Living paycheck-to-paycheck is a reality for 45% of Estonians, characterised by tight budgets and a fragile balance between income and expenses.
This has direct impact on their performance at work - financial stress has proven to decrease retention and motivation while increasing the number of missed shifts and sick days.
The reality of living paycheck-to-paycheck
According to a June 2023 report by the Estonian Ministry of Finance, approximately 45% of Estonians would struggle to cover an unexpected emergency expense equal to their monthly income. Moreover, 15% of low-income workers don't have enough savings to sustain themselves for more than a single week.
Therefore it’s not surprising that the Estonian Public Broadcasting reported how 100,000 Estonians - 14% of the entire workforce - struggle with high-interest loans. This solution is only temporary and often leads to a vicious cycle of borrowing and repayment, with interests quickly adding up.
How Earned Wage Access can help employees
So, what is Earned Wage Access (EWA)? EWA platforms give employees access to their already-earned wages before the scheduled payday. This mechanism allows workers to tap into their earnings as they collect them, rather than waiting for the traditional monthly pay cycle.
Several key benefits make EWA a game-changer for employee financial wellbeing:
Reduction in loans and debt: EWA provides employees an alternative to borrowing from predatory lenders. With direct access to their earned wages, they can cover unforeseen expenses without resorting to high-interest loans. EWA involves no interest or hidden fees.
Less financial stress: knowing they can access their money when needed can alleviate the anxiety of unexpected costs. Employees can more effectively manage their finances without the burden of potential overdraft fees or late bill payments.
Improved financial planning: by receiving access to their wages on-demand, employees can better align their income with their expenses, making budgeting and financial planning more efficient.
Impact of Earned Wage Access on financial wellbeing
Several studies highlight the positive impact of EWA:
According to studies by the Harvard University and Aite-Novarica Group, employees who used EWA platforms experienced an 88% reduction in their use of payday loans. This decline indicates that workers are shifting away from high-interest borrowing when provided with an alternative.
A report by the Financial Health Network emphasises that EWA can lead to a 50% reduction in overdraft and late fees. This is a significant saving for low-income workers, helping them preserve their hard-earned money.
ADP Earned Wage Access Report found that 60% of frontline employees reported that their financial situations would improve with earlier access to their earned wages.
Why is it so important for employers?
On average, early access to earned wages reduces employee turnover by 27%. Mercator Advisory Group's 2021 study also found that the impact to turnover can be even greater in some industries - call centers, for example, witnessed a 50% decrease in turnover.
Employers already offering EWA are convinced in it's positive impact to employee retention. ADP researched 500 employers with on-demand pay, with 93% of them reporting that EWA helps them to retain talent.
When comparing job advertisements that mention flexible pay with the ones that don't, Mercator Advisory Group found that listing EWA as a company perk can double the number of qualified job applicants.
The journey to financial well-being is riddled with challenges, especially for workers living paycheck-to-paycheck. Earned Wage Access, paired with a free financial wellness platform, can be of great help. By unlocking on-demand pay and financial wellness to their employees, businesses have proven to see improved recruitment, retention and productivity.
