Why some businesses are making every day payday

Things are getting tougher out there for businesses and their employees. Australian SMEs are grappling with a 20 per cent higher risk of failure compared to last year.

A scary stat when we see that economic growth continues to slacken. The struggle is only intensified for smaller businesses that often lack the adequate resources and funds to stay afloat.

Simultaneously, while facing their own cost pressures, employers also need to support their employees, who themselves are facing a cost-of-living crisis. One in four Australians has less than $1000 savings, and one in ten often have to resort to credit cards to pay bills and make unexpected payments.

As a result, we have a workforce under stress, impacting their wellbeing and ability to be productive. From our own research, we know that the biggest cause of stress for all workers is due to financial or cost of living concerns, according to 35% of all those asked. We also found that 60% of staff are uncomfortable sharing financial concerns with their manager, which may explain why 59% do not think their workplaces are doing enough to support rising living costs.

This puts employers in a very tight position. They want to do best by their staff, but offering pay rises and financial rewards isn’t always a sustainable long-term solution. However, there is a light at the end of the tunnel and it’s called Earned Wage Access.

What is Earned Wage Access?

Earned Wage Access (EWA) is a straightforward concept. It lets employees access their earned wages before their regular payday. The simple, yet powerful difference with EWA is that employees are only ever accessing what they have already earned. Meaning no credit. No late fees. No mounting interest repayments. This isn’t like outdated payday loans or BNPL schemes – it provides employees a safety net, a bridge to the next payday without the debt trap.

EWA is well-established in places like the UK and US. In fact, research by Visa shows that 79% of employees would switch jobs for access to EWA, making it a powerful tool for attracting and retaining talent.

For many decades, paying wages in arrears has been the default cycle for workers. This was largely due to the administrative time and effort required to complete a pay run. Payroll tax and compliance concerns, paper-based processes, managing banks and conferring with accountants all stretched the process out. It just wasn’t feasible to pay people every single day. Until now. 

With EWA, since this money has already been earned, employees face no interest charges, credit checks, or late fees. This straightforward and transparent system ensures workers can access their earnings without incurring extra costs. By receiving real-time payments for their work, employees can budget more effectively and reduce their reliance on short-term credit to cover expenses between paychecks.

What is the employer benefit?

Offering employee benefits is a relatively quick and easy way for employers to both attract and retain top talent. Having a strong employee benefits system or Employee Value Proposition (EVP) has traditionally been tricky to deliver and expensive for SMEs, putting them at a disadvantage against larger businesses. However, this is no longer the case with employment platforms – Employment Hero included – offering a suite of employee benefits. 

Giving employees daily access to their earnings could be the competitive advantage SMEs need to differentiate and stand out to top talent in the current climate. If we look at the United States as an example, the American Payroll Association reported that almost three-quarters of employees would consider switching jobs if it meant that they could access their wages daily. And in countries like France and Spain, providing access to EWA options is mandatory by law. 

In many cases, EWA provides employers with a staff benefit that can bring greater financial flexibilityto their staff at zero cost to the business. Benefits such as EWA can boost financial wellness and keep staff more engaged, motivated, and happier at work, resulting in greater staff retention and higher productivity.

How will it benefit employees?

Employees are responsible for paying bills in real-time, but they get paid in arrears. One could argue that it doesn’t seem fair for workers to have to wait weeks to access the money they’ve already earned. This is a centuries-old model, and is something we now have the power to alter. Wide adoption of EWA would fundamentally change how people are paid in Australia – potentially disrupting the financial system as we know it.

Looking at our own EWA offering – InstaPay – we’re seeing firsthand the benefits that on demand access to wages can deliver. For example 98% of InstaPay users would use the service again and in the last 12 months $19m in wages has been accessed on demand. And it isn’t just for managing bills or unexpected expenses. We’ve seen employees use it to lower mortgage repayments, plan for upcoming costs, or save for a rainy day.

On demand access to wages can also make Australians richer in the long term. For example, on any given day, there’s around $30bn in wages that employees have earned but not yet received. If this money were paid out daily, it would help with financial stability and provide more chances to save and invest money on a daily basis. With current interest rates at over 4 per cent, individuals could earn hundreds of extra dollars annually just from the interest of daily saving

Ultimately, EWA allows employees more control over their finances. This translates to happier, more focused employees who aren’t distracted by money worries. When people feel financially stable, they’re more engaged and productive at work. 

For employers, offering EWA isn’t just another perk; it’s a powerful tool at their disposal for improving the financial health and wellbeing of their staff. Giving employees access to their hard-earned cash when they want and need it, not only eases immediate financial strains but also fosters a sense of empowerment and security. It’s a no-brainer. Products such as InstaPay can help SMEs supercharge their Employee Value Proposition, lock down top talent, and keep workforces firing on all cylinders.

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