The two-tier solution framework

So how would a company-supported emergency savings plan work? The whitepaper suggests two distinct savings tiers leveraging emergency savings accounts (or ESAs). 

Tier 1: Immediate Response Fund 

This fund should have a target balance of $2,500 or half a monthly paycheque (whichever is higher) for frequent smaller emergencies such as car repairs, appliance breakdowns or medical expenses. These funds remain in cash or high-interest savings accounts so they’re instantly accessible whenever they’re needed.

Tier 2: Extended Security Buffer 

This account would house three to four months of someone’s salary to cover essential expenses tied to major disruptions, including job loss, serious illness or significant home repairs. These funds can be invested conservatively since immediate liquidity is less critical but growth protection against inflation matters more.

The delivery mechanism for these funds would leverage existing payroll infrastructure – meaning money would be deducted from an employee’s paycheque (before they see their take-home pay), then deposited into dedicated accounts that remain fully accessible for legitimate emergencies. Matching (or contributions) would happen in the same way. 

Insurance for an employee’s “golden years”

Beyond just getting someone to save, ESAs provide crucial protection for retirement programs that companies already fund. Without emergency savings, employees raid retirement accounts when financial crises occur.

The whitepaper notes that “for every $5 contributed to RRSP each tax year, $1 is withdrawn before retirement.” These withdrawals create tax-inefficient outcomes and permanently damage retirement security that employers are investing to build through matching contributions.

“We’re really focused on retirement savings, and that’s something very important,” Peter Tzanetakis, President and CEO of the National Payroll Institute, notes. “But that’s not going to do someone a lot of good if they lose their job today or have a $5,000 expenditure that they don’t have any savings for.”

Emergency savings break this destructive pattern. They even bolster long-term saving: research shows employees with emergency funds are 70 per cent more likely to contribute to pension plans than those without. 

Kambiz Vatan-Abadi, Chief Innovation Officer at CI Financial, describes this as portfolio insurance: “I look at [ESAs] as buying insurance for my RRSP, buying insurance for my TFSA. I’m preventing dipping into retirement savings when I don’t have cash for emergencies.”

Evidence from international programs

Still, some may ask: do these programs work? Based on the available data, the answer is yes. 

Consumer Financial Protection Bureau data shows delinquency risk drops to five per cent among households with one month of savings compared to 40 per cent for those with no financial cushion. When unexpected expenses arise, people with emergency funds can pay directly rather than accumulating debt.

Employee turnover also decreases – from 12 to five per cent, according to U.S. figures. Financially stable employees are less likely to leave for marginal pay increases elsewhere. These same employees are also more focused and better able to concentrate on their work responsibilities. 

Lastly, and perhaps most compellingly, stats out of the U.K. show people want these kinds of programs – especially if they can be automatically enrolled and there is employer matching. “The studies show that if we do automatic enrolment, probably 70 per cent of employees will actually participate. But as soon as the employer matches, participation goes to 95 per cent,” Vatan-Abadi notes.

Implementation through existing infrastructure

As Tzanetakis explains, employers currently use payroll deductions to support employee retirement savings, health benefits and all kinds of other programs, so kick-starting this kind of initiative should be relatively easy. 

There are, however, four critical decisions that HCM professionals will have to make to determine how ESA programs function within their organization. 

Account structure: Decide whether to use one combined account or separate accounts for each savings tier. A single account with internal divisions simplifies payroll processing since there’s only one destination for deductions, but employees need to complete investment paperwork from day one. Separate accounts let employees start simple with basic savings. The whitepaper notes that “employers can launch the program with only Tier 1 in place, minimizing onboarding friction and compliance overhead.”

Tax treatment: Choose between Tax-Free Savings Accounts and regular savings accounts. Most employees have substantial unused TFSA room (averaging $46,192 according to the research), making TFSAs ideal for larger emergency balances where tax-free growth matters. Regular accounts offer operational simplicity for smaller emergency funds where tax impact is minimal.

Investment options: Select appropriate savings vehicles for each tier based on access needs. Tier 1 requires instant access and full capital protection through high-interest savings accounts. Tier 2 can use conservative investment options since immediate liquidity is less critical, and inflation protection becomes more important.

Enrolment strategy: Determine how to maximize employee participation within regulatory requirements. The research shows that automatic enrolment increases participation compared to programs requiring active signup, but Canadian employment standards require navigating consent requirements for payroll deductions.

Lastly, Tzanetakis suggests that HCM professionals give their colleagues and team members a chance to get a handle on their “financial fitness” by using the National Payroll Institute’s Financial Fitness Evaluator. The tool is available publicly at financiallyfit.ca and can be white-labelled for employer use. As Tzanetakis explains, “by administering this financial fitness evaluator, it will give someone a perspective of where they are versus the national average.”