Since the Covid-19 pandemic, flexibility has become intrinsic to employment for many workers. But while the hours people work, where they work them and even what they do is becoming increasingly flexible, one area remains stubbornly rigid: pay.
For most employees, even those on hourly rates, pay is organised on a monthly schedule. It’s a cycle that works well for employers, minimising administrative burdens and easing compliance with requirements like real-time information. But with many people demanding more flexibility and autonomy in their working lives, is there a case for rethinking pay?
There are signs of a more flexible approach emerging, specifically through earned wage access schemes (EWAs).
EWAs allow employees to access a portion of accrued salary before their regular payday (employers set a threshold, which is usually around 25% to 50% of earned wages), while the employer continues to run their normal payroll cycle. The schemes are offered in two ways: employers either use a payroll system that includes an on-demand pay solution (like Dayforce) or work with a third-party supplier (like Wagestream or Hastee) to bolt on EWA.
Read more: CIPP launches earned wage access guidelines
Samantha O’Sullivan, policy and advisory lead at the Chartered Institute of Payroll Professionals (CIPP) says that EWAs are one of the biggest trends in payroll. According to the CIPP’s figures, more than 4 million workers have access to an EWA scheme, with one in 10 employers providing one.
Such schemes are more common in lower-paid sectors where employees are typically paid by the hour, such as social care, retail and hospitality, although several NHS Trusts offer them, and one EWA provider told us that they are working with a professional services firm.
The pandemic accelerated the growth of EWA schemes, says Aaron Fox, VP commercial for Dayforce Wallet: “Workers were dispersed and employers thought more deeply about how we take care of and pay them.” The cost of living crisis, which has highlighted the importance of financial wellbeing, is another factor.
Wagestream’s chief impact officer, Emily Trant, adds that the growth of the gig economy and expectations of flexibility, particularly among younger workers, are also driving employers to consider EWA as they compete for talent in a tough market. “People are choosing gig work that pays instantly,” she says.
She describes an attitude shift in organisations that are competing with the gig economy as “their workforce is expecting this flexibility anyway”. EWA could encourage shift workers to pick up more hours, as they can see the value instantly.
But despite the growth of the market, employers – and employees – can be wary of EWAs. Dan Hadfield, assistant director of HR at The Milestones Trust, says there was a hesitation from leaders when he first suggested introducing the benefit, due to concerns it could encourage people to “make poor financial decisions”. Sally-Ann McKevitt, head of people at support provider Affinity Trust, and a Wagestream customer, also had worries about employee overspending.
Read more: Financial education is now a necessity
Fox says HR leaders’ main concerns fall into the bucket of practical: how does EWA interact with payroll? And philosophical: will it lead to poor financial habits?
However, both Dayforce and Wagestream have data that suggests the majority of people use the EWA facility ‘sensibly’. Wagestream finds that 76% use it when they have a bill to pay, or have to make an essential purchase. Drawdowns tend to be small – the average at Affinity Trust is £58 – and neither McKevitt nor Hadfield have seen worrying usage.
While concerns may be well meaning, they could be seen as overly paternalistic, even patronising, given that they surround how people on lower, often less secure, incomes spend their money. There’s a bigger question over whether this is even HR’s business.
Leaders can lack understanding around how wages fluctuate for people who are paid by the hour, who often have irregular shift patterns. “Your earnings are lumpy, the day you get paid is lumpy, but your bills are steady,” explains Trant. “Volatility in earnings is a predictor of financial exclusion.”
Maybe HR leaders should check their privilege around financial inclusion. “Sometimes we hear: ‘Why can’t people just use their overdraft , credit card or savings?’” says Jo Phillips, director of research and innovation at Nest Insight.
“But not everyone has access to these options. The available choices to compare EWA with might be a payday loan or other high-cost credit, borrowing from family and friends or getting into bill arrears.” Wagestream data shows that 85% of users borrow less from family and friends, 73% use payday loans less and 72% use credit cards less.
There will always be those who spend irresponsibly, no matter what, explains Trant. “When employers use that as a reason, all you’re doing is pushing it out of your line of sight,” she cautions. “That behaviour already exists.
“Have support in place for outliers, but recognise that they are outliers.” Trant believes that EWAs could help improve stability for lower-paid workers, contributing to financial inclusion and even social mobility.
Another concern for some is that, unlike most financial products, EWAs aren’t regulated. However this does mean that they are wholly inclusive: no credit check or affordability assessment is required.
Read more: Social mobility initiatives fall by 23%
Phillips points out: “EWA is not credit. There’s no interest attached, and you’re not borrowing.” To ensure good customer outcomes, the CIPP has set up an EWA code of practice which providers should adhere to.
There’s no doubt that for employers, a monthly payroll cycle works. It’s easier to administer, predictable and established. But as employee expectations around flexibility continue to shift, perhaps it’s only a matter of time before employers have no choice but to offer more flexibility around pay. As McKevitt puts it: “When we support people with learning disabilities, our emphasis is on them having agency. Staff should have the same agency over their own financial health.”
How EWA works for Milestones Trust
At social care organisation Milestones Trust, 90% of the 1,000-strong workforce are frontline support workers on an hourly rate. Facing a recruitment and retention squeeze, and looking for creative benefits options on a constrained budget, assistant director of HR Dan Hadfield chose to introduce EWA, via Dayforce.
The scheme allows employees to access up to 25% of earned pay. Hadfield admits that there was some hesitation among leadership and the workforce, who equated it with products like payday loans. “There’s a need to educate,” he says.
Once people understood though, outcomes have been positive. “One employee used it to fix her boiler, and didn’t have to turn to payday loans. She sent us a thank you card,” Hadfield says.
Top tips
Sally-Ann McKevitt, head of people at Affinity Trust, which provides support for people with learning disabilities, offers her top tips for EWA implementation.
1. Understand the wellbeing needs and preferences of your people through surveys, focus groups and discussions.
2. Define clear objectives and determine desired outcomes (such as improving financial wellbeing).
3. Consider the amount that employees can draw down, fees, and whether or not you want to introduce a cap.
4. Be clear and reassuring about privacy in your communication and promotion.
This article was published in the July/August 2024 edition of HR magazine.
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