PYMNTS Intelligence: How Early Wage Access Can Equal Loyalty

The business world has transformed over the last few years as the global pandemic spurred a move away from centralized teams and toward a more agile, global workforce. Now inflation is straining many workers’ budgets.

The need for greater flexibility and ease in paying workers has never been greater. In recent years, more employers and third-party payers have adopted programs that allow employees to receive their earned wages on the same day that they perform the work. To build loyalty and retain talent, providing early wage access and prompt payment can mean the difference between success and failure for employers.

Why now is the early wage access moment

A survey of more than 9,600 United States workers conducted earlier this year found that their financial health has been in decline since the pandemic’s onset, with more employees now living paycheck to paycheck. These include more than half of workers earning less than $50,000 per year, single parents and those in poor physical health. The share of paycheck-to-paycheck employees even doubled among those earning greater than $100,000 per year from 18% in 2019 to 36%.

The pandemic has also served as a double-edged sword for the gig economy, at once increasing opportunities in this sector but also increasing late payments. More than one-third of the self-employed reported more instances of late payments during the pandemic, leaving 15% of freelancers unable to cover basic living expenses.

Early salary access can help employees

Economic hardship is taking a toll on workers, especially when unforeseen expenses create short-term cash flow shortages before regular paydays. As a sign of the times, the United Kingdom’s Financial Conduct Authority (FCA) made recommendations on the recent development of Employer Salary Advance Schemes. Under such programs, workers can register for advances using an online portal or app to obtain a portion of their wages prior to the next scheduled payday. Because this is money the employee has earned, it is not considered credit.

While the FCA cautioned against the risks to employees of overusing the service and recommended transparency around fees charged, it generally held that these programs can help consumers avoid high-cost debt, such as credit cards and payday loans, to tide themselves over until their regular paydays. Recent research from CPA Practice Advisor found that 60% of U.S. workers want their employers to allow them to access wages as they are earned.

Payroll: Beyond cutting paychecks

The economic climate, changing work models and workers’ expectations are transforming company payrolls. In a recent PwC survey, 76% of respondents under financial stress said they could easily be persuaded to switch to an employer that showed greater concern for their financial needs.

Payroll now has to focus on hybrid work requirements, such as regulatory compliance and managing cross-border payroll, while also helping to attract and retain talent. A recent Ceridian survey found that 27% of employers planning to offer early wage access are doing so to increase employee satisfaction and engagement. An EY study also found that 67% of organizations currently have a payroll strategy, up from 61% in 2019.

Earned wage access can help employees and customers stay financially fit, does not create extra costs or debt and can help encourage loyalty in a high-turnover labor market. This makes it a winning strategy for both employers and workers.