3 Ways On-Demand Pay Helps Reduce Employees’ Financial Stress

Caring about the financial well-being of workers helps in increased productivity

In the pandemic era, jobs have fluctuated greatly. This job insecurity has also increased the rates of unbanked people, especially hourly workers with unstable jobs.

Unbanked individuals don’t use banks to make financial transactions, including saving money, applying for credit, and cashing checks. And according to the Federal Reserve, nearly 63 million Americans are either unbanked or underbanked.

On average, 19% of households with an income of less than $30,000 a year are unbanked, versus 2.4% of households with incomes exceeding $30,000. Then, there is an additional 18.7% of households, or 48.9 million adults, who have a bank account but have used non-bank alternative financial services in the past year.

Why is this case?

For some households, the high fees required for opening or using accounts are a stumbling block. Then, there are others who simply don’t trust banks and other financial institutions. But without affordable or accessible financial services, these individuals are vulnerable to predatory services and are left looking for alternative ways to meet their financial needs. This is especially hard during the pandemic as many businesses have gone completely cashless.

Being unbanked or underbanked can cause a great deal of financial stress. This, in turn, can cost businesses every day in terms of revenue and productivity of financially stressed employees.

A recent financial wellness survey said that 65% of employees struggled with their personal finances in 2020, leaving them stressed out and worried. And those numbers have a big impact on companies. Employees who are financially stressed report that they spend more time unengaged in work and on average reported 15.3 hours of reduced productivity. This leads to an estimated loss of $7 billion dollars per week across the United States.* Not only is caring about the financial well-being of workers the right thing to do, it also saves companies billions of dollars a year in increased productivity and decreased turnover.

Some companies have found a way to help reduce the financial stress of their employees by implementing on-demand pay. On-demand pay is a financial wellness benefit that is offered to employees through their employer’s time and attendance or payroll services. In essence, a bank account is issued to employees that allow them access to the money they earned that day, as soon as they clock out. Let’s look at three ways on-demand pay helps reduce employees’ financial stress.

In March 2021, a poll showed that 56% of Americans were living paycheck to paycheck, while 48% were living with unexpected financial setbacks. The answer in the past has been to seek out a payday loan, but the problem with these types of loans is that it gets the consumer even deeper in debt, as the typical APR for such a loan is 664% — more than 40 times the average credit card interest rate of 16.12%.

According to a paper in the Boston University Law Review by Jim Hawkins, “Earned wage access companies have the potential to move many employees out of the payday-loan market.”

By being able to access their earned money when they earn it, consumers can pay bills when they are due and have access to cash in the case of emergencies.

Many on-demand pay companies offer tools and services to help employees save, such as savings accounts and scheduled savings reminders. Workers no longer need to depend on costly payday loans when they need the money for unexpected expenses or to pay bills between paychecks. They have access to the money they earned today, which can save them hundreds in the long run.

Workers who are unbanked or underbanked now have affordable access to financial savings tools that help them reduce financial stress and get them on their way to financial wellness.

Some on-demand pay providers, such as Clair, offer banking features such as access to fee-free cash withdrawals at 40,000 in-network ATMs, free domestic ACH transfers, and more. They also offer a way for consumers who are unbanked to have access to cashless businesses and no-touch payments. These on-demand pay tools also offer convenient features such as Apple Pay, Google Pay, or Samsung Pay, as well as other financial services such as electronic bill pay or virtual check mailing. None of these services are otherwise available to unbanked workers.

Millions of Americans are unbanked or underbanked, due in part to high fees, distrust of banking systems, or simply no access to credit. These unbanked and underbanked workers live paycheck to paycheck and cost businesses billions of dollars annually in losses from decreased productivity due to financial stress.

As such, some businesses have realized the importance of focusing on employees’ financial wellness and finding ways to help improve their financial health, such as by implementing on-demand pay into their benefits package. On-demand pay is the solution for employers to help their unbanked or underbanked employees reduce their stress and thrive financially.

*Disclosure: Estimates there are 159.76 million workers in the U.S. with an average hourly wage of $11.26.