At a glance

  • The four-day week is becoming reality for millions of workers as employers seek to cut costs
  • Some employers are offering reduced hours on the same pay, but for many people the reduced working week will also come with reduced pay
  • The flexibility of a shorter working week can present opportunities for savings - as well as some challenges

At a glance

  • The four-day week is becoming reality for millions of workers as employers seek to cut costs
  • Some employers are offering reduced hours on the same pay, but for many people the reduced working week will also come with reduced pay
  • The flexibility of a shorter working week can present opportunities for savings - as well as some challenges

At a glance

  • The four-day week is becoming reality for millions of workers as employers seek to cut costs
  • Some employers are offering reduced hours on the same pay, but for many people the reduced working week will also come with reduced pay
  • The flexibility of a shorter working week can present opportunities for savings - as well as some challenges

It’s an idea with obvious appeal to employees, but which poses a few questions and represents a big change from the norm. The prospect of moving to a four-day week was raised by a number of governments and employers when the pandemic hit in early 2020 and countries went into lockdown.

Some companies responded to the dramatic change in circumstances by offering employees temporary pay cuts in return for reduced working hours. In some cases it was a time-limited measure; in others, however, it is a longer term policy, and more employers – in both the public and private sectors – are considering the same approach.

New Zealand’s government has encouraged employers to consider a four-day working week, while a cross-party group of MPs in the UK called on the government to explore the option as “a powerful tool to recover from this crisis”. Even before the pandemic, some companies had already trialled the four-day model, striking examples being Microsoft Japan and the New Zealand finance company Perpetual Guardian, both of which recorded boosts in productivity.

Whether such experiments will outlast the pandemic remains to be seen, but it seems likely that in the foreseeable future more people will be shifting to a four-day week sooner or later. While some will be kept on the same pay, many of those dropping down to four days could see the change reflected on their payslip, too.

That will inevitably impact on their wider financial situation. So what do you need to think about if your employer is offering less work for less pay? Here are a few points to consider.

Take stock

Get an idea of the overall picture when working out if you can afford a shorter working week. Start by understanding what it really means for your take-home pay, as a reduced salary also means less tax and national insurance coming out of your earnings – it could even move you into a lower tax bracket. Then think about what the income drop means for your household finances: would you still be able to cover bills and other outgoings, or could it push you over the edge? On the other hand, the reduced income may be offset by reduced costs too, such as childcare and commuting (albeit less so during lockdown periods). A cut in pay can also create eligibility for support such as child benefit and working tax credits.

Make flexibility pay

Can the extra wiggle room in your schedule help you mitigate the lower pay that comes with the four-day week? For instance, if both parents are on a four-day week there may be scope to stagger the days off or arrange working hours in a way that reduces childcare costs to a minimum. With childcare costs often a drain on finances, this could make a real difference.

Pay attention to your pension

Your workplace pension contributions will almost certainly be based on your pay – so a reduction in pay will mean less going into your pension. This may seem a small price to pay if retirement is a long way off. However, it will make it much harder to build up a decent pension fund for your later life years, because the ‘snowball’ effect of compounding means that starting early and saving regularly can make a huge difference to the amount you can save.

So, if you can afford it, it’s worth considering if you can maintain your contributions into your pension pot should you have to take a pay cut, and/or ask your employer to keep its contributions at the previous level.

Workplace benefits such as life insurance and income protection plans can also be affected by pay cuts, as the amount they pay out is typically linked to your pay – so make sure to investigate the impact that a pay cut would have, and that your and your family’s financial security is not being compromised during this uncertain time.

Make use of the extra time

Many people who have found themselves with extra time on their hands as a result of reduced hours have started a ‘side hustle’ – a second project to bring in extra income alongside their main employment. If you have a business idea you’d like to pursue, or a passion you think you could turn into a career, this could be an ideal way to test it without having to commit to it long-term or expose yourself to too much financial risk. It’s also a great way to build your business skills.

It isn’t for everybody, though. If your main job is hugely demanding or stressful, adding an extra load onto yourself could make it impossible for you to maintain a decent work/life balance. So think carefully before you make the leap.

Make your savings work

Many people are finding that the pandemic is reducing their outgoings, as travel costs are reduced, and holidays and meals out are cancelled. Once you’ve built up a rainy-day fund of around three to six months’ worth of essential expenses, it’s worth considering putting any extra cash into an investment vehicle that has the potential to deliver better returns in the longer term, such as your pension fund or a Stocks and Shares ISA.

