Has Monthly Payroll Become Outdated?
Monthly payroll, a system that has seemed to be around forever, in reality only arrived in the 1960s with the passing of the Payment of Wages Act.
One of the first firms to try paying its staff monthly, and not in cash, was a tech firm – Pye Radio – who planned it as a cost-cutting decision. It worked for the employer more than the employee, who used to be paid weekly, cash in hand, ready to spend or deposit. In fact, Pye Radio employees rejected their employer’s change of payment type when they first tried it in 1954. So why has it stuck? James Herbert, CEO at Hastee, shares his perspective with Finance Monthly.
We no longer rely on other antiquated systems from 50 years ago – look at the evolution of communication as we’ve shifted from letters to fax, mobile phones, and beyond. Similarly, Apple Pay, Monzo, and PayPal have completely changed the way payments can happen, yet payroll still remains largely unchanged.
This outdated cycle leaves thousands of workers with financial stress. For example, when a bill or unexpected cost hits the middle of the month, a lack of access to the salary they are actively earning means that many are left with no choice but to opt for high-cost credit. Our 2019 Workplace Wellbeing Study found that as many as 82% of UK workers – across all levels, and all pay bands – resort to these measures to stay afloat, with 38% knowing they will struggle with the repayments.
This is a particularly big problem right now, as people need access to money to buy essentials exactly when their work schedules (and supermarket shelves) allow.
Financial stress can take a huge toll on overall wellbeing, permeating out into all aspects of life. In the same 2019 study, workers said it impacts their sleep (45%), social lives (38%), relationships (34%) and health (32%). Importantly, workers report that financial stress affects their performance at work (27%). All of these areas combined undoubtedly have an impact on how well people are able to function and concentrate at work.
Financial stress can take a huge toll on overall wellbeing, permeating out into all aspects of life.
This has a knock-on effect for employers, too. Financial wellbeing is probably not something business leaders consider when they think about barriers to productivity, but it can be a huge contributing factor. Unexpected costs can mean the difference between an employee making it to work or not.
Flexibility of pay is also a key differentiator when it comes to workers choosing where they want to work. Over half (56%) of respondents in the same research stated that they were more likely to stay with a current employer if they were offered a flexible payment. It seems that what once worked for Pye Radio – even then, at a questionable degree – doesn’t fit today’s needs and expectations.
Flexibility in payment is the future. Given the technology innovations that have sped up the pace of life across all areas, it will grow increasingly hard for businesses to justify keeping hold of employee wages until the end of an arbitrary pay cycle.
‘Earnings on Demand’ is a concept that is gaining huge traction as more and more realise its benefits. It enables workers to take a portion of their earned pay, on-demand, increasing choice and financial flexibility and wellbeing.
This feeds into the basic human evolutionary wiring of the brain: when we expend effort, we desire to see the reward. After hard work, we want to see the results. People value money today as worth more now than it is later. The ‘time value’ is higher in the present, not in the future.
And it doesn’t need to stop with the monthly payroll – UK fintech is some of the most innovative and forward-moving in the world. It has the potential to bring greater agility to many other legacy systems and processes.
If we look at the current challenge of rolling out payments to a large portion of the population – specifically when it comes to Universal Credit, SSP and furlough payments – the technology that is changing up the payroll system could quite easily be applied to other areas where a lack of liquidity right now is causing huge financial strain.
It seems clear, then, that the current system is largely broken. Workers have a right to their pay when they need it, and ‘Earnings on Demand’ could have the potential to invigorate it with huge benefits to all. It is time that we challenge the way we think about payroll in the same way we have done many other facets of life.