Blessing or a curse?

25 December 2018

This article was featured in the February 2019 issue of the magazine.

James Herbert, chief executive officer of Hastee Pay, discusses financial impacts on employees

 

Bringing December’s pay day forward may seem like a generous move, but new research reveals the longer workers wait for January’s pay, the more likely they are to use high cost credit to make ends meet.

Employers don’t have any obligation to ease the financial burden of the festive season on their workers. Yet, according to recent Hastee Pay research, almost one third of companies in the UK and Ireland choose to do so by paying their workers before 25 December. While employers believe doing so aids workers by helping with the added expense that the festive period bring, this leaves workers waiting for over five or six weeks until their next pay check at the end of January. 

What’s more, workers are twice as likely to use credit if they are paid monthly rather than weekly, suggesting that those with more frequent access to their pay find it easier to manage their finances. In turn, those paid weekly appear to be avoiding high-cost credit options while those who have to wait longer for their pay are using them more. 

So, is early Christmas pay actually a benefit? With the longer wait until January’s pay day, workers are left to source funds from alternative sources as their January funds can quickly run dry following the financial demands of the festive period. The research found that workers in the UK and Ireland are five times more likely to use high-cost credit in January compared to December as a result of the longer wait for their pay. Those who are on monthly salaries are also seven times more likely to use their overdraft in January rather than December.

To balance their incomings with their outgoings, 48% of workers work overtime to save extra money before the Christmas period. This could be perceived as a bonus for employers who could benefit from the increased productivity. However, the research suggests that those dealing with financial stress are actually more likely to negatively impact business productivity with 24% of workers claiming they have difficulty concentrating at work due to financial stress.

Working overtime to balance incomings with outgoings in preparation for Christmas is more of a requirement for those aged 18–24 compared to any other age group. Given that more than half of the workforce will be represented by Millennials and Generation Z by 2020, employers must consider other ways to help ease the financial on their workers or risk poor productivity from a significant growing percentage of the workforce.

...workers are twice as likely to use credit if they are paid monthly... 

 

The financial plight of the workforce extends well beyond the spending demands of the Christmas period. The research highlights that financial strain isn’t just focussed on Christmas and throughout January, but throughout the entire year – with 87% of survey respondents saying they have had to cover unexpected costs in the last twelve months. 

This reveals a wider problem for employers. If the workforce is struggling to make ends meet between pay days throughout the year, there must be an enduring impact on workforce performance and business productivity. Last year, The Economist reported that credit card borrowing had increased significantly with a growing number of households struggling to keep up with repayments. The BBC has also reported that an estimated 4.1 million people are experiencing financial difficulty owing to missed domestic or credit bills.

With an alarming number of workers struggling to find the funds to pay bills, and those who are paid monthly more likely to fall into the debt cycle, it seems that workers are more susceptible to financial stress than employers might realise. Yet could the problem be solved, not by bringing pay days forward, but by enabling flexible pay and empowering workers to withdraw the funds they need when necessary?

While employers that pay early in December do so with the best of intentions, it is clear that the consequences are bad for both the worker and the employer. What’s interesting is that those with more regular access to their pay are far better at managing their finances rather than borrowing.

Employers can extend the gesture of helping their workers out financially all year round with a flexible payment solution. Such solutions are readily available, sitting alongside traditional monthly or weekly payment methods. 

Workers can opt in and, gifted with a smartphone app, can choose to access their pay once they have completed a shift or a full-day’s work rather than waiting a full month for the funds they need. With zero impact on business cashflow, these solutions provide workers with instant access to funds for any need, from Christmas presents to urgent credit card bills. In providing this access, employers can effectively help to reduce financial stress within the workforce and increase business productivity.