Modernising payroll can ease financial hardship and boost retention
John Pearce, SVP of Global Payroll Operations at CloudPay.
With the latest ONS figures released in April showing that consumer price inflation is still in double figures, household incomes are being squeezed like never before. Wage increases are not keeping pace with the rising costs of living, real wages are falling and rising interest rates will only heap more upward pressure on prices. And with UK workers finding it increasingly hard to make ends meet – the UK’s economic woes are predicted to continue throughout 2023 – employers must seek to improve their financial and wider benefits packages if they want to attract and retain their top talent.
The tightening labour market, which is beset by acute skill shortages affecting many industry sectors, is making it increasingly difficult for hiring managers to compete in the talent stakes. Those organisations that can make their employee value propositions (EVPs) and brand messaging stand out, while ensuring that their recruitment processes are slick, will have a competitive advantage in the marketplace. What has also become clear, though, is that employers are having to become creative and innovative as far as benefits go in order to help their staff through tough times.
We’ve seen plenty of examples of this with many organisations helping financially in a number of ways, whether giving their staff one-off cash payments, subsidising their travel costs or contributing towards their food bills. These are just some examples on top of other expected benefits such as flexible working, which can also help reduce commuting expenses. But perhaps most important of all, especially in times like these when workers are seeing their real incomes greatly reduced, is the need for workers to have regular access to their pay to help manage their outgoings.
It can seem like an eternity before the next pay date arrives, especially during holiday periods when we tend to spend more and therefore need more money to see us through instead of having to rely on expensive credit cards or loans. This is where earned wage access (EWA) or ‘pay on demand’ can play an important part in helping to alleviate those sticky financial periods. After all, why shouldn’t employees be able to use the money they have accrued as and when they need it?
Cashflow to cover unplanned bills and expenses
There are a few things to point out. Firstly, existing payroll systems will in all likelihood not be set up to allow for EWA, which could have severe time implications on already stretched payroll teams if they have to process these payments manually. The solution? A mobile app that allows employees to access their funds where they can see what they’ve earned and what they are able to withdraw. It works in the same way as your online bank account.
As beneficial as such a system is, there are some caveats to consider. Perhaps the most important is that there need to be safeguards and limits imposed on employees so that they are only allowed to use a pre-established percentage of their income. So any cloud EWA or ‘pay on-demand’ solution must be implemented and operated in a prudent way. What we’ve found is that employees typically use it like a digital ATM for frequent, small withdrawals, rather than larger one-off payments.
So, EWA allows employees a simplified way to view the wages they have accumulated and the ability to use some of that income 24/7 to help with their cost-of-living expenses and household bills. It gives them a financial buffer or safety net to know that they have an avenue to turn to when money is tight and they need income to meet their obligations. And, critically, it avoids them having to incur extra interest or debt. Being able to do all this in a frictionless way from a mobile app makes it all the more appealing.
Today’s figures reported by the ONS highlighting the growth in payrolled staff and median monthly pay demonstrates the pressure over-burdened payroll teams across the UK are facing. When we consider that many payroll teams are themselves, under-resourced, these figures present a slight concern and we can’t overlook that payroll processes haven’t evolved at the same pace as wider corporate digital transformation has.
This point is particularly pertinent in the current climate. If payroll teams are to keep up with the level of demand, greater efficiency and processes are needed through the adoption of innovative technology. Tapping into tools such as automation, improved integrations and AI, which can reduce the need for supplemental runs and limit the potential for errors – all of which will be costly for businesses – will give finance teams the opportunity to revamp processes to be more appropriate in the modern world of work.
In fact, it’s interesting to note that our fourth annual Global Payroll Efficiency Index (PEI) report revealed that technology and integration with Human Capital Management systems are improving payroll efficiencies, with a joined-up approach from payroll to payment reducing errors and issues.
It’s understandable to question why processes that on the surface are working need to be adapted. But as the pandemic clearly demonstrated, it is almost impossible to predict what the future holds. In this environment, questioning how efficiencies can be delivered will be the best means of ensuring payroll processes can match the demand of an ever-changing landscape.
If there was ever an indication for companies to review their financial and payroll processes to save time and costs, ensure greater accuracy and meet changing business needs – it’s now. A more flexible, simple and personalise approach makes perfect sense for organisations as it sends out a powerful message to employees that the business acknowledges the pressures they’re under and want to help by investing in a ‘pay on demand’ system powered by technology. By offering such a perk, on top of flexible working and other key benefits, employers will not only boost retention and productivity but this will also be a major selling point for job adverts as well. It will increase application numbers while bolstering a company’s global recruitment and talent acquisition efforts and its reputation as an employer of choice.
And in today’s tough employment market with skills in short supply, when organisations are already up against it when it comes to sourcing talent, greater financial flexibility will be a prized benefit. Indeed, a recent report by research firm Everest Group found that three in four workers were looking to move jobs. A modernised payroll system can play a key role in attracting and retaining staff in this competitive landscape, helping to alleviate money concerns and boost the financial wellbeing of employees.
