View: Make every day a payday to bolster finances and reduce stress

By Jeffrey Pfeffer & M MuneerIt may sound like the tagline of a fintech startup in the short-term moneylending business for the salaried class. But making every day a payday is something employers should consider seriously. The Covid-19 pandemic has exposed how precarious the financial situation of most employees is.GoI’s Atmanirbhar Bharat package offers credit guarantee to revive businesses, but not cash in the hands of the needy. It may not find success, because banks provide instant small loans to MSMEs that will only help employers to kick-start the supply side, even as their employees are unpaid for weeks.There is a need to transfer cash to the individual to perk up the demand side of the economy. Giving people access to their money more quickly represents one small, but important, step to reducing an epidemic of employee financial stress. True, in the current crisis, many Indian companies have offered to pay salaries earlier than regular pay date without any cuts. But they should continue this practice post-crisis too.Unless you are a gig worker, the odds are extremely high in non-crisis times that you are going to be paid for your work some time after you did that work and earned the associated income. According to Indian labour laws, wages can be fixed per hour, day or week, and could be paid daily, weekly, fortnightly or monthly, but not beyond that.In India, in Q2 2019, the median monthly earnings were ₹19,547 for full-time wage and salary workers — ₹652 a day, excluding tax deducted at source (TDS) and other deductions. If someone is paid every fortnight, they will have accrued, but not been paid, earnings of ₹6,520 (without considering taxes or other deductions) after 10 days. The fact that people are paid what they have earned some time after earning it would not be a big problem, except that, as data show, many in India are living in a financially precarious position.Indians are the highest in the world having anxiety about their financial lives, and that financial health challenges affect people at all salary levels. Even among employees earning more than ₹30 lakh annually, 30% find it difficult to meet expenses and 58% consistently carried forward credit card dues.This probably correlates with the growing payday lending and ‘cheque cashing’ industry that has responded to the needs of people for small, presumably short-term loans to tide over till the next pay cheque. There are now more than 20,000 payday lenders in the US, despite restrictions in some states. In India, this industry is unregulated, but growth is significant. Almost half of the borrowers conduct 10 transactions and the median fee is equivalent to an annualised interest rate of 300%.Some banks like Kotak offer loans up to 50% of the net monthly salary through their salary account and, in a way, are similar to the overdraft facility of most banks. People also take gold and microfinance loans, which take them into a perpetual debt. India’s gold loan market is expected to grow from the current ₹3,000 billion to ₹4,600 billion by 2022.Nearly 33% employees are distracted by their financial worries, which affects productivity and causes absenteeism. It is critical for employers — including governments — to invest in employee financial well-being.More than 50% of US employers now offer financial wellness programmes as an employee benefit. Such programmes can include education about budgeting, investment avenues, retirement savings plans, income smoothing for people in jobs where pay varies significantly over time, and programmes to automatically deposit a set amount into a systematic investment plan (SIP).One remedy could be faster and easier access to money already earned. All providers of quick and easy access to already earned money — such as PaySense and FlexWage — make essentially the same argument. Offering employees quick and easy access to their money helps attract more applicants, improves retention and enhances productivity by reducing the stress and distraction of the financial problems that come from using high-cost sources of short-term credit. Instead of signing up individuals on their platform, these providers can sign up employers who can pay the nominal fees (typically around 3%) on behalf of their employees.The employers then offer the option, which often includes a debit card and no-fee access to ATMs, to their employees. The fees can be so much lower, since these companies and employers they serve are not loaning people money, but are simply providing on-demand access to money people have already earned.(Pfeffer is chair professor of organisational behaviour, Stanford Graduate School of Business, and Muneer is MD and co-founder, Medici Institute.)