By Aries PalaniappanFounder and CEO, Earnin
Almost two-thirds of the American population lives from salary to salary, even among those earning six figures. These employees often rely on payday loans, cash advances, credit cards, and overdraft extensions to make ends meet while waiting for the rigid two- or four-week payday. This pay cycle is obsolete. It was created during the industrial revolution. Before this period, people were paid every day. During the industrial revolution, industrialists were more powerful than workers and decided to switch to a batch payment system because it was more efficient for them. The workers had no choice. If the job was more powerful, they would have been paid 2 weeks before going to work. To put this in today’s context, imagine Google telling you that your search results will be shared with you in two weeks, or waiting two weeks to watch your favorite Netflix movie?
Today, the financial burden on individuals and households continues to worsen with inflation and stagnating wages. To keep up and stay competitive in a tight job market, companies need to take a closer look at the most valuable employee benefits today. Employees need to feel empowered, and one way to do that is to give them access to their earnings as they are earned, removing the cash flow timing barriers from standard payment cycles. .
Employee satisfaction has a direct impact on a company’s bottom line and helps establish a positive corporate culture. In 2019, John Hancock estimated that the cost of financial stress per employee per year was $1,918 in lost productivity and absenteeism. That number is now at $2,412. This has a direct impact on business, as financially stressed employees are 77% more likely to leave for another employer and spend 2-5 hours a week managing their personal finances at work, which also has an impact on the productivity. When employers provide a solid foundation and the right resources to improve financial health, employees can focus on pursuing larger goals and objectives that improve their organization.
As employers seek to adopt solutions that support employees and their holistic well-being, those who address the challenges associated with the speed of money will increase employee satisfaction, motivation and productivity, and experience better retention. and better recruitment.
Living Paycheck to Paycheck: It’s More Than You Expected
An unexpected financial challenge, like a flat tire or a health emergency, can make cash flow especially tight. That’s why financial wellness solutions are vital for those who live paycheck to paycheck. People get paid every two to four weeks, but bills, subscriptions and emergencies don’t wait for payday. This reality means that when workers do not have access to income, they are forced to turn to payday loans or pay high bank charges, such as overdrafts and insufficient funds. In addition to expenses, people may have to miss more work because they can’t afford child care that week or car repairs. The cycle continues.
This financial stress can weigh on them and directly impact their work. Employee financial stress is costing employers $4.7 billion per week in lost productivity. Financial wellness should be a top priority for businesses, especially those recruiting and retaining large populations of hourly workers who may need additional support and resources to achieve their financial goals when their access to pay is limited to the two-week window.
A report from JD Power explored how inflation caused stress among Americans and therefore led them to seek increased frequency of payment. The report found that 51% of workers would consider changing jobs simply for more frequent payments, including 76% of hotel and restaurant workers. Living paycheck to paycheck comes with unique challenges that can be overcome if employees have access to compensation as it is earned.
The role of FinTech solutions for financial well-being
Fintech solutions that address Earned Wage Access (EWA) free workers from rigid payment cycles, allowing workers to access their money as they earn it. EWA allows workers to access and save the money they have earned without mandatory fees or recourse. More companies are choosing EWA solutions because they improve benefits and increase retention, especially in the age of the great resignation.
During the pandemic, a industry study discovered the impact early access to pay has had on people, finding that 92% of employees felt the services had helped them achieve at least one of their financial goals in 2020. Additionally, 88% of respondents believed that having access to salaries as they earned them during the pandemic was essential to their financial well-being.
Employees want to know that their overall well-being, including their financial well-being, is a priority for their employers. This is especially true since few other aspects of life happen every two weeks. The world no longer works in this cycle because demand and streaming are now the norm.
The path to financial empowerment
Employers have found that access to financial support can lead to significant improvement in employee retention. Additionally, employees facing less financial stress are more productive and able to have a positive impact on employers, individuals and the economy in general.
To help address this issue, companies should determine and offer competitive salaries based on market changes in the cost of living due to COVID-19. Next, it is essential that the fintech solutions offered by employers are affordable, easy to access and offer employees more choices adapted to their needs. This can be extremely helpful in supporting those who need it most. The offer of EWA can be beneficial for both the employee and the employer, as the employee is paid right after work and the employer guarantees job satisfaction, which improves productivity.
In addition to extending financial support, HR managers should offer financial resources related to budgeting and savings. To manage the pay gap, employees need access to tools that create personalized financial plans and manage expenses, savings and more. Technological tools to track income and expenses will also be helpful in improving an individual’s financial health.
As more companies struggle to hire and retain employees in a competitive job market, new benefits offerings are a way for companies to stand out from competition. Offers that allow employees to control their finances while meeting their unique financial needs can be beneficial in achieving their goals.
About the Author
Ram Palaniappan is the founder and CEO of To win. He is a critically acclaimed fintech entrepreneur whose mission is to create products that make money work better for everyone. Earnin aims to free people from the traditional payment cycle and give them control of their money, from the moment they earn it.