Earned wage access: Is it the answer to improving employee retention & attendance?

While financial stress affects workers of all income levels, high inflation, fears of a recession, spiking interest rates, an unstable economy, and thousands of layoffs in seemingly impervious industries (think hitech) have created a perfect storm that’s devaluing the spending power of middle-income workers. Nearly three-quarters of middle-income families say their incomes can’t keep up with today’s cost of living. One study found 50.8% of people earning over $100,000 were living paycheck to paycheck.

Money worries can severely impact employee mental and physical health, sleep, and personal relationships. The logical paths to relief are to reign in finances, work more hours to keep pace with the cost of living, or find a new job at a higher salary. Here’s the rub: financially-stressed employees are twice as likely to look for new employment and are much less confident that their employers care about their concerns.

We’re seeing new expectations manifest in the market as Generation Z, many of whom have experience in the gig economy, joins the workforce. They know what it feels like to get paid as soon as they finish their shift, and they expect these capabilities to follow them into the corporate workplace.

Earned wage access (EWA) is one tool in a comprehensive financial wellness package that allows workers more flexibility and control over their income by giving them access to their wages whenever they need them, on a daily, weekly, or on-demand basis.

While EWA has historically been a fundamental benefit for gig workers, more corporate employers are offering it to employees as an added perk. Here are three ways corporate employers stand to benefit from EWA and real-time payment capabilities:

Financial wellness tools lead to happier, more productive employees

Corporate workers struggling to meet their financial commitments often turn to traditional alternatives like credit cards or payday loans, which may solve a short-term problem but likely compounds the issue with high interest rates and fees that can add up quickly. Employees want the capacity to cushion financial setbacks and balance their budgets between pay cycles in ways that do not accrue debt. One study found that 51% of employees feel it’s an employer’s responsibility to help with financial wellness. The expectation is even higher among younger workers, with two-thirds of Gen Z agreeing.

EWA funds delivered almost instantly via real-time payment providers can provide workers with a financial lifeline to protect them from turning to higher-cost loan options, keep them from taking on additional debt, and allow them to build savings over time. With access to earned wages when they need them, employees don’t have to wait for the next pay cycle to get paid, dip into savings, take loans, use credit cards, or liquidate investments to grapple with unexpected financial emergencies, such as repairs or medical bills.

Employers who implement EWA attract and retain more talent

 For employers, EWA is also an impressive recruitment and retention tool. An ADP survey found 75% of surveyed millennials say that the availability of earned wage access would influence their acceptance of a job offer. While hourly positions are typically less difficult to fill, higher-level salaried positions can be more costly to replace when, training, onboarding time, job board fees, lost productivity, and the actual salary are taken into account. The same ADP survey also found that a whopping 93% of surveyed employers who offer EWA believe it helps retain talent. With EWA, corporations can differentiate themselves from their competitors and attract top talent and improve retention and attendance.

Financial stressors also impact morale and productivity in the workplace. One 2022 study found that 76% of workers agonize about money at work, and one in five said it affected their focus and productivity. Similarly, employees stressed out about finances were seven times more likely to say that it affected their attendance. Boosting employee morale and productivity are excellent reasons to introduce EWA in a comprehensive financial wellness package that should also include financial literacy, credit resources, and budgeting tools.

Implementing real-time payment capabilities helps improve cash flow management

In addition to reducing financial anxiety by giving workers control over when they receive their wages, real-time payments also have benefits for businesses of all sizes. One myth about real-time payment capabilities is that it is only available for use by large corporations, but in reality, it would solve many cash flow issues commonly faced by small and midsize businesses (SMBs). In a traditional payroll model, it can take several days for the funds to move from the employer’s bank, through the payroll company, and into the recipient’s account at their financial institution. According to U.S. Chamber of Commerce Q4 2022 Small Business Index report, one-third of small business owners say they are uncomfortable with their cash flow. Most SMBs operate with thin margins and real-time payroll funding capabilities via the RTP® network offer SMBs the ability to keep cash on hand a little longer before it needs to meet payroll. When it comes to payroll for SMBs, real-time payments can reduce the time it takes to fund the payroll account at the payroll company from days to sometimes seconds…freeing up cash in the interim for other purposes.

Related: Employee debt affects the workplace: Rolling out the right financial wellness solutions

Americans across all tax brackets are grappling with the rising cost of living in an unstable economy. Businesses have an opportunity, here and now, to embrace real-time payments to improve cash flow while simultaneously offering financial autonomy to employees. Decreasing financial anxiety increases job satisfaction and employee loyalty, which can ultimately benefit the company in terms of reduced turnover and increased productivity.

Jim Colassano is senior vice president of product development and strategy at The Clearing House.