Why Earned Wage Access is a Much-Needed Alternative to Pay Day Loans

The demands of the modern workplace, and the expectations of today’s workforce, are greater than they’ve ever been.

As employee financial pressures continue to evolve,  the traditional pay cycle can’t keep up with the needs of the economy. During these uncertain economic and social times, employee expectations of organizations continue to mount across the board.

But with any challenge comes opportunity.

Recent studies have clearly highlighted that there is an unfulfilled need for more economic stability in today’s workforce. And, with this opportunity, there is a substantial ability for employers to foster loyal employee advocates – not just grow a workforce.

At AnyDay, we see a void in the marketplace in terms of how people are paid and when. Hourly workers, independent contractors and salaried employees are unnecessarily living paycheck-to-paycheck. With a flexible, on-demand pay platform, common financial pain points and cash flow issues that stifle everyday working people can be mitigated. A real opportunity for financial well-being can be realized and employers can foster and retain loyal workers who feel supported by their organization.

Why People Turn to Payday Loans

Traditionally, financially strapped employees have turned to predatory payday loans to cover expenses. In the United States, about 2.5 million households use at least one payday loan each year. Average borrowers earn about $30,000 a year, have trouble meeting their monthly expenses, and use these high-interest loans for recurring bills like rent.

In looking at the current challenges faced by today’s workforce, a staggering statistic stands out: nearly 80 percent of Americans are living paycheck-to-paycheck.

This leaves most workers one emergency away from falling into financial hardship. Emergency expenses stress an employee’s bank account, affect performance at work and, ultimately, jeopardize employment. And this cycle of economic hardship is made worse with payday loans.

A Payday Solution That Isn’t Predatory

Historically, employees facing unexpected financial difficulties have resorted to borrowing from payday lenders. However, loans of this ilk generally come with burdensome terms and conditions that can set employees back further than where they began. 

Often characterized as predatory, payday loans intensify long-term financial stresses. Some loans may offer up to one month for repayment, while others may require payment in full at the time of the employee’s next paycheck. In either case, the borrower’s personal well-being is affected by the financial stress of high-interest rates and looming repayment deadlines.

In recent years, however, there has been a rising demand for what the research firm Gartner, Inc. terms as flexible earned wage access solutions that improve employee experience, engagement and retention.

Today, employers, as well as the payroll, workforce management and human capital management companies that support them, can bolster employee financial well-being with an on-demand pay platform. By using the advancements made possible by fintech providers, this mode of instant pay eliminates unnecessary financial hardships for employees and provides an attractive value proposition for employers. 

Consider the responses from 1,100 American employees outlined in a recent study based upon a Harris Poll:

• Employees with an annual household income of less than $50,000 are more likely to choose an on-demand payday.
• 51 percent of these employees find an on-demand payday to be more attractive than getting additional paid time-off.
• 61 percent of employees want an on-demand payday to cover emergency bills.

Further, the 2019 Gartner study revealed that a number of vendors reported their flexible earned wage access offerings have proven popular with salaried workers when dealing with unplanned or emergency expenditures.

Giving Employees Financial Security and Peace of Mind

Payday loans may seem like the only option for many. But the advent of, and growing demand for, instant payment of earned wages is breaking this damaging lending practice. The reality is that on-demand pay gives employees what they need most: financial security and peace of mind that they can pay their bills, cover their cost of living, and have a safeguard against emergency expenses.

The need for a more flexible way to access wages is clear. Solutions that help people overcome financial hardships are needed.  By implementing earned wage access programs, providers like AnyDay are able to propel the payroll system into the future. Employers can integrate an attractive benefit into their organization that helps break cycles of debt for their employees. And they can simultaneously and holistically advance the business objectives of the organization.