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Earned Wage Access: Why HR Leaders Shouldn’t Fear This Breakthrough Benefit

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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.

How Payroll and HR Evolved During the Pandemic

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What do you think of when someone mentions payroll? Does your mind immediately conjure up an employee asking you for help regarding incorrect calculations and missed deadlines? Or do you imagine payroll as a strategic partner sitting beside HR at the boardroom table offering up valuable insights?

If you think of payroll as nothing more than a routine function, then you’d be forgiven for not being the first. For a long time, payroll hasn’t taken center stage. Regarded as an administrative back-office function, payroll was often forgotten about. And it certainly wasn’t part of the bigger strategic picture. Unless there was an issue with payment or incorrect calculations, payroll carried on as usual. But the recent events of the pandemic transformed payroll’s hierarchy, boosting its importance. Payroll and HR evolved together over the last year. Forward-thinking business leaders need to take note.

Payroll and the Pandemic

In March 2020, the COVID-19 pandemic first started to disrupt businesses around the globe. The first lockdown began, and as part of the restrictions in the UK, many companies closed their premises. Employees were suddenly furloughed and talent was sent to work from their homes to abide by the local lockdown laws. With that, payroll was thrust into the limelight.

In the beginning, there was panic. Smaller in-house payroll teams didn’t have adequate staff to process payroll if their team members were absent from work due to sickness. In addition, companies relying on legacy technology or on-premises equipment struggled with the switch to remote working. Without this critical business function and the skilled payroll workers delivering it, people didn’t get paid, and businesses came to a halt.

As time went on, new and different challenges arose. Most other business functions had adapted to new ways of working at home, but payroll professionals were constantly battling complex legislation iterations. For example, in the UK, there were weekly changes to policy regarding furlough, statutory sick pay, holiday pay, and salary sacrifice. This became a challenge for even the most knowledgeable payroll professional and HR specialist. Without specialist knowledge or support, businesses were shooting in the dark. So payroll and HR evolved.

The Rise of HR

We talk about payroll’s rise to the top, but we can’t forget about HR. When organizations faced their most challenging time during the pandemic, HR teams led the way. Worried employees were desperate to understand the impact on their livelihoods, and it was HR that provided clarity. Business leaders were requesting workforce data and analytics to help steer their people through unchartered disruption, and it was HR that delivered it.

Payroll and HR are indeed very different functions that come from very different places. Yet when the two parts work together, they can help businesses gain a complete overview of the workforce. For instance, during the pandemic, many organizations needed to know how many of their staff members were absent from work due to sickness from COVID-19. They also needed to calculate if it was financially viable to keep workplaces open, or if they needed to claim employee wages through the UK government’s coronavirus job retention scheme. All answers to such questions can be found within payroll and HR together.

Payroll information touches so many HR elements, whether it’s attracting, on-boarding, developing, rewarding, or retaining talent. As a result, it’s become hard to separate the technology supporting both functions. This hasn’t always been the case, though.

Turning Crisis into Opportunity

Resilient businesses have robust payroll operations at the heart of their HR transformation strategies.

According to The Future of Work survey by SD Worx, ensuring smooth, efficient payroll calculations and payment is, by far, the biggest concern for HR professionals. This topped the list of 19 possible HR priorities in eight of the 11 countries surveyed–including the UK. Less than one in five said they were happy with their current function. And 70 percent are actively trying to set up a more efficient process. This is clearly an area of concern, particularly when you consider that HR will always struggle to perform more strategic functions without the solid foundation that payroll provides.

Often, payroll isn’t the trigger for change but comes about as part of a broader transformation. For example, businesses implementing a new global HR solution may need to change their approach to payroll to comply with local laws and ensure both functions are integrated seamlessly.

Paying people accurately and on time are only the basics of payroll. Savvy organizations arrange their payroll function to be more efficient, strategic, and fluid with other departments. Sharing data through HR, payroll, and finance departments creates one single source of truth to aid business decisions and drive value.

In addition, payroll plays a more significant role in employee experience and brand reputation than you might think. An incorrectly paid employee may air their grievances on social media, providing long-lasting damage to your company’s reputation. Payroll can also impact new talent. Younger generations may prefer to receive dynamic payslips that they can access through an app, rather than paper or PDF payslips. Payroll and HR evolved during the pandemic to become even more aware of these factors.

The Future of Payroll and HR

While nobody can predict what the next five years will bring, we can be sure that payroll and HR evolved during the pandemic. Digitalization will accelerate the need for more real-time data for employers to review. Also, employees will continue to crave the same level of instant access they get with their personal technology, within their work technology.

Employees will demand more flexibility in working hours, work locations, and payroll. For instance, many organizations let employees choose how much of their monthly salary they receive and when. They don’t stick to rigid dates and complete payments.

Expectations of what HR can and should offer are now much higher. However, without strong processes and technology, it will be impossible for HR teams to keep everyone happy. It’s clear that any digital infrastructure that supports HR should build on the payroll function. Payroll remains the common denominator that touches everyone and influences almost everything in HR. With this solid foundation, HR has the strength required to flex to the needs of its workforce. And to enable new ways of working and embracing change.