Vale & West Chartered Accountants Blog

Monthly payroll causes problems for employees

Recent research has found that the cash flow constraints of having to wait for a single day every month to receive wages can be dangerous to the financial wellbeing of employees.

The rising costs of payroll administration, intensifying compliance requirements and complex tax rules have led businesses in all industries and of all sizes to rely on monthly paydays, rather than weekly or biweekly payouts. However, this means that a single, expensive incident can force these workers into debt via bank overdrafts, credit cards or payday loans.

According to the research, 85 per cent of employees are paid monthly in the UK, but while this might suit their employer better, employees are more likely to face cash flow or mental health issues, especially if they are worried about paying the bills.

Therefore, a number of financial technology (fintech) firms are working on platforms that would give both employer and employee the flexibility of ‘wages on demand’. This could be a powerful incentive, as separate research has found that access to wages in real time strengthens the mental connection between work and payment.

The research found that shift workers using one of the platforms tended to sign up for more shifts because they had faster access to wages, and employees benefitted from strengthened employee retention.

A similar trend can be seen in the gig economy space, as Uber has become one of the first businesses to issue daily payouts. The business does this because they had an issue with staff retention and the ability to get drivers to do more rides.

Moreover, the research found that the impact of connecting workers to wages on demand has improved the financial and mental wellbeing of employees.

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