The pandemic and inflationary conditions are putting extraordinary pressure on workers to provide for their families. In fact, the U.S. government estimates that nearly 40% of citizens would struggle to cover the cost of a $400 emergency. What’s more, 60% of survey respondents told Bankrate they’re falling behind in saving for an unexpected expense. Even people with full-time jobs are struggling financially, and many are at risk of running out of cash between pay periods.
As a result, a growing number of employers are responding with creative solutions. Historically, bi-weekly or monthly payroll processing has been the norm. However, this can create problems for employees who live paycheck to paycheck, especially when unexpected expenses arise.
Are Payday Loans the Answer?
One solution involves payday loans, where employees borrow money from a third-party provider using their upcoming paycheck as collateral. However, there are predatory companies in this space that charge desperate people outsized fees. Even reputable payday loan companies charge hefty interest rates that are likely to create even more financial strain.
Thankfully, there is another opportunity for employees who are living on a paycheck-to-paycheck basis. It’s called earned wage access.
What Is Earned Wage Access?
This benefit ensures that people receive the money they’ve earned before the day they normally would receive their paycheck. How does this help? Imagine one typical scenario:
While waiting in the supermarket checkout line, one of your staff members realizes they don’t have enough money to cover all their groceries. After using their phone to request immediate access to a specific amount of money, the employee finds available funds in their checking account before they even get to the register.
In addition, thanks to advances in real-time payment infrastructure, human resource teams can offer this kind of benefit without changing the way they process payroll. By working with your financial institution and payment processors, you can implement earned wage access via real-time payments, instead of through traditional ACH payments.
5 Benefits of Earned Wage Access
Earned wage access is attractive to employers and employees, alike. Here are 5 compelling reasons why:
1. Employees Increasingly Expect it
During the pandemic, people who were laid off or needed an extra income stream often turned to gig-based jobs. Many gig economy companies pay people daily, or immediately when they finish a job. So, not surprisingly, these workers now prefer similar payment terms for their full-time jobs.
2. It is a Strong Recruiting Tool
Earned wage access is quickly becoming the norm. 70% of middle-market companies already offer this capability, and about 25% are planning to implement it soon, according to a 2022 Citizens Bank payments survey. In today’s competitive talent market, this growing trend puts companies at a disadvantage if they don’t provide it.
3. It Helps Boost Employee Retention
Once employees are onboard, earned wage access helps reduce “quiet quitting” as well as other forms of job dissatisfaction and disengagement that contribute to turnover. In fact, according to research from DailyPay, 59% of people with on-demand access say it motivates them to go to work. As a result, employers that offer this capability have improved their tenure rates by as much as 73%.
4. It Gives Employees Peace of Mind
78% of people with access to earned wages say it helps them pay bills on time and avoid late or overdraft fees. When people have instant access to the money they’ve earned, it helps them avoid falling behind on bills or experiencing other money burdens.
This means they’re less likely to be distracted by financial worries throughout the day and are more likely to focus on their job responsibilities. In fact, 74% of users say access to earned wages has helped reduce financial stress.
5. It Enhances Financial Wellness
Organizations naturally want to avoid putting employees in financial jeopardy. This is why many are educating staff to think of earned wage access as a “break-in-case-of-emergency” option, rather than a standard way to manage their income.
To support this mindset, many employers introduce earned wage access in tandem with financial literacy training. This helps employees learn about on-demand pay within the broader context of personal financial management.
As a result, they begin to view earned wage access as a “fallback” option in unusual circumstances, when immediate access to extra cash is necessary. In fact, according to one survey, 51% of users say on-demand wage access has helped improve their financial health, and 50% say it has helped them become more disciplined about spending.
The Bottom Line on Earned Wage Access
To recruit and retain talent in today’s challenging labor market, employers are increasingly turning to unique, practical perks that make life easier for employees. This is why earned wage access is quickly changing from a nice-to-have advantage to a must-have benefit for employers who want to remain competitive.
Fortunately, introducing this special pay option doesn’t require HR and financial teams to do anything differently. All you need to do is ensure that your organization works with payment providers who offer this service. As you roll out earned wage access, you can expect employees to respond with a stronger commitment to their work, and a deeper desire to remain with an employer that cares about their family’s financial health.