Why is Earned Wage Access a new normal here to stay?
Payroll is one area of business that’s been ripe for innovation and disruption for a while now. On the surface, it may not look like something that really requires any major changes. After all, it’s worked well enough so far. Not to mention, paying a fixed salary every fortnight or month makes it easier for companies to manage their cash flow.
There isn’t really a lot of complaints despite the current system not being entirely ideal for a good part of the population that lives paycheck to paycheck. However, as when flexibilities for payments, banking and purchases are fast becoming the norm, why should salary payment be any different?
Now, the traditional payroll is embracing the on-demand economy and turning to fintech to revolutionize how companies pay their employees. With technology advances, money movement networks and cheaper payment methods, employers can satisfy new employee preferences and better assist employees with increased salary flexibilities while maintaining the company’s cash flow needs.
Earned Wage Access promises to be that shakeup the payroll function has perhaps required for a while now.
Employees can now access a ubiquitous mobile app that combines new payment methods to give them on-demand access to what’s rightly theirs: earned wages.
Financial wellbeing in the Lion City
It is a common sentiment that Singaporeans are financially secure. However, there is an increasing number of research that shows this might not be the case, which has now been further exacerbated by changing lifestyles, rising costs of living and the residual impact of COVID-19, This has left businesses and the workforce struggling to adapt and find their footing.
Based on a financial wellbeing survey conducted by OCBC in 2020- 53% of Singaporeans polled indicated that they would be unable to defray a sudden expense; 11% indicated that they have borrowed money from either family members or friends, and 27% admitted to only paying the minimum sum on their credit cards.
And a Financial Wellbeing Index by DBS in 2020 showed Singaporeans only scored 46 out of 100 points compared to the regional average of 56 points
Financial stress is the number one workplace concern amongst employees and negatively impacts the company’s bottom line.
So how do you know if a company has a financial wellbeing problem?’ The symptoms of poor financial wellbeing in the workplace come in many forms such as requests for pay advances; workplace borrowing amongst employees; workplace theft or even workplace harassment by money lenders.
Increasing awareness by the employers
Companies that try to improve their bottom line without taking care of their employees are bound to fail in the long run. Employers are coming to realize that there is much more that they can do to support their employees. In many cases, employees who are held to traditional fortnightly or monthly payroll structures are experiencing increased financial stress, especially as the cost of living continues to increase. Innovations like EWA are helping to solve this challenge, and give employees the extra flexibility and work/life balance they’re looking for. As such, many small and medium-sized enterprises have grown dependent on EWA.
This simple concept has already been used across the globe by both big and small companies alike. This has, in turn, helped millions of employees improve their financial wellbeing, especially through the Covid-19 pandemic. Particularly in Asia, EWA has picked up steam. where it could sit within their wider HR strategy and the future of pay.
EWA gives the ability for employees to access wages that they have earned but not yet received. It is not a loan and hence does not incur any form of interest rates or late fees. Just a flat transaction fee that is borne by the employee, if he or she decides to use the service.
An on-demand pay system through a cloud-based money movement solution made accessible to employees as a downloadable mobile app. Employees can log in at any time, see how much they’ve earned and draw down their pay when they need it. It provides the freedom to manage financial commitments as needed throughout the month. According to EY research in 2020, 80% of individuals indicated they would use a form of on-demand pay. And it’s not just a benefit sought by lower income earners or individuals of lesser financial means; it’s about timing and cash flow.
The global payday loans and personal loan market size value at $32.48 billion and $47.79 billion in 2020, and is projected to reach $48.68 billion and $719.31 biliion respectively by 2030, not to mention credit cards remain the most common form of debt. So earlier access to earned wages and financial well-being tools can address misaligned cash flow and potentially reduce the significant cost of all forms of debt for individuals.
EWA is revolutionizing payroll in the most efficient manner. Driven by consumer demand and technology, it offers a compelling economic case for employers and flexibility, speed and peace of mind for employees. It can be deployed as an addition to an existing payroll system and does not create an additional administrative burden. The risk and investment are low and the benefits to progressive employers and employees are real in terms of employee well-being and retention. A modern pay experience for both the employers and employees, which automates and unifies the old manual processes,
1) Simplicity and support
EWA programs work best when they’re deployed in conjunction with a number of other support mechanisms, so that employees feel that they can get help whenever they need it.
2) Blending people and technology
Given that many of the customer demands can require a customized approach for which a human touch might be needed. We need to have processes in place that can both support our customers with a quick answer provided through technology and on the other hand have human support available in those moments that matter. For instance a live chat channel in-app.
3) EWA as a force for good
More flexible approach to when employees are paid will not only support better financial well-being, but also be an employee benefit that helps with retention and acquisition across industries where the best talent is highly sought-after. Earned Wage Access could be a competitive advantage we can offer both to the candidates as well as the existing staff to retain them. EWA provides on-demand access to wages that employees have already earned, and that essentially provides employees the opportunity to select their own payday.
To expand on the well-being of employees, businesses are increasingly seeing the benefits of offering their workforce early access to their earned wages so that they make ends meet. And even though it’s in early stages, earned wage access has huge potential and solves problems that the traditional payroll systems cannot.
From a financial inclusion standpoint, models where the employer — rather than the employee — bears the cost have the stronger social impact case. EWA vendors typically service a mix of customers across both models, where the employer pays in some cases and the employee pays in others. Fundamentally, an EWA vendor’s goal is to prove its value as an employee welfare and retention tool. For accounts that start on an employee-pays model, employers will get a better understanding of how EWA improves employee productivity and retention over time. This will be a key driver for encouraging employers to pay for a fixed fee per disbursement, ultimately facilitating the transition of the account to an employer-pay model.
Looking at the shifts in technology and how people have the ability to get anything almost instantaneously, isn’t it time for employee wages to be more aligned?
Talk to us and we’ll be happy to share with you how this employee benefit can benefit you as an employer and employee! To find out more, visit www.friyay.asia or request a demo to enjoy an obligation-free trial.
References
https://www.cloudpay.com/resources/hr-strategy-earned-wage-access-and-the-future-of-pay 17 Nov 2022
https://www.yahoo.com/now/payday-loans-market-hit-48-075900850.html 13 Sept 2021
https://www.alliedmarketresearch.com/personal-loans-market-A07580 Aug 2021
https://www.ey.com/en_gl/financial-services-technical-resources/payday-pressure-looking-to-flexible-salary-solutions 15 Sept 2020
https://techcrunch.com/2022/09/13/is-earned-wage-access-ushering-in-a-new-era-of-payroll-management/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAHYUxNiCTOTV3_Llfc8r_Qwblm8x8x6Ja_Go23hD7iLi_UgXo8PGZ9ZEvLlh8ambzFXpglUwxe5PWs4WJU8xwGjFy059G-lywjZ5Pf2bm2CgUuXcqjd6MsZpm0lIz0YL34Z1phwtitCltwb6-KAqk-tfJtwpV-ZqY-7OlnH1fdLk, Karan Bhasin 14 Sept, 2022
https://sponsored.bloomberg.com/article/business-reporter/the-future-of-payroll-is-fintech, Paul Bartlett
https://www.hrtech.sg/blog/the-future-of-pay-earned-wage-access/ 01 Apr 2021, Mitchell Goh