Options for Australian employees to access wages early are limited. Some employees resort to payday loans, short-term credit, or bank overdraft fees. Often payday lenders approve high interest loans to people who are unsuitable for traditional lines of credit. For people who do not have access to traditional lines of credit such as a credit card or a personal bank loan, payday loans have, historically, been their only way to access cash flow in a pinch.
What is Earned Wage Access?
Earned wage access gives employees access to wages they have earned before their payday arrives. Think of it as a method of keeping your employees safe from unnecessary debt, hardship and potential anxiety through a degree of flexibility on how and when they access a portion of the wages they have already earned. Some experts estimate that employers hold in the region of $1 trillion in pay until payday. That’s money employees could use to pay bills.
Results from an Australian University report indicated that 31 per cent of respondents struggled with paying for daily essentials. Another 24 percent of respondents said that they feel anxious or depressed about their finances. One way to reduce financial stress, and its effects, is with earned wage access. This method gives employees some autonomy over their finances and immediate access to earned wages each day also allows them to cover shortfalls with regard to essential items such as fuel, travel and groceries. They are able to access their pay as they spend – without being burdened by debt.
The availability of earned wage access systems continues to grow. But why do so many Australian employees have to wait to spend the money they have earned? Payment schedule shifts from weekly to fortnightly and monthly wages occurred with new digital payroll systems. This shift made it easier for employers to monitor their cash flow and reduce bank processing fees through fewer pay cycles. However, many employees find it difficult to budget every month – and with current working circumstances changing regularly – this issue is likely to affect more employees. With mobile phone apps and integration to your core systems, employees can now access a predetermined portion of their earned wage with a simple swipe.
Why is Earned Wage Access or On-Demand Pay an Important Issue for Employers?
With earned wage access, employers ensure their staff are able to access some of the money they have earned that day. In my experience talking to a company that operates in this field, employees who access wages early typically do so only when they need to and for more important reasons such as to pay for ad-hoc items like vet bills, increased utilities or rates, or for more regular bills like credit cards and everyday necessities that suffer as a result of the unexpected. With the availability of on-demand pay, employees can secure money if they need to cover emergency or one-off costs when it matters most.
Earned wage access must have a positive impact on productivity and engagement because employees are no longer anxious about paying for bare essentials – their focus is on their work and not on how they will make ends meet. I also believe that attrition must be reduced, as we know that a satisfied and engaged workforce can reduce unplanned time off. Giving employees more control over their finances means there is more focus on the job that they do.
Access to earned wages is not a loan. The amount withdrawn is simply accounted for in the next pay cycle. With no payment terms, employees’ credit scores remain intact. Employees can withdraw the funds after a day’s work, knowing they have no debt. With so many workers in temporary or part-time positions, it gives them a chance at financial security.
How Earned Wage Access Helps Staff with Financial Wellbeing
If employees have an option to review earnings every day, they avoid overspending. They will also become more aware of their spending habits. This awareness, in turn, reduces uncertainty since many employees report their finances as the main reason for their stress. Also, many employees find it easier to budget daily rather than monthly. Monthly budgets often leave some employees short at the end of the month. With no available cash, they often rely on credit to catch up. The impression that early access to wages is used for recreation or leisure activities is usually far from the truth: people who benefit from early wage access are frequently going through economic hardship.
When employees reach a shortfall in cash, credit with high interest rates only increases their debt. On top of high interest rates, they need to juggle a plethora of charges and potentially manage the worry this brings.
Just as accessing wages early helps employees pay off debt faster. It can also assist with contributions to their savings. Either way, an employer knows they are helping their employees to either manage their individual situations or reach their financial goals faster.
How Earned Wage Access Benefits Employers
In my view, earned wage access offers many benefits to employers. Competition for top talent is tough in many industries and one way to stand above the sea of competitors is to provide a benefit like earned wage access. In sectors where many offer the same employee benefits, earned wages access can make a difference to new applicants. Applicants may well be more likely to apply to and stay with employers with shorter pay cycles or that provide early access flexibility.
Besides the competitive edge, there is less employee turnover. Waiting for that monthly wage can be stressful for many workers. Earned wage access allows employees to manage their income more efficiently. Getting paid monthly often leads workers to spend more than they have earned. Without knowing their expenses, reliance on credit increases leading to more stress and physical and mental strain. Ultimately, the best talent could be looking elsewhere for higher pay. Helping employees reach financial wellbeing leads to a budget they can manage with their current salary.
Another benefit to earned wage access is that employers can address payroll processing issues on the same day. Any number of critical errors can occur when processing employee payroll, from miscalculations to scheduling mishaps. Payroll errors can accumulate, causing future problems. But with earned wage access, the challenges are less likely to be compounded. It also keeps problems from becoming serious issues in the future. With more attention to payroll, daily labour reporting and future forecasting will likely be more accurate.
Earned wage access is not a new concept by any stretch – but in recent years it has become a much more accepted capability in the HR and Payroll arena and there are some great success stories out there.
Earned Wage Access with Tambla
Tambla has experience working with enterprise and government clients, and companies with large workforces to implement and manage payroll solutions that automate and streamline payroll processing. Integrating earned wage access solutions can be part of that conversation.
We recognise that enterprise businesses operate under very different constraints and what might be possible in the private sector is not always achievable in the public sector. Our team would be happy to share their experience with you and talk to you about some potential solutions – no matter if you are a private company or a government-based organisation.
Please visit our Core HR page to learn more about our expertise and SAP SuccessFactors payroll services and keep an eye on this blog for more insight into earned wage access.
