Not having enough money to pay for life’s unexpected emergencies can really take a toll on an employee’s mental health. In turn, their productivity at work can suffer, creating a lose-lose situation for both employer and employee.
Many financial products, like predatory payday loans, target people in these stressful situations and actually make the problem worse by adding to the financial burden with aggressive repayment terms. But, fortunately, there is a solution that can help reverse the negative effects of tight cash flow — earned-wage access.
With earned-wage access, also called income on demand or income streaming, employers can create a win-win situation by helping employees tap the money they are on track to earn. That bit of extra liquidity can help reverse the cycle of stress and result in both a healthier employee and, in turn, a healthier overall workforce.
Many Americans live paycheck to paycheck. It’s a situation that’s been snowballing the past few decades as incomes have remained stagnant while the costs of major expenses like housing and health care have increased significantly. Only about 40 percent of people in the U.S. have funds to cover an unexpected expense like a hospital visit or a car repair without using their credit card or taking out a personal loan, according to a Bankrate survey.
For employees who urgently need their money before payday, earned-wage access can help provide relief. It works by allowing an employee to request funds they’ve already earned (or that an employer makes available to them) through an app connected to their bank account.
Then, the employer gets an invoice and repays the withdrawn amount on the normal payday. The amount that was withdrawn is deducted from the employee’s regular paycheck, and they receive the remainder of their earnings.
For example, if an employee withdraws $100 during a pay period when their wage would be $1,000, they would receive $900 on their scheduled pay day, and $100 would be paid back to the intermediary fintech company.
The main advantages to offering income on demand are the productivity boosts that stem from how the employee benefits. Employees who are grappling with financial issues may be unfocused and have negative attitudes that can spread to their co-workers. They may even want to leave your company to pursue other opportunities that can get them out of their rut.
When an employee has more liquidity in their personal finances, their focus can shift from bill-paying struggles to other things that can benefit the workplace.
Helping employees improve their financial wellness can also help companies reduce employee turnover, as employees who are not struggling are less likely to look for other work. They’re more likely to appreciate a company that takes measures to help them in a time of need.
Of course, like with any business decision, there are several factors to think about when you’re deciding whether to implement earned-wage access. You’ll need to think about how to balance employees’ needs against the bottom line.
Employers must decide how much of an employee’s pay they want to make available early, and how often they will allow employees to tap those funds before their scheduled pay date. They’ll also need to determine who will bear the cost of any fees associated with the service — whether that’s the employer’s responsibility or the employee’s.
A growing number of fintech companies are offering platforms for companies to provide instant wages to their employees. Rain caters to medium and large U.S.-based companies.
Rain charges a small subscription fee, which is paid by the employee. Another option is for the employer and employee to share the cost.
Employers can take a more proactive role in helping their employees achieve financial wellness through earned-wage access.
If you’re considering this benefit, make sure to carefully research the growing number of companies providing income streaming services, so you can ensure your company’s specific needs are met.