation can be a very nasty surprise for employers. This became clear in an investigation of the Dutch ‘National  Institute for BUDget education’ (Nibud) on the consequences for employers of financial problems among their personnel.

Here are the pertinent snips from a Nibud press release on this topic:

More and more companies get involved in the financial problems of their personnel, with significant financial consequences for the company itself. This became clear from a poll among Human Resource managers and Organization consultants, held by the Nibud, in combination with the umbrella organization for social security directors ‘Divosa’.

Here are some conclusions of this investigation:
  • 79% of the companies has workers with financial problems
  • 75% has to deal with distraints on wages of their personnel, which cost at least an hour per case.
  • Productivity loss of workers in financial trouble is at least 20%
  • Sickness absence is soaring among such workers
  • So is the number of wage advances.

Nibud advises companies to develop a prevention policy, in order to prevent from higher expenses.

There are various clues for financial problems among workers: regular sickness leaves, concentration problems and even fraud or theft are common signs. Distraints on wages are the most common signal.

Deploying a distraint on wages is expensive for companies:
  • For 50% of companies, it takes an hour to deploy one
  • For 25%, it takes 1-3 hours
  • For another 25%, it takes more than 3 hours.

It is especially expensive, when you consider that more than 50% of the investigated companies has to deal with about 10 distraints on wages per year. However, the financial impact is even bigger, when sickness absence and loss of productivity are taken into account. Sickness absence among financially troubled people is estimated at 9 days per year. The 20% loss of productivity costs one improductive day per week for a fulltime worker. These financial problems press heavy on the employer and can be a reason for not prolonging a temporary contract for such a worker.

These figures are quite shocking. While employers at one hand are often involuntary responsible for (at least a part of) the financial trouble of their workers (by carrying through lay-offs or wage restraints / lower wages), this can be a serious blowback for companies too. The last thing that companies can use in these trying times, are workers not working at full force.

Still, this is and will be a considerable and increasing problem for years to come, is my expectance.  The chance that the Dutch and European economy will suddenly start to grow again, is very limited. Besides that, this government is gambling all its cards on austerity and balancing the budget: a recipe for higher unemployment and higher arrears among Dutch citizens. 

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