In the ongoing challenge to obtain and retain high-quality talent, businesses are exploring unique incentives that could set them apart. The most effective incentives are ones that meet their employees’ real needs. An example of this younger generations increasingly requesting wage advances or daily wage offerings.
What is Wage Advance?
Wage Advance Benefits, also called Advance Wage Payments, Earned Wage Access or Wages on Demand, is not a loan. It’s pay that the employee has already earned, so there’s no interest charged or money to be paid back.
Simply put, Wage Advance allows workers to receive pay more quickly for their daily hours worked each day. At the end of the shift, a percentage of their earned wages will be available for them to access. Then, on payday, the money advanced is deducted from the amount of their direct deposit.
The design of these offerings varies greatly. The best options will provide advances with no fees, transaction costs, or interest charges to the employees, and without the employer fronting funds or changing their payroll processes.
To understand why Wage Advance popularity is growing, consider the current financial state of many hourly workers in America. Study after study shows that most of our workforce is facing economic struggle.
An estimated 78% of Americans live paycheck to paycheck. For employees on a bi-weekly pay cycle, that can be a huge challenge. In fact, 38% wouldn’t be able to afford a $500 emergency without selling possessions or taking out a loan.
The pandemic put an even greater strain on the finances of many families. Among households making less than $36,000 a year, 95% were either laid off or experienced income loss due to the pandemic. This forced many to empty their emergency savings accounts just to stay afloat. More than 25% of Americans accumulated $10,000 in new debt during 2020 in an attempt to make ends meet.
When employees find themselves short on cash, most have few options for relief. The American Management Association found only 17% of Americans can turn to a family member or friend for financial assistance. The remaining 83% fall back on financial bandaids like credit cards, personal loans or payday loans.
According to Forbes, “As many as 12 million Americans take about a payday loan each year. Borrowers typically earn about $30,000 a year, and 58% of them have difficulty meeting basic monthly expenses such as rent and utility bills.” When you factor in the astronomical interest rates, this creates a cycle of dependency that’s nearly impossible to escape.
The Impact on Your Business
An estimated 77% of Americans are anxious about their financial situation, and naturally that stress bleeds over into their work. An employee worried about money is less likely to be a productive member of their team. Financial wellbeing is just as important as physical and mental well-being, impacting your bottom line just as much.
This is where Wage Advances can benefit your employees. By reducing the strain of “making it to the next paycheck,” you can offer your employees better peace of mind. If you’re interested in learning more, stay tuned for our next blog about our soon-to-be-released Pay on Demand offering.