FEATURE TOPIC
the usual pay day? Is there a risk of creating budgeting and debt issues with pay on demand? VG: Pay on demand is a topical issue which sparks interesting discussion and debate. If we put it into the context of financial well-being then there’s a clear benefit to employees who can access the money they’ve earned when they’ve earned it, without having to wait for a pay day. It could be argued that this supports employees in managing their cash flow and outgoings. Pay on demand might also benefit employees who don’t have accessible savings and are hit with an unexpected expense before pay day, as they can access the money needed to cover it. However, there’s also a concern among some, who argue that enabling employees to access their earned wages outside of a ‘normal’ pay day puts them at risk of getting into a cycle of debt or financial hardship. Again, if we put this into the context of financial well-being, employees may feel they can’t make choices about their lives if they’ve been accessing pay on demand and want to leave their employer but aren’t offered pay on demand elsewhere and cannot ‘afford’ to wait for pay day to access their pay. Or they could be in a position where they’ve accessed pay before pay day and no longer have enough to pay their bills and meet other financial commitments. As with most things, there are pros and cons to implementing pay on demand. I’d encourage anyone introducing this as a benefit to ensure they also provide financial awareness training and support for employees to make informed decisions about when, how and why they’re accessing their money. IH: We’ve continued to pay colleagues in the same way for decades now and that’s because it works best for the employer to make payments in this way. Unfortunately, when individuals have little buffer of savings to fall back on, it can mean that the week before pay day, for example, can be stressful if unexpected costs occur and they haven’t been paid yet. This is where short-term access to earned pay or a loan can be a benefit to advance pay. The risk is always that this becomes the norm and then individuals are spending, not in respect of an emergency, but simply because they have access. This can subsequently lead to worsening financial health. So, in summary, access to pay is great in the case of an emergency but not when used unnecessarily.
MM: For companies to retain talent, they must provide a more ‘on-demand’ approach to pay day, especially in industries with variable pay rates. Our research tells us three quarters (75%) of employees would find earned wage access beneficial. Over half of employees claim that when considering a new employer, they would choose an employer who offered pay as you earn over one who doesn’t. With demand so high to secure new people, offering a more holistic payroll experience and flexible options from the outset not only demonstrates a forward thinking and supportive approach to pay, but also gives reassurance to employees and prospective hires that you offer an inclusive, innovative culture. Ensuring there are limits to safeguard and that this isn’t at the expense of employees is fundamental. I’ve had many conversations with providers over the years and involved outsourced payroll professionals to gain their views. Ethically, we agree this only works when it’s a holistic offering and at zero cost to the employee. ZR: This is a contentious topic and one which I feel conflicted about. There are clear benefits to giving employees more flexibility about when they receive the money they’ve earnt, especially in less frequent pay cycles like monthly. If an unexpected bill lands two weeks before pay day, being able to access some pay early could relieve stress and pressure. However, this will only be truly beneficial if that money isn’t then needed at the end of the month. Although it’s not an organisation’s responsibility to control how and when an employee spends their money, organisations should be mindful of exacerbating financial challenges, including employees finding themselves in debt. Organisations should consider any potential additional resource demands on their payroll and finance teams attached to these types of payments being adopted. MS: I believe pay on demand is a valuable employee benefit which promotes financial well-being and can help ease employees’ financial struggles. No matter how well we plan, there are always occasions when we have unexpected expenditure. However, if an employee isn’t financially savvy, and is struggling to budget on a day-to-day basis, there’s a risk that pay on demand will encourage an unhealthy cycle. To help alleviate this risk, we’ve introduced a maximum cap of 30% on the wages they can receive in advance. n
is vital here. Savings and budgeting tools alongside reward are a priority. ZR: I think education is important and undervalued. Although an increased monetary remuneration will be welcomed at any stage, salary and bonuses through employment are only one part of an employee’s financial considerations. By educating employees to improve their financial skills, staff can be empowered to better understand the impact of current actions on longer term outcomes. Employees should also be aware of the options available to them when thinking about their retirement – could they reduce their hours, or move to another part-time role? MS: If your employees aren’t financially savvy, paying more money won’t necessarily help them manage their day- to-day finances, or to save, invest and deal with debt. So, providing your workforce with access to financial education goes beyond the current economic challenges. We’ll always worry about money if we don’t know how best to manage it. As part of the Suez ‘wellness for all’ vision, we launched a payroll autosaving scheme for new joiners in 2021, in partnership with TransaveUK. The purpose of the scheme was to help our employees save more and be savvier with money in the face of rising living costs. Suez employees pay a set amount each month into the scheme and, over time, build up a contingency fund, which they can withdraw from at any time. New Suez employees are automatically enrolled in the scheme but can opt out whenever they choose. This scheme has been a huge success, with high active retention rates (currently 48%), with five times the average savings of employees who opt in to save. We launched the scheme to help improve the financial well-being and resilience of our employees and to help foster a ‘save before you get paid’ philosophy. Financial education improves confidence, enabling employees to make educated choices and form good habits to work towards a healthy financial future. If we can help equip employees to deal with any unexpected and unavoidable costs that occur, we’ll prevent the feelings of failure around managing money, leading to unwanted stress. What are the benefits of offering payments to employees outside
| Professional in Payroll, Pensions and Reward | June 2023 | Issue 91 34
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