The Stabilizing Potential of Payroll

New Financial Tech Has a Solution for Banking Deserts and Predatory Lending

Posted on May 21, 2019

You’ve probably heard this statistic before: 40% of Americans don’t have enough savings to cover a $400 emergency.1 That number is repeated so often because it reveals how precarious finances are for millions of Americans, even those that seem stable and self-sufficient. We all know these kinds of emergencies will happen—the car needs a water pump, or the dishwasher breaks, or a pet gets sick—but too often we aren’t prepared to handle it when it does.

Community organizations, activists, and philanthropists across the US are digging into the root causes of that widespread financial precarity and looking for big solutions: expanding economic equity, providing access to financial coaching, raising the minimum wage, or legislating a universal jobs guarantee or universal basic income.

Sources-of-Stress-APA-2014But for business leaders who worry about the impact of financial stress on their own employees, there’s a simple solution ready to make an immediate impact in their workers’ lives: wages on demand.

Entrepreneuring tech companies like FlexWage and ZayZoon are partnering with payroll companies to provide employees with payroll advancements and earned wages on demand. This user-friendly technology disrupts the traditional biweekly pay schedule and gives employees flexibility in when and how they access their wages. The tech also allows for anonymity; employees can access advance pay without ever speaking to a supervisor or HR, preserving their privacy and eliminating the potential barrier of shame or embarrassment.

Providing your employees with more flexible access to their pay can impact two major problems. First, it gives workers a source of emergency funds that can prevent a single unplanned expense from snowballing into a major emergency. A single parent whose car suddenly breaks down may end up paying for expensive cab rides to get where they need to go or skipping shifts when they can’t find a friend to give them a ride, putting them further and further underwater, or even putting their job at risk.

Second, on-demand wages also prevent low-wage workers with limited access to credit or affordable banking services from incurring bank fees (in 2017, banks collected more than $11 BILLION in consumer overdraft fees2) or resorting to expensive credit card advances or payday loans. Predatory lending like payday loans are designed to trap people in a cycle of debt: On average, payday loans charge 400% annual interest3 and a payday loan borrower will take out eight loans in a year, paying $520 in interest.4 Without affordable options, the cost of borrowing money can quickly balloon into a greater financial burden than the original expense. Giving workers immediate access to their own earned wages or a modest income advance can break that destructive debt cycle and put them on equal footing with populations that traditionally have greater access to affordable lending.

The business benefit is significant as well. Financial health benefits like these can decrease financial stress that impacts employee productivity and prevent financial emergencies that can harm attendance or reduce retention. Novel benefits like these can also be a powerful retention tool, offering employees something they won’t find in other employers. In a Pew survey, 92% of respondents said financial stability and predictable income was more important than moving up the income ladder.5 Technical innovation is making it simpler than ever to provide greater stability at minimal cost to the business.


  1. https://www.federalreserve.gov/consumerscommunities/files/2018-report-economic-well-being-us-households-201905.pdf
  2. https://www.responsiblelending.org/media/report-fdic-data-shows-banks-collected-1145-billion-overdraft-fees-2017
  3. https://www.cnbc.com/2018/08/03/states-with-the-highest-payday-loan-rates.html
  4. http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf
  5. https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2015/02/americans-financial-security-perceptions-and-reality


Topics: barriers to employment, innovative workplace benefits, workforce support, diversity & inclusion, financial stability, absenteeism, employee retention, economic opportunity, financial planning,

 

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