Increasingly, working full-time, or even two or three jobs, is not enough to lift people out of poverty. In the US alone, close to 10 million working people live below the poverty line; in the UK, more than 14 million people are classified as working poor.
But ending that poverty isn’t as simple as paying people more. As governments look to combat stagnant wages, particularly in entry-level jobs, some businesses are struggling to absorb wage hikes. The resulting cutbacks in staff and price increases call into question whether wage growth alone can make life better for workers.
Let me be clear: fair pay is an important aim for society, and one we should continue to work towards – it’s just that we haven’t yet figured out how to mitigate the potential negative spin-off effects on businesses and individuals. In the meantime, there’s a step we could take to increase financial independence for hourly workers on a much wider scale: let’s pay them more frequently.
The untapped potential of pay frequency
A major part of the financial burden affecting hourly workers stems from the fact that most people cannot access their own earned income when they need it. The traditional two-week pay cycle mires hard-working people in debt when there’s not enough money to stretch until the next pay day.
People turn to payday loans, bank account overdrafts or max out credit cards in order to cover daily expenses, and the fees incurred in the process can amount to crippling debt. Interest from payday loans alone costs Americans more than $9 billion annually, overdraft fees add another $15 billion, and credit card debt comes in at a whopping $931 billion. And that’s in addition to the interest and late fees from unpaid bills.
And that’s just the financial burden. Many cash-strapped workers go to shocking extremes – such as selling their blood – to make extra money between paychecks. The emotional toll of taking these measures adds considerably to the mental strain many hourly workers face, even if it doesn’t add a lot to their cash flow. Often, they’ll get just $30 or $40 for their efforts – but for many, that’s all it takes to buy groceries, put gas in the car or pay a bill on time.
Rethinking an outdated pay system
So why do we perpetuate a pay system that penalizes hard workers? Well, the short answer: inertia.
From the emergence of the gig economy to the advent of telecommuting, technology has revolutionized how we work in the last few decades, and yet our two-week pay cycle is stuck in a system invented nearly a century ago.
We are starting to see some shift in this space, with companies like Uber and Lyft extending their real-time ethos to their workers with daily access to pay. And more traditional companies, like fast-food franchises, are beginning to modernize their payroll through platforms like the company I founded, which allow employees to access a portion of what they earn each day at no cost to them.
Workers, too, are beginning to question the absurdity of waiting weeks to get paid. Millennials and Generation Z, in particular, have grown up in an on-demand world and have similar expectations when it comes to accessing the money they earn.
The dividends of instant pay
Modernizing our payroll practices isn’t about leaning into a culture of instant gratification or enabling reckless spending. It’s about creating a future of financial independence, one free of late fees and debt incurred from having to borrow money to cover daily necessities. In fact, a recent survey we conducted of 1,000 working Americans revealed that 45% of respondents would pay their bills first if they were paid every day.
Beyond encouraging better financial health, the psychological boost of being able to pay bills on time or cover an emergency without going into debt pays dividends on and off the job. In fact, the same survey showed that workers who have instant access to their pay feel more positively toward their company, more supported by their boss and are likely to stay in their job longer.
And in the tightest labour market in a generation, the positive effects of boosting pay frequency can be an important, often overlooked, tool for recruiting and retention. For example, one McDonald’s franchisee that works with our company has seen turnover rates fall by 10%.
Of course this isn’t a silver bullet. The payroll systems we have in place are complex machines and shifting the status quo is daunting for many larger organizations. But pay-frequency solutions that plug into existing systems are starting to come into their own and they’re paving the way for real systemic change that can be a lifesaver for hourly workers.
As a society, we must continue the conversation around what it means to offer fair pay for fair work. But hard workers can’t wait for us to settle that debate while they continue to accumulate crippling debt just to get by. They need access to their own money, when they need it – without any fees or interest charges – so they can achieve a greater level of financial independence, personal well-being and job satisfaction. And that’s a problem we can solve, right now.
Steve Barha, CEO, Instant Financial