We’re all familiar with the monthly paycheck. Lucky employees might even be getting their pay every two weeks. You might think you’re doing everyone a favour by making your employees wait to get paid. Sure, it reduces the workload for payroll, creates less administration and lowers costs, but does it actually benefit your most valuable resource, your people? Let’s bust the myth that longer pay cycles help employees discipline their finances by answering two commonly asked questions that jump to mind:
Aren’t I just helping them budget?
It might be tempting to think of a longer pay cycle as a means of financial discipline. After all, if employees need their money to stretch for longer, they’ll need to plan ahead and think about their financial obligations, right? Not so fast.
The reality is that the more spread out cash flows are, the harder it is to manage our money. It also dramatically increases the impact of costs that are out of our control, such as health bills, family emergencies or broken down vehicles, which are just three examples of many. It’s challenging for a person with a little left over every month at the best of times to take into account unexpected costs effectively, especially when they occur unexpectedly during the month.
The problem gets worse when we consider debt. One lousy month is ok, but if extra costs result in new debts (credit cards, overdrafts, personal loans etc.), the next month’s paycheck will be eaten up by repayments and interest. If another unexpected cost occurs, the cycle gets worse. Once an employee finds themselves in this position, it’s hard to escape, let alone learn how to better manage their finances.
Instead of forcing your employees to budget inflexibly, consider the Earned Wage Access (EWA) alternative. EWA allows employees to access their already-earned pay during any point in the pay cycle without having to wait until their next paycheck hits their account. When an unexpected bill or expense arrives, employees can access part of their earned wages in real-time to cover any cash shortfall instead of turning to new debt, until payday arrives. This way, you help your employees by being in the right space of mind by being able to better manage their finances.
Won’t my staff just spend their money even sooner?
Giving your staff access to their earned wages in real-time tempts the question – won’t they be more inclined to spend it before the end of the month? On the contrary, a study of >4,500 employees shows EWA is used responsibly and smartly to cover essential spending.
N=4626
As a result, many save money on interest charges and overdraft/overdrawn fees, as well as the debt overhang that they previously carried into the next month which were used to cover these essential spending, had EWA not been available.
Additionally, EWA cultivates a more responsible and stable emotional reaction to their personal finances. Instead of falling victim to the ‘payday high’ [link payday high article] effect that contributes to a large portion of overspending, employees are able to take control and meet their expenses when they fall due.Instead of challenging your employees to deal with a monthly paycheck, increase their budgeting flexibility with EWA to set them for a brighter financial future. Contact Paytime today.
