A payday revolution

‘You can get your money when you need it’ is a title of a recent BBC news article talking about a new salary payment option being slowly made available in some organisations in the UK. The scheme is operated by a company called Wagestream and in a nutshell it allows employees to get paid as they go instead of getting paid in time increments such as weeks or months.

My initial thought is this: DUH you earned that money and you should be able to access it.

My second thought is: this is a huge shift and I don’t know how I feel about it.

The article I am writing here is going to focus on the target audience, disbenefits and benefits of such a potential shift.

Starting with an audience, who is this for?

There are two key ways people receive financial compensation for committing to something. One is a wage and the other is salary. Wage refers to being paid per hour of your time to work on something. It is usually paid weekly or fortnightly, rarely monthly. Salary refers to an amount paid for a fixed period of commitment and usually is not recalculated per hour. It is often paid monthly, but it is not uncommon for the salary to be paid twice a month.

This new scheme does not indicate whether it is designed to support either wage or salary compensated individuals. Instead, the key message is to stop people from taking out payday loans and suffering overdraft fees, and to start saving. This in itself indicates that the scheme is there to help out people who struggle with money management, have lower income and might be resorting to borrowing from predatory lenders.

How is it supposed to work?

The idea of the scheme is that you simply can access what you have earned before the payday. If you have been working for half a day or for half a month, you can draw what you earned without waiting for the payday.

From a perspective of a traditional business this could be somewhat impractical – imagine one heck of a bill for that sort of a variable payroll and having to always have the payroll money available. On the other hand, if this can be automated, how wonderful having access to everything you make right away would be?

Here are my thoughts around the positives and negatives if such scheme was rolled out to all businesses.

The negatives:

  • The death of delayed gratification – our generation is waving goodbye to patience and it’s not a good thing
  • The scheme is supposed to give people access to their earned money sooner to plug sudden holes in their budget, but if people have issues budgeting is unlikely to be beneficial in changing their habits, it will just allow them to spend faster
  • Businesses with a limited cashflow might struggle with maintaining enough of a cash reserve to make this work. This will likely also make starting a business a bit more challenging as employment will call for a higher cash reserve
  • Reinforcement of the idea that time is money is likely to occur, which I personally have issues with. We can talk about that another time
  • There will be a logistical challenge and a cost to changing the current system into a new system…whatever that cost might be is anyone’s guess, but it will likely include payroll, banking and government services

 

The positives:

  • No more dodgy employers holding salaries ransom, failing to pay or acting weirdly around money employees earn
  • This might make budgeting a lot easier and clearer – if you know how much money EXACTLY you are making each day, you might be more likely to consider the amount of effort it takes you to generate enough cash to pay for something. The idea is more of a far-off tangent, but would such a detailed analysis make us more considerate and less consumerist, because we know how hard we had to work for every penny?
  • This might reduce credit card use. For people who struggle with longer period budgeting (a month is a long time when you are making the minimum wage, trust me), receiving their money in smaller but more frequent intervals could be beneficial because rather than waiting for a set payday they know that there is money coming every day. With that, instead of reaching for a credit card, people might be more likely to just wait until they earned a bit more money
  • The money a person earns is not tied to the welfare of the company which is especially important with the next financial crisis looming. Let’s take a dark turn and assume a business collapses on 13th and a traditional payday would have been on 14th. That’s missing out on a whole pay period. But if a scheme allowing you to access your money as you earn it was in place, you’d be paid until 13th when the company freezes their accounts

 

In the scheme offered by Wagestream there are additional considerations which are not included in my breakdown of positives and negatives. These considerations include:

  • Allowing the employer to cap the percentage of money available for withdrawal before the payday (in example only 30% of money earned to date can be withdrawn, with the rest only becoming available at payday)
  • There is a small withdrawal fee charged to the employee (£1.75 at the time of writing)
  • The scheme requires access to a smartphone – available wages are visible through an app

 

My personal opinion is that this is a good idea. I would love to be able to access my salary as and when I wish to, without any hassle, and not just on payday. I would however want this to become a norm – without a cap on what I can draw and without being subject to one of fees per withdrawal to access my earnings.

How would such a change impact me? Not having to hassle my utilities providers to set my direct debits all on the same date would be nice. I’d have the freedom to budget based on a pay period chosen my me, detaching me from the monthly planning cycle. I’d feel more rewarded for what I do (I go to work to because somebody pays me for my ideas, not because I want to spend 10 hours out of the house). I’d worry a bit less if I made a mistake. I’d see my finances a little differently than I do now. I’d like a change like this to happen please.

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