Payday Pressure: workers look to more flexible salary solutions to ease financial shortfalls and related stress

• Almost three-quarters of the UK workers (73%) surveyed say they find it challenging to meet everyday expenses or worry about not being able to meet them, and half of these have faced a financial shortfall between pay periods
  
  
• 58% of those surveyed in the UK who have experienced financial difficulties say they’ve had a material deterioration in their health and wellbeing and 16% experiencing financial stress have taken time off work or permanently left their job – at an estimated £30bn annual cost to employers
  
  
• Over a quarter (27%) of UK workers surveyed said they would be likely to take up on-demand pay options if they were offered by their employer, which would allow them to draw on a proportion of their accrued wages before payday

Many people are feeling the strain of payday pressure, according to new EY analysis¹ which reveals that almost three-quarters (73%) of UK workers surveyed find it challenging to meet everyday expenses or worry about not being able to meet them, and half of these have faced a financial shortfall between pay periods in the last twelve months.

The research, which was carried out at the start of the COVID-19 pandemic, also reveals that over half (58%) of those surveyed in the UK who have experienced financial difficulties have reported a material deterioration in their health and wellbeing. In the UK there are a reported 8.3 million adults who find meeting monthly bills a “heavy burden” and miss more than two bill payments within a six-month period². A further 3 million adults in the UK are in what is commonly referred to as “persistent debt”³.

Flexible pay could help address financial shortfalls caused by mismatches in the timing of pay and expenses

The survey shows over a quarter (27%) of participants considered themselves likely or very likely to use an On-Demand Pay offering were it to be offered by their employer. On-Demand Pay enables employees to access a portion of their accrued wages in advance of pay day, with the remaining paid at the end of the pay period. Unlike salary-based lending or payday loans, on-demand pay solutions do not involve borrowing on the part of the employee, and can be used for individuals to save, consume or invest as they earn their salary.

Matthew Tucker, Financial Services Partner at EY Parthenon, comments: “The desire for on-demand services has soared over recent years across all forms of daily life. Our research shows that pay and benefits could be the next area of focus, particularly as many people in the current climate are experiencing unavoidable and unexpected expenses before payday. Businesses will need to consider how they respond to this across all aspects of their remuneration programmes – from how they pay salaries to the benefits packages they offer their people.”

Financial stress estimated to cost £30bn in lost productivity to UK employers

The research findings also show that 16% of those experiencing financial stress in the UK have had to take time off work or permanently leave their job. As well as the huge social cost this has on employees, EY estimates that there’s a financial cost to employers – calculated at £30bn annually in the UK.

Matthew Tucker concludes: “Our market study shows that financial stress can have a real impact on productivity, which affects both employees and employers. The demand for greater flexibility in all walks of life is only set to continue and pay and benefits will be no exception.”

Notes to Editor

¹ The survey is part of a market study and was conducted in the UK in April 2020 among c 2,000 nationally representative working-age individuals from across the income, wealth and socio-demographic spectrum.

On-demand pay solutions enable employees to draw down a proportion of the wages they have already earned that month; they are not borrowing money.

² Money Advice Service — Are you one of the 8.3 million adults with problem debt? 2017

³ FCA — FCA proposes new rules for credit card firms to help millions of customers get out of persistent debt, 2017