At the same time, any reduction in pay – or increased pressure on household finances – can make it harder to set money aside. If maintaining the same level of savings is difficult, perhaps there’s scope to get more from the money you are able to put away. For instance, with interest rates at record lows there’s not much joy to be had from your existing savings options. But competitive rates are available from some regular savings accounts as well as some current accounts (provided certain criteria are met), so it’s worth shopping around. Also, make sure your savings are tax-efficient, by using your annual individual savings account (ISA) allowance. It’s wise to take advantage of these allowances now; as the government seeks to recoup the costs of the pandemic, they may not be so generous in the future.

It’s an idea with obvious appeal to employees, but which poses a few questions and represents a big change from the norm. The prospect of moving to a four-day week was raised by a number of governments and employers when the pandemic hit in early 2020 and countries went into lockdown.

Some companies responded to the dramatic change in circumstances by offering employees temporary pay cuts in return for reduced working hours. In some cases it was a time-limited measure; in others, however, it is a longer term policy, and more employers – in both the public and private sectors – are considering the same approach.

New Zealand’s government has encouraged employers to consider a four-day working week, while a cross-party group of MPs in the UK called on the government to explore the option as “a powerful tool to recover from this crisis”. Even before the pandemic, some companies had already trialled the four-day model, striking examples being Microsoft Japan and the New Zealand finance company Perpetual Guardian, both of which recorded boosts in productivity.

Whether such experiments will outlast the pandemic remains to be seen, but it seems likely that in the foreseeable future more people will be shifting to a four-day week sooner or later. While some will be kept on the same pay, many of those dropping down to four days could see the change reflected on their payslip, too.

That will inevitably impact on their wider financial situation. So what do you need to think about if your employer is offering less work for less pay? Here are a few points to consider.

Take stock

Get an idea of the overall picture when working out if you can afford a shorter working week. Start by understanding what it really means for your take-home pay, as a reduced salary also means less tax and national insurance coming out of your earnings – it could even move you into a lower tax bracket. Then think about what the income drop means for your household finances: would you still be able to cover bills and other outgoings, or could it push you over the edge? On the other hand, the reduced income may be offset by reduced costs too, such as childcare and commuting (albeit less so during lockdown periods). A cut in pay can also create eligibility for support such as child benefit and working tax credits.

Make flexibility pay

Can the extra wiggle room in your schedule help you mitigate the lower pay that comes with the four-day week? For instance, if both parents are on a four-day week there may be scope to stagger the days off or arrange working hours in a way that reduces childcare costs to a minimum. With childcare costs often a drain on finances, this could make a real difference.

Pay attention to your pension

Your workplace pension contributions will almost certainly be based on your pay – so a reduction in pay will mean less going into your pension. This may seem a small price to pay if retirement is a long way off. However, it will make it much harder to build up a decent pension fund for your later life years, because the ‘snowball’ effect of compounding means that starting early and saving regularly can make a huge difference to the amount you can save.

So, if you can afford it, it’s worth considering if you can maintain your contributions into your pension pot should you have to take a pay cut, and/or ask your employer to keep its contributions at the previous level.

Workplace benefits such as life insurance and income protection plans can also be affected by pay cuts, as the amount they pay out is typically linked to your pay – so make sure to investigate the impact that a pay cut would have, and that your and your family’s financial security is not being compromised during this uncertain time.

Make use of the extra time

Many people who have found themselves with extra time on their hands as a result of reduced hours have started a ‘side hustle’ – a second project to bring in extra income alongside their main employment. If you have a business idea you’d like to pursue, or a passion you think you could turn into a career, this could be an ideal way to test it without having to commit to it long-term or expose yourself to too much financial risk. It’s also a great way to build your business skills.

It isn’t for everybody, though. If your main job is hugely demanding or stressful, adding an extra load onto yourself could make it impossible for you to maintain a decent work/life balance. So think carefully before you make the leap.

Make your savings work

Many people are finding that the pandemic is reducing their outgoings, as travel costs are reduced, and holidays and meals out are cancelled. Once you’ve built up a rainy-day fund of around three to six months’ worth of essential expenses, it’s worth considering putting any extra cash into an investment vehicle that has the potential to deliver better returns in the longer term, such as your pension fund or a Stocks and Shares ISA.

At the same time, any reduction in pay – or increased pressure on household finances – can make it harder to set money aside. If maintaining the same level of savings is difficult, perhaps there’s scope to get more from the money you are able to put away. For instance, with interest rates at record lows there’s not much joy to be had from your existing savings options. But competitive rates are available from some regular savings accounts as well as some current accounts (provided certain criteria are met), so it’s worth shopping around. Also, make sure your savings are tax-efficient, by using your annual individual savings account (ISA) allowance. It’s wise to take advantage of these allowances now; as the government seeks to recoup the costs of the pandemic, they may not be so generous in the future.

