The importance of agile payment methods
The CIPD’s Pay, performance and transparency 2024 report highlighted that the cost-of-living crisis is still having a significant impact on pay decisions, and other CIPD research shows that it is still heavily affecting employees.
In particular, the cost-of-living crisis has highlighted the increased risk of financial stress for workers if they unexpectedly face a significant expense. Paying people more frequently, or offering them a way to access their wages earlier, can reduce this risk.
Offering employees the option to be paid weekly or fortnightly, rather than at the end of the month, can help those worst hit by the rise in living costs to manage their money more effectively. Giving more flexibility in payment dates and frequency is also an additional advantage that may boost employees’ work commitment, satisfaction and engagement. Having the facility to allow people to access their pay earlier is also a low-cost benefit – something that many workplaces are looking for when their own costs have jumped over the past few years.
The CIPD’s 2024 UK Working Lives survey found that 51% of people who work as a permanent employee said that they were keeping up with all bills and commitments without any difficulties. By contrast, just 36% of those who work in temporary employment and 35% of those who work on zero-hours contracts said the same. Also, those in temporary employment (24%) or zero-hours contracts (16%) are far more likely to earn less than £20,000 a year compared with those on permanent contracts (11%). Having easy access to earned income can therefore be a real benefit to this group of workers in coping with financial stress.
Is the UK lagging behind on pay agility?
The signs are that global organisations do want to improve and innovate how and when staff access their pay. For example, recent ADP research found that, in the next two to three years, almost a third of businesses plan to offer new ways to pay their staff. Indeed, its survey, based on responses from global firms with more than 1,000 staff, found that 46% of respondents expect that their employer will introduce a mix of alternative pay methods in the future, while 40% have plans to adopt earned wage access or provide earned wage access faster.
However, our Pay, performance and transparency 2024 report, based on perceptions of UK HR, reward and senior decision-makers in the same size firms, found that over the next five years, just 15% of respondents felt their company would give employees the option to select their own pay date, and only 13% of respondents said they believed their company would pay people more frequently (such as weekly or semi-monthly). Another 11% felt that their organisations would adopt a mix of alternative pay methods (such as mobile wallets or pre-payment cards), while 10% thought they would adopt earned wage access or provide earned wage access faster.
In addition, 4% thought their employer would offer the option for workers to be paid in cryptocurrency, which has education implications for employees, and management implications for HR and payroll teams.
These findings suggest that, when it comes to pay agility, UK employers could be behind the curve, possibly because those HR professionals we surveyed either do not have enough awareness of different pay methods, or, if they do, they may have concerns about the consequences of adopting some of them, such as using cryptocurrency to pay staff.
Further CIPD research backs this up. Our 2022 Reward management survey found that just 11% of respondents already offered earned wage access to all their employees, while just another 3% planned to introduce it. Similarly, only 3% allowed all staff to set their own pay date, while just another 1% planned to introduce it.
Implications of agile pay approaches and what to consider
While giving people access to their money earlier than normal can be beneficial, there are implications that the HR team might not have thought about. For example:
- What is the impact for the payroll team in terms of reporting PAYE in real time?
- Can compliance with the national living wage rate be ensured?
- How does this affect those employees in receipt of universal credit?
- How will the organisation manage its cash flow?
Similarly, while giving low-paid people a one-off allowance to help them cope with the rise in living costs is good, there can be unintended consequences. HR teams might also have to respond to employee queries, such as requests to pay any cost-of-living allowance in stages.
Also, while such approaches can be a useful way of responding to a sudden financial emergency, when used on a regular basis to manage cash flow, these approaches can just transfer the problem further down the line, rather than resolve it.
Therefore, reward and payroll professionals need to ensure that, when allowing people more freedom over their pay, they also take the opportunity to communicate what these freedoms are designed to do, as well as what they are not designed to do. Agile pay approaches should be part of an overarching approach to employee financial wellbeing, such as paying people a living wage.
There may also be concerns about paying people in cryptocurrency, especially low-waged employees, and the impact of a fall in cryptocurrency and the implications of complying with national living wage legislation. However, after HR and payroll have explained the pros and cons of being paid in crypto, there might be a case for paying higher-waged staff this way if they want.
Therefore, while employers giving their employees more freedom in how often they are paid is a positive move, HR and payroll teams must work together to reduce the risk of unintended consequences.
