Inflation in India touched 7% in August 2022 – this was the eighth time in a row that retail inflation was above RBI’s threshold of 6%. The rising cost of living continues to affect peoples’ spending power, adding to financial and emotional stress, especially for the Indian workforce.
For a long time now, it has been a norm for companies to have wellness plans to impress the importance of mental and emotional well-being in the workplace. HR leaders have gone above and beyond to think of the best benefits – Employee Assistance Plans (EAP), physical and mental well-being apps, additional health benefits, unlimited paid time off, and so much more. However, that is just one aspect of the whole puzzle.
On the other hand, matters related to personal finance have often been left to the individuals. It was not taught to us in school or college, so people usually do not have access to the right resources. There is an evident lack of literacy when it comes to finances – only 27% Indians are considered financially literate. This lack of understanding of how financial products work directly correlates to being caught in debt cycles.
However, when the pandemic hit, things started to shift. The last few years highlighted how unprepared we were to handle emergencies, and it has shown how being under financial distress impacts mental, physical, and emotional well-being. Owing to this, the dialogue around employee financial wellness has picked pace, becoming a crucial aspect of overall employee wellness.
Some organisations do provide employees with liquidity access via salary advances. The process takes a bit of time and is rarely immediate given the disruption this causes to company cashflow. However, HR leaders have been quick to innovate and experiment with new-age solutions. One such interesting and progressive solution that emerged as a top choice for corporates during this time is Salary On-Demand, also known as Earned Wage Access (EWA).
The concept, already popular in the West, allows employees to access their accrued but unpaid salary any time before traditional payday. While an exciting concept, every new idea often has several misconceptions, and this article will help debunk four common myths about Salary On-Demand and its adoption.
1. Myth: On-Demand Salary is a loan
As the name suggests, this is an employee’s salary but accessible on-demand as and when they need it. Since it is their earned salary they are withdrawing from, there is no borrowing from a third party and hence no interest at all. Instead of interest, the employee is only charged a nominal convenience fee. On the other hand, a payday loan is an amount borrowed from another party or entity that commands an interest and needs to be paid back.
2. Myth: Employees will get negligent with money
Earned Wage Access provides instant funds during a cash crunch. But sometimes, the rush of liquidity at the click of a button or a lack of understanding about financial products can trigger people to make rash decisions with money and end up in debt. For instance, if someone does not
know how interest is charged on a credit card, they could end up paying ~20% APR, which would deplete their finances in the long run. To avoid such debt traps from happening, several companies offer personalised financial coaching to help employees make informed decisions about managing their finances better.
3. Myth: EWA is a liability for employers
On the contrary, most new age EWA solution providers come at no cost for employers to make the adoption frictionless. The solution provider usually fronts the capital, credits the employee account, and simply reconciles with the payroll. So company cash flow remains undisrupted. Employers can also ask for customisation options to set withdrawal limits in line with their company policy. Therefore, employers can set different rules for a new joinee versus a 10-year old employee, which can also work as a reward mechanism.
4. Myth: Salary On-Demand providers will not handle data securely
India is a growing market for fintechs, and RBI has its own regulations that have several checks and balances in place to ensure security. Hence, all solution providers must comply with these regulations and other laws around labour, security and data protection.
The core point is that on-demand pay and financial literacy give employees power over their own finances and the knowledge to make the right decisions. Providing your workforce with a platform to achieve true financial autonomy will help employers gain their trust and loyalty in the long run, thereby improving productivity and profit for the business. And, more importantly, directly improving their lives.
Dr. Sanjay Muthal, CEO, Kontempore, and Advisor to the Board, Refyne.