Should you be able to access your pay as soon as you earn it?
"I've done my shift, I've done my work, so why am I waiting for my pay?"
With the cost of living far outpacing growth in wages, it's not surprising that many Australians are looking for ways to access their salary before payday.
Paytime CEO Steve Furman told Finder he is seeing "1,500 enquiries a month from employees" looking to take advantage of the company's earned wage access product.
Earned wage access lets workers access some of their salary ahead of time. It's still relatively new in Australia, but it's a common benefit offered to many workers in the US and the UK.
"The mindset for workers is shifting. People now think 'I've done my shift, I've done my work, so why am I waiting for my pay?'," Furman said.
How earned wage access works
Getting paid monthly or fortnightly means a long wait for your pay. It's a classic problem for workers who live paycheque to paycheque (which could be as high as 1 in 10 Australians according to Finder research). And the classic solutions, like payday loans, can come with heavy interest charges. Pay on-demand apps charge percentage fees that can get very high.
Earned wage access commonly operates as a benefit offered by an employer. If a company enters into a partnership with a provider like Paytime, staff can access a portion of their salary before the next pay cycle.
Paytime provides the funds and charges a flat fee. Whether the employer or employee covers the access fee depends on how the employer chooses to set up the service.
Furman says there is strong demand for earned wage access from certain industries, and not always the ones you'd expect.
"We're not seeing it going to young millennials doing excess shopping. We're seeing strong demand from industries like labour hire, mining, hospitality and retail. But the interesting thing is strong demand from professional services like accounting firms and other high earners."
"Earned wage access allows high income earners who are paid once a month to access their salary weekly and put it into their mortgage offset account so they can shave a few years off their mortgage."
"It's quite different to buy now pay later," Furman said. "We see our users as mainly young families covering surprise costs like if a child needs to go to the dentist suddenly and they're out of pocket."
What consumers need to be aware of
Earned wage access is often considered a perk or benefit offered by your employer, rather than a form of credit you apply for via a private lender.
With this type of product you're essentially accessing money that you've earned rather than a traditional loan. You're getting part of your salary earlier than you normally would.
CEO of Financial Counselling Australia Fiona Guthrie said that even if the employer covers the fee associated with accessing salary early, people should "Go into it with eyes wide open".
"It may be a cheaper product if the employer covers the fees. But the major risk is that you're caught short next time. And you get caught up in a cycle."
"If it's more than a one-off solution, it could be masking more fundamental issues."
Furman says that Paytime works with companies to structure the salary access carefully. "We never allow people access to 100% of their salary."
50% of salary is typically the most a worker can access in advance.
What to do if you're running short of cash at the end of the month
If your employer offers earned wage access, make sure you are clear on the costs to you, if any. And if you find that you're routinely short of money, you might need to take another look at your overall finances.
Some steps you can take include:
- Reviewing your spending. As living costs have risen fast, you might be spending more now than you were a few months ago without even realising it.
- Draw up a budget. Once you have a clearer sense of where your money is going, you can start to budget more carefully.
- Find ways to cut back. It's very hard to cut back on essential spending (rent, fuel and groceries), which unfortunately are the costs that have risen the most in recent months. But you may find areas where you can spend less, like streaming subscriptions, or searching around for cheaper deals on energy, internet plans or insurance products.
- If you are struggling, reach out. "Short-term payment options are easy to reach out for. But often there may have been a better option – getting a payment plan with your electricity provider, or getting a hardship arrangement with your lender," Guthrie said.
- Talk to a financial counsellor. For people who are routinely struggling to get by until payday, Guthrie also suggested talking to a financial counsellor or calling the National Debt Helpline.