Pay day: What payment options should you offer your staff?

It’s not uncommon these days for people to live from payday to payday; the ongoing pandemic, the blowout in living costs, aggressive rises in rates and stagnant wages have made sure of that. With monthly pay cycles now the norm, it is placing enormous financial stress on many Australian workers to come up with ways to make ends meet. 

A 2021 survey conducted by the American Payroll Association found that 25% of employees in the US want access to their pay as they earn it. Here in Australia an independent survey found that a staggering 81% of workers across multiple industries, including healthcare, retail and mining, would like access to their earned wages before the end of their pay cycle. 

Clarity around the options available is paramount, as they are not all the same, and offering the wrong option to your staff can expose them to credit issues. Personal credit and payday lending option products don’t work the same as earned pay access. 

Getting it right by offering them a real-time earned pay access option allows your business to contribute to your employees’ financial and psychological wellbeing. 

Payday lending and pay advance loans

In Australia, licensed payday lenders such as Wallet Wizard and Nimble can’t charge interest on unsecured payday loans, but they can charge a series of capped fees for establishing and maintaining the loan, in the event of late repayments or a default. 

The payday lending model is about generating revenue through fees, and their repayment terms are aggressive. Unfortunately, with ease of access, they are the only answer for solving short-term emergency financial issues for many as a last resort. 

A recent survey demonstrated that only 45% of respondents could deal with a $1000 emergency or short-term financial cost, and with living costs rising, it offers evidence that payday loan products have a place in the market, despite the risks. 

Pay advance loan products, such as BeforePay and CommBank’s AdvancePay also offer ‘advances’ of expected earnings, with no interest but applicable transaction and management fees. These facilities are a little less riskier to the borrower as they are subject to credit checks. Also aligned to the borrower’s pay cycle, they allow the borrower to make ‘withdrawals’ of a portion — in advance — of the expected salary. They are fairly easy to establish, and are accessed typically through a smartphone app. 

While all these ‘loan’ facilities are automated in line with consumer and employee pay cycles, payday lending and pay advance products are typically between the borrower and the financial institution, and aren’t connected to the employer. 

The shortfalls of buy now, pay later

BNPL products and services are now flooding the market, mainly due to their ease of access, with no credit checks required, and no interest payments. In Australia, clothing and electronics are the two top purchases with these facilities, which highlights the main drawback of these services. 

They are solely focused on shopping, and don’t solve all the financial pain points for  employees that may arise, such as medical emergencies. They also make it difficult for spending to be tracked, and like loans, defaults on payments accrue steep fees and charges. 

Real-time remuneration

Real-time remuneration (RTR) is facilitated by employers for employees.

Employees are increasingly looking to employers that offer impactful benefits as part of their employment packages, and these business products can eliminate the need for employees experiencing financial stress to go it alone to access ‘loan’ type facilities that leave them vulnerable to further financial difficulties. 

RTR services such as CashD  allow employees to draw down a portion of their wages, which they have already earned in a current pay cycle. Risk is minimised, as withdrawals are financially capped and have access frequency limits for control. 

Earned wage facilities are integrated to the business’ payroll, HR and finance systems, so the process is automated, and employees access their ‘live’ earned pay through a smartphone app. The balance of their pay is paid to their account on their regular payday. 

In most cases employers can cover related services fees, and make it free for the employee to access. 

The big win-win with early wage access options, is that employees can only access and spend what they have earned, when they need or want to, so it eliminates the need for credit checks, loan documentation and direct debits, and the risk of further debt for defaulting on loans. 

Real-time solution

When Labour Solutions Group (LSG), a supplier of both skilled and unskilled labour resourcing, wanted to introduce an earned pay access solution, they needed something that would cater to their agile, fast-paced, transient environment. 

In opting for CashD, the national operations manager for LSG, Joseph Zieme explained: “Real-time remuneration is redefining pay by enabling businesses like ours to empower our workers to choose how and when they get paid. This solution supports all our employment engagements — full time, part time, flexible workers, casuals and contractors — allowing them to access their earned pay in real time.”

By offering employees a flexible, safer environment to gain early access to their pay, employers like LSG can provide a true benefit that will contribute to better productivity, staff retention and recruitment for the business, and make the business an employer of choice.

RTR products also enable employees to holistically align their income and expenses by accessing a portion of their accrued pay over and above what the lending and BNPL facilities offer. The connection to the business also means risks are mitigated should an event occur with the employee or the scheduled pay run. 

A real-time remuneration facility can be empowering and contribute to an employee’s long-term financial wellbeing. Offering real-time access to earned wages or salaries can offset the need for employees to access unmanageable financial solutions. 

These products offer a real-time value-added proposition for both the business and their employees.