Flexible pay: do employee benefits outweigh the employer burdens?

Three-quarters of employers that have implemented flexible pay have seen the number of weekly hours worked by their staff increase, according to new research.

The findings from MHR, the HR, payroll and finance software provider, and financial wellbeing platform Wagestream, suggest that businesses can benefit from flexible pay schemes through faster recruitment and improved employer perception, with staff actively seeking out – and staying with –  companies who demonstrate a commitment to provide support during the cost-of-living crisis.

Employers who implemented a financial wellbeing solution also saw a 32% overtime increase. According to ZayZoon, which helps businesses in the US to implement flexible pay, companies using its service experienced a 29% reduction in employee turnover and a 5% reduction in hiring costs. 

Flexible pay, also known as Earned Wage Access (EWA), allows employees to access earned pay at any time of the month. According to Nest Insight’s 2023 Bridging Financial Gaps for Workers, one in 10 UK employers currently offer it to employees, benefitting more than four million UK workers. 

This number could be set to rise too. In a survey of 1,200 users of its Earned Wage Access solution, EarlyPay, The Access Group found that 28% of users expect to access their salary early on 12 or more separate occasions this year, compared to 17% of users in 2021 and 2022. The Access Group also found the proportion of people who value early access to their salary has grown from 55% to 72% over the last two years. 

The research from MHR and Wagestream found that by integrating a financial wellbeing solution, 78% of employees could pay an unexpected bill and 73% reported using fewer payday loans. 86% of employees also reported feeling less stressed, whilst 33% said that access to flexible pay would reduce financial stress.  

However, there are practical limitations for employers to consider.  

According to The Chartered Institute of Personnel and Development (CIPD), the association for human resource management professionals, payroll is the most commonly outsourced HR activity. 61% of businesses outsourced their payroll in 2022, and whilst companies like MHR and DailyPay, for example, provide the option for flexible pay, not every HR provider does. 

For companies thinking of outsourcing their payroll, the CIPD has several warnings, such as “don’t outsource what you don’t understand”, because outsourcing providers will only have to solve the problem (for a cost) and the solution might not be the most suitable for the organisation. The CIPD says it’s essential to understand the current and future business strategy and any potential changes too, because outsourcing arrangements are becoming increasingly long-term, with five and ten-year contracts not being uncommon. 

Xero also warns that salary advances are subject to income tax and National Insurance, which must be reported via the PAYE system on or before the payment date. This likely means employers need to send additional Real Time Information (RTI) payroll returns to HMRC and could even require consulting with a tax professional to ensure compliance with the relevant regulations. 

The Brumit Restaurant Group (BRG), a US franchise of 66 Arby’s locations, is an excellent example of the potential positives and pitfalls facing employers. Due to their outsourced payroll provider’s limitations, their employees accumulated large negative balances when using Earned Wage Access, resulting in a hit to their HR department’s credibility. However, this issue was eradicated after a “seamless” transition to Rain, a US EWA provider that raised $116m (£95m) earlier this year, whilst the BRG reported a rise in employee retention rates along with happier staff. 

The Co-Operative Bank’s experience of The Access Group’s EarlyPay has been positive throughout. Ruth Clarke, head of people delivery at the bank, said, “It’s the simplest thing that I’ve ever implemented. And I was surprised. Surprised at just how easy it was.”

When asked about the admin, Clarke also reported spending “very little time in EarlyPay,”, claiming it’s had no impact on their resource and been “no challenge at all”.  

However, Chelsea Searan, HR lead at Instant Financial, a US platform, said: “While the immediate impact on workplace morale and employee well-being is apparent, it is equally essential to measure the long-term effects on productivity, retention rates, and overall organisational success. By incorporating robust metrics and tracking mechanisms, HR experts can gain valuable insights into the tangible benefits EWA brings to the table.” 

UK flexible salary providers 

For businesses that wish to implement a flexible pay solution for their staff, there are several options available.  

In September 2023, seven UK providers of Earned Wage Access collaborated with the Chartered Institute of Payroll Professionals (CIPP) to launch a new code of practice designed to ensure their services help deliver good outcomes for employees. The EWA providers involved were the Access Group, AnyDay, Ceridian, Hastee, Level Financial Technology, Salary Finance and Wagestream. 

If using Wagestream, which is now available via MHR, employees can access up to 50% of their earned pay at any time, including the day before payday. Wagestream also says there is no impact on the payroll process when employees access their pay, and their available balance is updated based on actual shifts worked. 

Income Group is an alternative Earned Waged Access provider and claims to be the only form of this service that comes from an authorised payments institution. Income Group also says that whilst many other providers charge employees to use this service (around £2), it doesn’t.