A startling 78% of full-time workers say they live paycheck to paycheck. It’s this trend that sets in motion a spiral into financial stress that includes overdraft fees, late bill fees, high-interest debt, and more. Which is why the ability to control the timing of one’s pay is the next development that will revolutionize how employees think about and manage their finances.
A 2015 survey by the American Psychological Association found financial stress is the most common and enduring form of stress faced by Americans. Stress is not only a leading cause of turnover, it also wreaks havoc on your company’s productivity.
Flexible paydays offer a range of immediate financial benefits, especially to employees who are already struggling financially. The biggest wins will be avoiding overdraft and late fees — the 8 million frequent overdrafters pay an average of $442 in fees annually — and high-interest payday loans, typically costing 400% annual interest.
So here are three ways that offering a flexible payday will alleviate staffing woes.
Unemployment rates are at their lowest in two decades. Paired with the widespread and diverse gig economy, hiring has never been more difficult.
As reported by SHRM:
“We’re seeing a lot of traction for instant pay apps in companies with large hourly workforces where employees live paycheck to paycheck and unexpected expenses can cause big disruptions to their lives,” said Ron Hanscome, a research vice president at Gartner in Minneapolis who specializes in HR technologies.
“It can be a differentiator in markets where turnover is high and organizations are looking to create a more stable workforce.”
Wage-earning employees benefit in other ways besides simply lightening the burden of fees and interest. Take this example: A new mother who can’t purchase diapers in bulk will pay about 28 cents each compared with as low as 14 cents per diaper on Amazon when purchased in bulk.
That 14 cent per diaper difference may not sound like a lot, but when you multiply it by the 3,000 or so diapers in the first year of a baby’s life, that amounts to $420. And that’s just diapers.
When hourly workers experience the instant gratification of seeing an available balance of funds they can withdraw from go up with every hour worked, they are more motivated to put in those hours and even take additional shifts. According to PYMNTS.com, “An overwhelming majority of gig workers — 84% — reported they would do more gig work if they were paid faster.”
A survey we did at my company showed that 68%of our active daily pay card users are motivated to work more days. We also discovered that our users work 11% more hours than their co-workers who never opted in to the flexible payday benefit.
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More importantly, 72% of respondents claimed that they felt more in control of their finances when they were able to choose when they get paid, and 77% said they feel less financial stress.
Turnover is an incredible expense for any business. Assigning specific metrics to qualitative losses, like overall company morale, is difficult, so various sources will calculate costs in different ways.
Turnover estimates for entry-level employees range from 30% to 50% of their annual salary to replace. Departing mid-level employees can cost up to 150% of their salary to replace.
According to the SHRM article, “The ability to draw pay right away can keep some hourly workers from jumping ship to competitors for a 25-cent or 50-cent per-hour pay increase.”
The Orlando Sentinel recently interviewed Kim Scott, human resources supervisor for Caspers Company, which oversees the 54 McDonald’s locations, all of which now offer a flexible payday benefit. Scott told the Sentinel that the company has “seen substantial improvement in retaining existing workers while attracting new hires. It was also a good opportunity to further position ourselves as industry leaders.” Scott also said that absenteeism and difficulty in getting shifts covered has significantly decreased.
Providing instant pay in the workplace — something that is largely unheard of, but becoming increasingly popular — can be leveraged for employee retention and strategic recruiting. More importantly, today’s technology allows you to offer this benefit with no change to your existing payroll process, including the time of payroll funds.
Having ready access to funds is an essential ingredient to staying ahead and beating financial stress. And it’s essential to keeping your workforce engaged.