Two-week pay cycle is broken, but employers can fix it
The labor shortage in the United States is a major problem for businesses.
Ninety percent of companies say it is difficult or very difficult to find workers right now, according to a Chamber of Commerce report. Although job postings peaked at 8.1 million in March and restaurant and retail traffic has increased 47% since January, many companies are cutting their hours due to a shortage of workers.
The current state of affairs offers an opportunity for forward-thinking people who are willing to take risks and explore new ways of recruiting.
Read more: Does your payroll need a makeover? How access to earned wages can help employees take financial control
There are a lot of things companies can do to differentiate themselves and hire faster, including offering hiring bonuses, increased benefits, and better work-life balance, but there is one thing that they forget: faster pay.
An estimated 56% to 76% of Americans live paycheck to paycheck, and agency workers are in an even more difficult situation. When we asked independent contractors about their finances, only 15% had enough to cover an emergency expense. The disconnect between when bills are due and when they are paid can trigger a devastating cycle of debt. People often turn to credit cards, payday loans, and payday advance applications to make ends meet.
Americans paid off $ 83 billion in credit card debt in 2020. This was a record, but a pick-up in consumer spending following the lifting of COVID restrictions could reverse recent progress on the issue. debt reduction. Credit cards are an expensive way to borrow money, with rates averaging nearly 16%, from a peak of 17.8%.
Read more: In short: How can your human resources department handle both full-time and part-time employees
As other industries struggled during the pandemic, payday loans and other high interest debt flourished. Analysts found that many Americans were using government relief funds to pay down debt out of necessity. Meanwhile, payday loan interest rates have climbed above 500% in seven states.
Payday advance apps charge workers a fee for what is already theirs by right, and they automatically withdraw the refund from someone’s bank account, which could lead to overdraft fees. These apps claim to be an affordable solution to getting money fast, but the reality is they’re just a band-aid to what’s really broken: the two-week payroll cycle.
The two-week pay cycle has been around for about 80 years, born out of the need for the government to collect social security and payroll taxes. Businesses have found it more efficient to deduct and calculate taxes every two weeks to keep the process regular. But that was decades ago. Technology exists today to pay people daily and make it simple.
Read more: Ernst & Young tackles complicated payroll processes with new app
In our survey, we found that 72% of hourly workers and 91% of contract workers want a daily or weekly wage. And yet, the US Bureau of Labor Statistics reports that 67% of workers have bi-weekly or longer pay cycles.
The problem is, the two-week payroll cycle has become institutionalized and most businesses are unable to adapt. But as the pandemic emerges, especially when the competition for workers is so high, there is a real opportunity to innovate.
Paying workers daily can help you stand out as an employer and attract more workers. Imagine being able to say “Start today, get paid tomorrow” in your job posting. For people who are unemployed or hard hit by the pandemic, this immediate reward for their work can be a game-changer.
Read more: Exclusive Research Faster Salary Payments Disrupt Traditional Payday
Our data confirms that 82% of independent contractors said they would be more likely to work for a company if they were paid on the same day as the work performed. When faced with two similar jobs, if one pays every two weeks and the other every day, it is obvious to choose the one that gives you access to your income the fastest.
Having access to real-time wages gives workers the ability to budget better, save more frequently, and manage unexpected expenses without having to resort to credit or other debt.
Read more: ADP rolls out new app to help employers manage payroll
Every payroll administrator or business owner will shudder at the thought of processing payroll on a daily basis. But that’s because they think about all the busy work that comes with outdated payroll software.
When you remove the operational headaches that build up over a pay period – tracking approval time, correcting pay gaps – and instead are able to resolve issues quickly in real time, paying more often can save you time. Modern payroll tools are designed as consumer apps that make it easy to check hours and run payroll with just a few swipes on your phone.
The way we pay is changing. Venmo your friend in an instant, tip your delivery driver in seconds and pay your workers right after a shift. It’s the future. If you stop delaying pay, you can start hiring faster today.