Two-week pay period no longer works for employees

This summer, the debate raged in Washington, DC over raising the minimum wage in the United States. Amid political debates, many companies, like CVS and Starbucks, have independently increased their base hourly wages. And while lawmakers and lobbyists scramble around the numbers – $ 12, $ 13.50, $ 15 – one mathematical equation they don’t consider is how to pay workers daily versus weekly or every. the two weeks could improve millions of lives.

The idea of ​​paying workers every day is not new. In fact, it is thousands of years old. During the Neolithic Revolution (10,000-6,000 BC), workers were paid daily rations of beer, bread, grain, meat, and clothing. Historians have discovered that the earliest payslips were inscribed on clay tablets, which followed these daily “beer wages”. Fast forward to biblical times where it says in Deuteronomy 24:15: “Pay them their wages every day before sunset … [or]… you will be guilty of sin.

So when did the company go from daily pay to the now standard two week pay period?

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As labor historian Nelson Lichtenstein explained in an interview with The Nation in 2011, in the 1900s sailors, factory workers and other workers were paid every Saturday for the work of the previous week. . Then the modern system came into effect in the 1930s with the advent of social security and payroll taxes. Employers needed a way to deduct these taxes and remit them to the treasury. But it resulted in accounting and paperwork headaches on a weekly basis, so companies opted to reduce that burden and only calculate payroll every two weeks.

While two-week pay periods can be easier for businesses, they are not suitable for employees. Workers are constantly challenged to make ends meet between paydays, causing a cascade of societal issues:

  • The 2.8 million Americans who use public transportation to and from work often find themselves unable to afford train or bus tickets, leading to absenteeism and further reducing their capacity. to earn income.
  • Most daycares require parents to pay in advance each week. And when you consider that childcare expenses have increased by 47%, it’s no surprise that many workers cannot mathematically make four childcare payments per month on just two pay days. .

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As a result, Pew Charitable Trust estimates that 12 million Americans each year use predatory “alternative financial services”, including payday lenders, to close the paycheck gap. The exorbitant fees charged by these services actually create an annual “tax on the poor” of nearly $ 200 billion, which takes $ 3,174 out of the pockets of hard-working Americans each year.

A return to everyday payroll
It’s no surprise that 72% of workers want to be paid more frequently. Imagine that you were finishing your working day, and a few hours later you received a notification on your phone telling you that the salary you just earned for the hours you just worked is available to you. This booming FinTech sector, known as Access to Earned Wage, has the ability to level the playing field for employees and lead them on the path to financial adjustment and, eventually, true financial well-being. .

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What’s more, data from Instant Financial shows that employers are also realizing the value of daily pay. For example, companies that offer access to earned wages benefit from an average decline of 27% in turnover. Because employers ultimately benefit from this service, some EWA companies have decided to charge transaction fees; consumer advocates argue that employees shouldn’t pay to access the wages they’ve already earned.

This employee retention equates to significant cost and productivity savings for employers. For example, if a company with 2,000 employees has only half of its workforce opted for an EWA program, that company will reduce its annual recruiting costs by 35%, which equates to $ 2 million per year.

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While the two-week pay period was initially implemented as a way to save business time and resources, almost 100 years later, there is growing evidence that our ancestors may have – be something smart with those daily “beer wages”. EWA promises to improve the lives of employees while increasing their employer’s bottom line.

Maria D. Ervin