Blog
Case Studies
Downloads
Podcasts
Events
Press and Media
Webinars
Newsletter
Flexible pay, also known as earned wage access, allows employees to draw part of their earnings throughout the month, without having to wait until payday. In this blog, we’ll illustrate the impact of flexible pay through two employee scenarios at different pay scales.
In this blog
What are the benefits of flexible pay?
In practice: Two employee scenarios
How does flexible pay work?
Flexible pay enables employees to access a portion of their earned wages before the traditional payday. Typically, employees can draw down up to 50% of their earnings for the pay period. The money accessed is transferred instantly, and since it is already earned, there is no interest to pay. The only cost involved is a small transaction fee, usually around £1.95, which employers can choose to cover.
When the regular payday arrives, the employee receives their usual pay minus any amounts they have drawn down during the month. This system provides employees with the flexibility to manage their finances more effectively, especially when unexpected expenses arise.
What are the benefits of flexible pay?
The benefits of flexible pay are substantial and multifaceted. By allowing employees to set their own payday, flexible pay empowers them to manage their financial obligations more efficiently and reduces their reliance on expensive borrowing options. According to a study by Wagestream, flexible pay helps employees significantly reduce borrowing:
- 85% of employees borrow less from friends and family
- 73% resort to payday loans less often
- 72% cut their credit card use
- 68% use bank loans and debt consolidation less
- 52% are less often in overdraft
- 72% feel more in control of their finances
With less reliance on high-interest debt, which is linked to stress, there’s a positive impact on overall employee financial wellbeing.
Additionally, offering flexible pay can enhance employee engagement, motivation, and retention.
In a report by Zellis, 30% of employees said flexible pay is one of the top three ways their employer could better support their financial wellbeing. Younger workers find it particularly valuable.
In practice: Two employee scenarios
Now, let’s look at two different example employees and how flexible pay helps them out of a jam without getting them into deeper financial trouble.
*Please note, all rates and calculations are illustrative and individual circumstances will vary. This does not constitute financial advice. The ‘employees’ presented are fictional examples.
Kelly’s car troubles
Scenario: Kelly, a retail assistant, earns £1,500 per month
Kelly’s car suddenly breaks down, with repairs costing £300. The car is essential to her day-to-day routine of picking up her kids and getting to work.
Option one: Put the car repair on the credit card
Outcome: Kelly borrows the money and pays it back gradually over the year, as her living costs and family demands mean she can’t afford to pay it back any sooner.
Total cost: With interest of 20% APR, this will cost Kelly £60 over 12 months, and a total of £360, which is 20% of her monthly earnings.
Option two: Flexible pay
Outcome: Kelly has the car repaired and the impact on her work and family life are minimal. She does have to be extra careful with money in the following month but – crucially – manages to avoid high-interest debt.
Total cost: Drawdown transactions cost £1.95 (though employers can choose to absorb this fee). So the repair costs Kelly a total of £301.95.
With flexible pay, Kelly saves £58.05.
Dylan’s dental treatment
Scenario: Dylan works in an office and earns £3,000 per month
Dylan’s tooth needs urgent attention, but it’s not covered by the NHS. He needs £600 to to get this sorted so he can stop suffering and feel better.
Option one: Use his bank’s overdraft
Outcome: Dylan has no choice but to go into his arranged overdraft. He strives to pay back £50 of the overdraft each month for the following year but still pays a high amount of interest at 39.9% EAR* for total interest of approximately ~£120 over 12 months.
Dylan’s total cost will be £720.
Option two: Flexible pay
Outcome: Dylan accesses £600 of his earned wages via his employer’s flexible pay platform. There is a £1.95 transaction fee. Dylan’s dental woes get sorted with minimal drama, releasing him from discomfort and distraction without putting him in high-interest debt. He is able to absorb the £600 shortfall in the following month by economising and putting off some planned purchases until he’s back on his feet.
Total cost of Dylan’s dental emergency using flexible pay: £601.95.
With flexible pay, Dylan saves £118.05.
*Please note, all rates and calculations are illustrative and individual circumstances will vary. This does not constitute financial advice. The ‘employees’ presented are fictional examples.
Conclusion: Payroll is pivotal to financial wellbeing
In today’s challenging economic landscape, payroll has stepped up from behind the scenes to become a powerful ally in supporting employee financial wellbeing. When organisations implement user-friendly payroll systems with clear explanations, open communication, and innovative tools like on-demand pay access, they help lift a significant weight off their people’s shoulders. These thoughtful approaches don’t just reduce financial worry—they create a positive ripple effect where employees can focus better, sleep sounder, and bring their best selves to work. The result? A workplace where people and business thrive together, proving that when we take care of financial basics, everyone wins.
Key takeaways
- Financial stress significantly impacts workplace productivity, with over half of affected employees reporting decreased performance and 45% experiencing sleep disruption.
- Clear, accessible payroll information is essential, as approximately 80% of employees lack complete confidence in understanding their payslips.
- Innovative solutions like MyView PayNow enable employees to access earned wages before payday, with 72% of users reporting greater financial control.
- Educational elements within payroll systems help demystify financial terminology and empower employees to spot errors promptly.
- Automated verification services streamline processes for employees seeking loans or mortgages, reducing administrative burden and supporting major life decisions.
Ready to support employee resilience and productivity?
The payroll function can, and should, act as a key hub for effective financial wellbeing initiatives. Making this a reality requires an advanced modern payroll system and the right complementary services.