It’s an idea with obvious appeal to employees, but which poses a few questions and represents a big change from the norm. The prospect of moving to a four-day week was raised by a number of governments and employers when the pandemic hit in early 2020 and countries went into lockdown.

Some companies responded to the dramatic change in circumstances by offering employees temporary pay cuts in return for reduced working hours. In some cases it was a time-limited measure; in others, however, it is a longer term policy, and more employers – in both the public and private sectors – are considering the same approach.

New Zealand’s government has encouraged employers to consider a four-day working week, while a cross-party group of MPs in the UK called on the government to explore the option as “a powerful tool to recover from this crisis”. Even before the pandemic, some companies had already trialled the four-day model, striking examples being Microsoft Japan and the New Zealand finance company Perpetual Guardian, both of which recorded boosts in productivity.

Whether such experiments will outlast the pandemic remains to be seen, but it seems likely that in the foreseeable future more people will be shifting to a four-day week sooner or later. While some will be kept on the same pay, many of those dropping down to four days could see the change reflected on their payslip, too.

That will inevitably impact on their wider financial situation. So what do you need to think about if your employer is offering less work for less pay? Here are a few points to consider.

Take stock

Get an idea of the overall picture when working out if you can afford a shorter working week. Start by understanding what it really means for your take-home pay, as a reduced salary also means less tax and national insurance coming out of your earnings – it could even move you into a lower tax bracket. Then think about what the income drop means for your household finances: would you still be able to cover bills and other outgoings, or could it push you over the edge? On the other hand, the reduced income may be offset by reduced costs too, such as childcare and commuting (albeit less so during lockdown periods). A cut in pay can also create eligibility for support such as child benefit and working tax credits.

Make flexibility pay

Can the extra wiggle room in your schedule help you mitigate the lower pay that comes with the four-day week? For instance, if both parents are on a four-day week there may be scope to stagger the days off or arrange working hours in a way that reduces childcare costs to a minimum. With childcare costs often a drain on finances, this could make a real difference.

Pay attention to your pension

Your workplace pension contributions will almost certainly be based on your pay – so a reduction in pay will mean less going into your pension. This may seem a small price to pay if retirement is a long way off. However, it will make it much harder to build up a decent pension fund for your later life years, because the ‘snowball’ effect of compounding means that starting early and saving regularly can make a huge difference to the amount you can save.

So, if you can afford it, it’s worth considering if you can maintain your contributions into your pension pot should you have to take a pay cut, and/or ask your employer to keep its contributions at the previous level.

Workplace benefits such as life insurance and income protection plans can also be affected by pay cuts, as the amount they pay out is typically linked to your pay – so make sure to investigate the impact that a pay cut would have, and that your and your family’s financial security is not being compromised during this uncertain time.

Make use of the extra time

Many people who have found themselves with extra time on their hands as a result of reduced hours have started a ‘side hustle’ – a second project to bring in extra income alongside their main employment. If you have a business idea you’d like to pursue, or a passion you think you could turn into a career, this could be an ideal way to test it without having to commit to it long-term or expose yourself to too much financial risk. It’s also a great way to build your business skills.

It isn’t for everybody, though. If your main job is hugely demanding or stressful, adding an extra load onto yourself could make it impossible for you to maintain a decent work/life balance. So think carefully before you make the leap.

Make your savings work

Many people are finding that the pandemic is reducing their outgoings, as travel costs are reduced, and holidays and meals out are cancelled. Once you’ve built up a rainy-day fund of around three to six months’ worth of essential expenses, it’s worth considering putting any extra cash into an investment vehicle that has the potential to deliver better returns in the longer term, such as your pension fund or a Stocks and Shares ISA.

At the same time, any reduction in pay – or increased pressure on household finances – can make it harder to set money aside. If maintaining the same level of savings is difficult, perhaps there’s scope to get more from the money you are able to put away. For instance, with interest rates at record lows there’s not much joy to be had from your existing savings options. But competitive rates are available from some regular savings accounts as well as some current accounts (provided certain criteria are met), so it’s worth shopping around. Also, make sure your savings are tax-efficient, by using your annual individual savings account (ISA) allowance. It’s wise to take advantage of these allowances now; as the government seeks to recoup the costs of the pandemic, they may not be so generous in the future.

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