[UK] Earned Wage Access and the evolution of the monthly salary

Our understanding of employee compensation has changed over time and salary and fixed pay have come to be seen as part of the “total rewards system” which includes bonuses, commissions and the sorts of benefits and perks which aid employers in linking rewards to their employees’ measured performance. But how much can the salaried element of that package have really changed? Jonathan David - founder and CEO of FlexEarn - explores its rise and fall for The HR Director.

The monthly salary is comparatively new. The period between 1870 and 1930, gave rise to modern business and 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?  It was not workers who demanded to be paid in instalments of one-twelfth of the annual salary, this was not a decision driven by the workforce, it was driven by employers’ finance teams and their interest in cutting down payroll admin, not their employees’ needs.  The accountants were unconcerned that weekly pay helped employees smooth their spending to match cash flows while they were occupied with stripping out costs.

Now, with the advances in fintech, the idea of giving people the option to be paid more regularly has reemerged without the associated administrative burden.  HR tech like FlexEarn’s 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 flat fee per withdrawal - typically £1.50 - although some employers may choose to fund this themselves.  Now FlexEarn has struck a deal with Sage to provide salary-on-demand services to Sage Payroll users. Sage payroll software is used by more than 40 per cent of UK private sector businesses and pays over 25 per cent of the UK’s employees.

There is a demand for Earned Wage Access schemes, younger workers expect instant access to their pay. They have earned the money and believe it should be readily available to them.   Employees are becoming 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 stretch their earnings. But payday loans - with their interest rates of up to 500 per cent - can be an expensive option and risk exposure to the cycle of debt.  The payday loan mis-selling scandal created considerable mistrust in short-term debt providers, Wonga was an infamous player in this chapter.  

Earned Wage Access schemes are evolving into a seemingly positive alternative. The option of paying £1.50 for a portion of your monthly wage early appears a better option than taking out a payday loan. Earned Waged Access schemes have 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 had in their back pockets if they were still paid a weekly wage, rather than a monthly salary.

The COVID-19 pandemic has also driven the popularity of Earned Wage Access. Many furloughed workers are earning 80 per cent of their normal pay and this has made it harder to make ends meet when unforeseen expenses arise.  Many of us will face an occasional emergency; tyres that need replacing or a fridge that breaks down. The pandemic has exacerbated that threat because earnings are down.  Earned Wage Access means no one has to rely on family and friends, short term loans or credit cards.

So what could pay look like in the future?  What could Earned Wage Access do to payrolls now they are going to be so widely available?  Well, Jonathan David says he wants to champion the Weekly Wage. He hopes to see people using them much more often to ‘smooth out’ their income and enjoy a less lumpy wage packet.  And he would like to work with employers to help put the payday loan sector out of business.

Source: The HR Director

Our understanding of employee compensation has changed over time and salary and fixed pay have come to be seen as part of the “total rewards system” which includes bonuses, commissions and the sorts of benefits and perks which aid employers in linking rewards to their employees’ measured performance. But how much can the salaried element of that package have really changed? Jonathan David - founder and CEO of FlexEarn - explores its rise and fall for The HR Director.

The monthly salary is comparatively new. The period between 1870 and 1930, gave rise to modern business and 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?  It was not workers who demanded to be paid in instalments of one-twelfth of the annual salary, this was not a decision driven by the workforce, it was driven by employers’ finance teams and their interest in cutting down payroll admin, not their employees’ needs.  The accountants were unconcerned that weekly pay helped employees smooth their spending to match cash flows while they were occupied with stripping out costs.

Now, with the advances in fintech, the idea of giving people the option to be paid more regularly has reemerged without the associated administrative burden.  HR tech like FlexEarn’s 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 flat fee per withdrawal - typically £1.50 - although some employers may choose to fund this themselves.  Now FlexEarn has struck a deal with Sage to provide salary-on-demand services to Sage Payroll users. Sage payroll software is used by more than 40 per cent of UK private sector businesses and pays over 25 per cent of the UK’s employees.

There is a demand for Earned Wage Access schemes, younger workers expect instant access to their pay. They have earned the money and believe it should be readily available to them.   Employees are becoming 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 stretch their earnings. But payday loans - with their interest rates of up to 500 per cent - can be an expensive option and risk exposure to the cycle of debt.  The payday loan mis-selling scandal created considerable mistrust in short-term debt providers, Wonga was an infamous player in this chapter.  

Earned Wage Access schemes are evolving into a seemingly positive alternative. The option of paying £1.50 for a portion of your monthly wage early appears a better option than taking out a payday loan. Earned Waged Access schemes have 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 had in their back pockets if they were still paid a weekly wage, rather than a monthly salary.

The COVID-19 pandemic has also driven the popularity of Earned Wage Access. Many furloughed workers are earning 80 per cent of their normal pay and this has made it harder to make ends meet when unforeseen expenses arise.  Many of us will face an occasional emergency; tyres that need replacing or a fridge that breaks down. The pandemic has exacerbated that threat because earnings are down.  Earned Wage Access means no one has to rely on family and friends, short term loans or credit cards.

So what could pay look like in the future?  What could Earned Wage Access do to payrolls now they are going to be so widely available?  Well, Jonathan David says he wants to champion the Weekly Wage. He hopes to see people using them much more often to ‘smooth out’ their income and enjoy a less lumpy wage packet.  And he would like to work with employers to help put the payday loan sector out of business.

Source: The HR Director