Led by companies such as UK-based start-up Wagestream, there is a growing interest in providing flexible pay day solutions – where employees can receive some of their pay on any day in advance of their usual pay day for a nominal fee.
The idea seems great in theory and many FinTech disruptors do have noble ambitions to kill off the pay day loan industry. With large numbers of low paid workers living almost hand-to-mouth, any unexpected expense can force employees to resort to means such as the afore-mentioned payday loans or high-interest credit cards in order to make ends meet. By allowing employees to access the money they have already earned, when they need it, the hope is that employees will find using such measures unnecessary.
Pub group Stonegate Pubs, which operate 772 pubs in the UK, including Slug & Lettuce and Walkabout, launched a flexible pay benefit to hourly paid employees in April 2019. Since then, they have seen more than 60% of their 12,500 hourly paid employees enrol in the scheme, with 6,000 employees having made at least one pay transfer.
The scheme they offer their people, administered by Wagestream, works by allowing employees to access their wages prior to payday. So if an employee earns £1,000 a month, after a week they will have earned around £200, so Wagestream will let the employee drawdown this amount for a flat fee of £1.75. Then at the month-end payroll, they’ll be paid £798.25 (£1,000 minus the transaction fee).
The theory is that by giving employees the flexibility about when to receive their pay, workers will be more productive, motivated, and loyal, and less distracted by short-term financial problems.
So far so good, right? But I can’t help wondering if approaches such as this are treating the symptom of the problem rather than the cause. Allowing a flexible approach toward payroll would potentially save some employees from the spiralling debt associated with payday loans; however the fundamental issue remains the same - that the employee has run out of money part way through the month.
While there could be mitigating circumstances around this (e.g. an unexpected expense, such as a big car or vet bill), I believe that rather than rushing to provide flexible payday solutions, employers should be looking at whether they are truly doing all they can to promote financial wellbeing and provide employees with the skills they need to budget efficiently.
Getting into the habit of using a product such as Wagestream regularly for ‘frivolous’ purchases could see employees continually struggling to catch up, effectively delaying the inevitable and driving them into the arms of a pay day lender anyway.
Making employees aware of the help that is available to them is a good first step – and perhaps, arguably, even more valuable than any flexible pay scheme. Organisations such as the Money Advice Service, for example, provide a wealth of free and impartial advice around basic financial education.
If your company operates an Employee Assistance Programme, it is likely that they also offer a service akin to an independent financial adviser, or counselling/advice if employees are struggling with stress caused by financial problems. Making sure these organisations and benefits are well communicated to employees means that they will know help is there if they need it.
Another alternative approach to a flexible payday solution could be offering a salary deducted loan, such as what companies like Neyber offer. This would allow employees to gain access to a low interest rate, and as the deductions are taken from salary payments over an extended period of time, it is easier for employees to take into account the repayment of the loan when budgeting.
Giving employees access to salary sacrifice arrangements can also assist with budgeting and good financial wellbeing. For example, a technology salary sacrifice scheme such as that offered by Let’s Connect, would allow employees to purchase ‘Big Ticket’ items such as a new TV, laptop, or mobile phone and not only get the benefit of spreading the cost over several months, but also take advantage of the tax and NI savings associated with a salary sacrifice arrangement.
My view is that flexible payday solutions and products, far from being the antithesis of payday loans, are simply another quick fix. Employers would be far better placed providing their employees with the tools, means and education to manage their money more effectively to avoid having to take such short-term solutions – ultimately resulting in a happier, healthier and more engaged workforce.
To discuss any aspect of pay and reward, email me at james.bigus@innecto.com or call 020 3457 0894.
