With the cost-of-living crisis deepening, workers are counting the days until payday more than ever. But is now the perfect time for organizations to rethink rigid pay cycles to help out employees, or is there not enough long-term value?
Global payroll technology company Ceridian recently reported that 53% of U.K. employees had found managing their finances trickier over the last 12 months. Alarmingly, 61% of respondents aged between 18 and 34 years old said an unexpected expense of £500 ($606) would leave them unable to fulfill other financial obligations, including rent, mortgage payments, and insurance.
“Most fixed pay cycles don’t line up with the real-time nature of personal expenditures putting employees and their households at a greater risk for increased financial hardship,” said Wendy Muirhead, Ceridian’s managing director in EMEA. She argued that better payment terms could be a differentiator when it comes to attracting and retaining talent, particularly when the labor market is tight.
Kim-adele Randall, CEO of the U.K. business transformation consultancy Authentic Achievements, said that the coronavirus crisis had spurred an evolution in this area. “Traditionally, in the U.K., salaried workers are paid monthly, and U.S. employees are paid fortnightly, but this has changed since the pandemic,” she said.
More organizations have shifted to weekly or daily pay because “they recognize that their employees are under financial strain and need access to their wages as soon as possible,” Randall added.
Thankfully, advances in digital technology are generating innovative ways to pay employees faster. “More employers are moving to online platforms such as PayPal or using bank transfers because it is quicker and easier than traditional methods like cash or checks,” said Randall. “It also means that employers can track payments and ensure they are received on time.”
One of the various options available to employers seeking to pay their staff quicker is advance payments. Randall pointed to apps such as Earnin or Dave that could help with this. Meanwhile, other progressive organizations have established pay-on-demand systems, allowing workers to access their wages when required.
David Brown, founder and CEO of Hi, a social enterprise that enables businesses to boost their liquidity through its payroll solution, agreed that “employees should be able to get paid either daily, monthly, weekly or monthly based on their needs.” He cited a 2019 Mastercard and Ipsos Mori survey that found 61% of workers would like instant access to their earned wages – and that was before the pandemic.
Brown urged employers to embrace innovative solutions and offer “flexible salary access” to support their staff through the cost-of-living crisis. “They should explore breaking the feast-and-famine monthly pay cycle and provide their employees with free, flexible access to their salary.”
He added that flexible pay could also reduce the dependency on loans and credit and lessen the chance of workers going into long-term debt. “This can reinvent remuneration, transforming how time and pay are tracked, viewed, and verified.”
However, Randall said: “Some risks are associated with these payment methods, but the benefits often outweigh them.” For example, employees might spend their money before they are again paid. “This situation can be mitigated by setting limits on how much they can withdraw each day or week,” she added.
And Ally Fekaiki, CEO and founder of employee well-being platform Juno, worried that while “on-demand payrolls can offer staff a quick cash-fix,” it could make life more challenging over time. “They can be incredibly difficult to budget for, potentially leading workers into more financial insecurity in the long term,” he said.
As an alternative to on-demand pay solutions, companies could introduce commissions and performance-based bonuses, Fekaiki said. “These remuneration opportunities can flex more reactively in line with our economic realities.”
Brown also warned there are “some pitfalls” to avoid for employees wanting quicker pay. “Some salary schemes charge workers up to £5 ($6) for the privilege of flexible pay,” he said. “It might seem like a small price, but it equates to a large APR [annual percentage rate] when you consider the amount they are accessing and the duration of the financing.”
Mindful of the hidden costs, business leaders can explore the growing range of fintech products offered, for example, real-time wage updates to help employees better manage their monthly budgets now on the market. For instance, Ceridian recently launched its Dayforce Wallet in the U.K. following a successful rollout in North America.
The wallet continuously calculates employees’ earned wages, net of taxes, and deductions, and each on-demand pay request generates its own earning statement. Additionally, there are no changes to existing payroll processes, including the funding, timing, and close-out of pay, meaning there is no extra time spent on reconciliations and corrections.
“We are helping employers support employee financial wellness while empowering people to have early access to their earned wages at no cost,” said Muirhead. “All this translates into better financial security for workers.”
And for businesses that use pioneering payment solutions, there is evidence that it can help attract and retain talent. Indeed, companies in the U.S. that used the Dayforce Wallet filled job vacancies 15% faster than other organizations and enjoyed a 21% lower 90-day attrition rate, according to Ceridian.
Zoe Stephens, group HR director of Blatchford, a prosthetics manufacturer, recommended the Dayforce Wallet. “It allows us to accommodate the diverse needs of our employees and increase employee engagement while staying competitive in the changing world of work,” she said.
Meanwhile, U.K. retail field marketing firm Dee Set Group recently introduced financial well-being for its 4,000 employees through an earned wage access platform and via offering financial education. The platform allows workers to draw up to 50% of their monthly salary after the first week.
“The last thing we want is our colleagues to worry about money,” said Antony Lee, the company’s people and retail director. “We hope this new system with its flexible options, including financial coaching, will help put their mind at ease during this tricky time.”
There are other things that employees can do to ease their financial worries – for instance, file all of their expenses. Earlier in November, Pleo, a spending solution for small- to medium-sized companies, calculated that four out of five U.K. workers were missing out on claims amounting to £245 ($297) per employee annually, or £1.3 billion ($1.6bn) in total.
So don’t lose those receipts, and make sure you submit them, advised Anita Szarek, Pleo’s CFO. Plus, it’s a win-win scenario for organizations that communicate well and encourage workers to file expenses, as staff will be better motivated. “There are clearly issues with the expense process at many companies – whether it’s from a lack of direction as to what staff can expense or the tools used for claiming – workers are left out of pocket and businesses less productive,” she said.
Similarly, Authentic Achievements’ CEO Randall said businesses that promptly paid unsalaried workers – namely freelancers – were likely to benefit from better engagement and performance. “There are many reasons why pay-on-demand is the best way to pay freelancers,” she said. “It gives them the financial security they need to keep doing what they do best, and means they have the incentive to give it their all.”
Further, pay-on-demand eliminates the need for invoicing and chasing payments – “a massive time-saver for freelancers and organizations,” said Randall. Finally, pay-on-demand gives businesses greater cash-flow control, she stated. “With monthly payments, organizations often have to wait 30 days or more before receiving invoices from freelancers can put a real strain on cash flow, particularly in times of economic uncertainty.”
James Malia, U.K. managing director of global digital gifting company Prezzee, suggested a different approach to helping employees. He believes that organizations ought to be repositioning bonuses or pay rises as “cost-of-living support packs” to reduce the likelihood of spending on “frivolous niceties rather than the necessities.” Here, again, financial education is vital.
“People can spend their money on anything they want, of course, but there will be those who still don’t appreciate the magnitude of what’s around the corner,” said Malia. “So running seminars, providing access to external personal finance experts or in-depth toolkits will help move the dial. Prevention is better than the cure, so highlighting the importance of saving ahead of a potential recession will prove hugely valuable,” he added.