Our understanding of how employees are compensated has evolved over time.  Salary and fixed pay has come to be seen as part of a “total rewards” system which includes bonuses, commissions, benefits and perks, and other tools which help employers link rewards to an employee’s measured performance.  But the salaried element of that package hasn’t changed all that much, surely?  

Actually, it has.  The monthly salary is relatively new.  The period between 1870 and 1930, gave rise to modern business. This era saw the widespread emergence of a class of salaried executives and administrators who served the new, large-scale enterprises being created.  New managerial jobs lent themselves to salaried employment, in part because the effort and output of “office work” were hard to measure hourly.  But, crucially, people in the UK were still paid weekly.

Then, in the sixties, the country shifted from being paid a weekly wage to a monthly salary.  Why did this happen?  Were workers clamouring to be paid in installments of one-twelfth of the annual salary?  Certainly not.  This was not a decision driven by the workforce.  It was driven by employers’ finance teams who were more interested in cutting down payroll admin than their employees’ needs.  The accountants didn’t care that weekly pay helped employees smooth their spending to match cash flows – they were too busy trying to strip out costs.

Now, with the advances in fintech, the idea of giving people the option to be paid more regularly is back on the cards – but, this time, without the associated administrative burden.  HR tech like our Earned Wage Access app allows employees to withdraw a portion of their pay in advance of their regular salary payment date without any changes to an employer’s payroll process, and at no cost to employers.  Employees pay a low flat fee per withdrawal – typically £1.50 (although some employers may choose to fund this themselves).  Now we have struck a deal with Sage to provide our salary-on-demand services to Sage Payroll users.  Given Sage payroll software is used by more than 40% of UK private sector businesses and pays over 25% of the UK’s employees – Earned Wage Access schemes are now set to come of age.

Demand for Earned Wage Access schemes is certainly there.  Younger workers expect instant access to their pay.  They have earned the money and as far as they’re concerned, it should be available to them.   Employees are more aware of the dangers associated with alternatives to Earned Wage Access.  Forty per cent of young people use payday loans and pawnshops to help smooth their earnings.  But payday loans can be expensive, with interest rates of up to 500 per cent.  At that price, it’s all too easy to become stuck in the cycle of debt.  The payday loan mis-selling scandal generated a great deal of mistrust in short-term debt providers – Wonga being the most infamous.  Earned Wage Access schemes are a great alternative.  Having the option of paying £1.50 to get a portion of your monthly wage early is clearly a better bet than taking out a payday loan.  With Earned Waged Access schemes, there are no hidden charges, credit checks, or interest.  They are a safe, secure way for employees to get immediate access to the wages they’ve already earned.  Money that they would have in their back pockets were they paid a weekly wage, rather than a monthly salary!

Covid-19 has also driven the popularity of Earned Wage Access.  Many people on furlough are earning 80% of their normal pay and there’s no question that this has made it harder to make ends meet when unforeseen expenses crop up.  Many of us will face the odd emergency every once in a while, whether it’s tyres that need replacing or a fridge that breaks down.  The pandemic has multiplied that threat because earnings are down.  Earned Wage Access means no one has to rely on family, short term loans or credit cards.

So what might pay look like in the future?  What could Earned Wage Access do to payrolls now they are going to be so widely available?  Well, given I want to champion the Weekly Wage, it won’t surprise you that I hope we will see people using them much more often to smooth out their income and enjoy a less lumpy wage packet.  And at the very least, I’d like to work with employers to help put the payday loan sector out of business.