Article by Charles Watson – Workplace relations and compliance specialist
In this article Charles Watson reviews these new pay on-demand offerings and what issues employers need to consider when determining they are in fact a benefit to employees. Also, is there a better way to assist in the long run?
Since the turn of the century we have seen a surge in various credit offering. In the last few years we have seen Afterpay, PartPay, Splitit, and Zip so young low-income individuals can purchase the latest consumables they desire now and pay the cost over instalments. “Laybuy” is now a software platform, not just a method of layaway payoff over several months.
We have seen pay day lenders such as Nimble and Wallet Wizard take over from pawnbrokers, and the pawn brokers move into offering pay day loans. The credit card market is saturated in offerings from both the traditional institutions and those that have cool sounding names so much so that half the world must be flying to their holiday destination on points.
Now these clever fintech types have over the last couple of years designed and taken to market another offering. The cash strapped consumer now has ‘pay on-demand’ platforms available. But as I outline below this clever new thing involves the employer in the process. Given my particular area of endeavour, it was this point that piqued my interest.
In a recent advertorial article aimed at HR peoples, there was an attempt to paint a picture that such pay on-demand services alleviated the circumstances for workers who were undergoing financial stress. Therefore, the claim was that it was good for the worker which meant it was good for the employer.
Should employers become part of that equation by participating in such schemes or could some financial literacy sessions be a better and more useful benefit to employees? Are there pre-existing options employers might consider instead?
What are they?
Essentially, organisations such as Earnd, PayActiv, and FlexWage are in the high tech and low infrastructure fintech space offering up short term loans and credit specifically to workers. Not exactly the same as pay day loans but the same ballpark.
These particular pay on-demand lenders form an agreement with the employer, the lender accesses the employer’s systems and allows workers to request an advance on anything they have earned up to that point. The loan is then provided to the worker, and when their payday rolls around, the loan balance is taken out of the worker’s wages and paid back to the credit provider. The provider makes their margin through transaction fees that are paid by the employer or the user.
Unlike pay day lenders, those ones with the deliberately dodgy and kind of funny ads on television, these new players are taking far less risk of non-payment by the client as the direct debit will be in place already, the employer has agreed to the scheme, and the money is taken when payroll is processed. It’s seems like a guaranteed winner for the credit provider without the risk of unpaid debt recovery and write offs.
How do they market the idea of this employee “benefit” to employers? They use the phrase “financial wellness” and refer to some fuzzy survey material that doesn’t strongly support such a workplace initiative.
In that recent article there was an attempt to paint a picture that such pay on-demand services alleviated the circumstances for workers who were undergoing financial stress. The article I referred to earlier sought to rely upon an AMP funded research report by The Behavioural Architects from 2018. Entitled ‘Financial wellness in the Australian workplace’ the report claims two in five Australian workers will experience financial stress over their working lives. Although Australians have greater disposable income and are spending more, there remains over 2.4 million workers who feel financially stressed.
To claim that pay on-demand services help alleviate such stress is an interesting and concerning representation. It may assist in the short-term, but it is not for free. Like all easy access to small amounts of credit, those suffering financial stress may become dependant upon such a service. The nexus is not really there.
There are already other options to help your workers
Over the years I periodically receive a similar question from employers about a worker who has some current financial issues for various reasons. The cat needs an operation, the car engine blew up, the abused worker needs to leave their abuser and needs some funds to better escape. I have heard them all, and most are actually genuine. Further, most employers are up for helping their workers where they can.
So, briefly and roughly, here are some already available options for businesses to consider:
- Early process of pay-roll for days already worked.
- Pay already accrued annual leave in advance of the worker taking it. The leave remains on the books, can be taken later, but is paid to the worker now. This is not the same as ‘cashing-out’ leave.
- Where the legislation and relevant industrial instruments permit – ‘cash out’ leave amounts.
- If the business is doing well, consider a private loan.
Seek detailed advice on these options before implementing them in your workplace and get appropriate documentation in place.
Some of these start-ups are using the Australian marketplace as a testing ground before using 2nd round venture capital etc. to go international, and that’s okay. It’s clever stuff.
Employers should be across these types of developments and use platforms that are good for your business and your workers. However, go beyond the cool website, aspirations, visions, well-intentioned statements, and sales puffery before making a decision.
If things go pear shaped, consider the risks and litigious options your workers may have against you. Remember that if an issue can be related to work in even the remotest of ways, there is a high chance the business will be blamed when something goes wrong.
Given the low state of financial literacy in the majority of workers, and the proven personal benefits of some training in financial systems, perhaps consider offering that to your workers first.