How Flex-Pay Can Help Employees Deal With Economic Uncertainty

A couple looks at a laptop and prepares to pay their bills early thanks to flexpay

More than 60% of workers currently live paycheck to paycheck and often aren't able to wait until payday if they're hit with a surprise bill. Fortunately, new earned wage access options such as flex-pay can help them feel more secure. Here's why employers should consider flex-pay and the organizational benefits they could enjoy as a result.

The financial wellbeing of employees can affect an organization's finances and overall success. When employees are stressed about paying their bills, they may be distracted at work and more likely to miss time. On the other hand, when they're confident in their financial health, they can better focus on their work tasks and perform at a higher level.

In these uncertain economic times, employers can benefit by exploring new options to improve workers' financial situations. One option that leaders have increasingly been using to supporting their staff is to offer a new payroll option known as flex-pay. If this is something your organization could benefit from, here are the key details to know.

Challenging economic landscapes are hard to navigate

These days, the typical American worker faces a lot of financial stress. Yes, unemployment is low, but employees are dealing with high inflation and higher prices. Just as the price of gas has started to go down, individuals are now having to grapple with rising interest rates.

As of January 2022, more than 60% of workers live paycheck to paycheck — and it's not just people making minimum wage. Around 48% of those earning six figures also report being in this situation. When folks get hit with a big surprise bill, such as a car repair or a medical expense, it can disrupt their finances considerably.

To weather these financial storms, workers could try requesting an advance, but that creates extra work for payroll departments and can put organizations in the awkward position of having to say no. If the request cannot be fulfilled, many employees must then choose between missing bills and relying on expensive borrowing options like payday lending facilities, which can cause an employee's financial situation to spiral out of control.

If someone can't afford to fix their car or buy gas, they're likely to miss work, which could lead them to lose out on wages and fall into an even deeper financial hole. That's not a recipe for productive, focused employees.

Flex-pay offers several benefits for employees and employers

Flex-pay, also known as Earned Wage Access (EWA), gives employees some ability to get their earnings ahead of their organizations' formal payday schedule. It's not a pay advance or loan. Rather, employees can request a portion of the wages they've earned up to that point. With this system in-place, workers can see how much they've earned and then request anywhere from 0 to 100% of that balance. If your organization implements this offering, you could choose to set specific limits, such as allowing employees to access up to 75% of their earned pay.

In a recent ADP survey of workers across age groups, income levels and educational levels, more than three-quarters of respondents said it was important for their employers to offer EWA. Nearly 70% said they expected to request their wages early, at least once, over the next 12 months. This shows the uncertainty most people face with budgeting, as well as how popular flex-pay can be.

When I started my career years ago, we never considered taking a job because of its payroll options. But now, job candidates are prioritizing offers that provide better access to their pay and may even consider leaving jobs that don't. As businesses battle for talent and work to retain the employees they already have, flex-pay could give your organization a recruitment edge.

Meeting a need across generations

For Gen X and Baby Boomer workers, the historical attitude toward pay was, "You tell us when you pay us." However, for the younger generations, it's not like that. More and more are saying, "No, we should decide when we get paid."

Younger workers have grown up in the age of instant, mobile payments through apps like Google Pay and Apple Pay. In fact, it's common to see young workers who don't have a bank account — not because they can't qualify, but because they simply don't want one. Traditional payroll methods such as paper checks may not work for these employees.

At the same time, younger workers face greater uncertainty. They aren't guaranteed the promise of homeownership, the traditional bedrock of financial stability. They're also spending more and saving less than past generations. It's no wonder that they have the need and desire for flex-pay. ADP's research has found that 91% of Millennial workers and 82% of Gen Z workers believe it's important for their employers to offer EWA.

When employers talk to me about flex-pay, they're often thinking about using it as a recruiting tool for younger workers, and rightly so, but it can also benefit every other worker at your organization.

Older workers are dealing with the same tough economic conditions, as well other challenges, such as Gen X being sandwiched between taking care of elderly parents and their children. We've found that more than half of Gen X and Baby Boomer employers (57%) think it's important to have the benefit of EWA at work, and there's a broad interest across generations for payroll options like flex-pay.

Help improve employee financial wellness through flex-pay / earned wage access from Wisely® by ADP.

Confronting concerns about launching flex-pay

Launching any new payroll system naturally comes with concerns. Regarding flex-pay specifically, there are three areas of concern I commonly hear about from payroll and HR professionals. One of the biggest is compliance. Since flex-pay is a new payroll feature, the legal landscape remains a little murky regarding whether it creates new tax obligations for employers and employees. The IRS promised to issue further guidance soon, but you've also got regulations from 50 states to deal with. That's why it's important to partner with a payroll provider you can trust to guide you through the compliance side.

The second concern is cost. If a flex-pay program is riddled with fees, employees won't use it. As a result, it won't help to eliminate or reduce financial uncertainty for them.

Lastly, the complexity of the product is often of concern. How easy or burdensome will the program be for your payroll professionals to implement? If it adds to their workload, they may not be able to do so.

Fortunately, the right payroll provider can help with concerns around flex-pay, and as the payment option becomes more popular, it will likely become more accessible and even more advantageous to employ. In these uncertain times, it makes sense to plan ahead and prepare early, as the global health crisis showed how quickly conditions can change. Organizations that invest in flex-pay can create extra financial security for their employees, which employees will keep in mind as they consider their long-term career plans.

Learn more about employee and employer sentiment about the benefit of offering EWA — download: Earned wage access benefits in today's world of work