Chris Seip is chair and CEO of Payfare
A gig worker is a different breed in the workforce. They are independent. They are entrepreneurial, typically funding their own cash-flow related requirements without the support of the perks and expense allowances of a typical job.
The number of these workers in Canada and around the world is growing at a staggering rate. According to our estimates, more than 25 million individuals are driving for Uber, Lyft and Didi, the three largest ride-hail companies globally. Millions of additional gig-workers are working in a myriad of other temporary positions and short-term engagements. This growing work force provides Canadian business owners and consumers with conveniences and cost savings to meet their rapidly evolving needs.
Gig workers, however, are left to navigate the unpredictability of their situation with conventional strategies that require change. Traditional banking products and payroll cycles must keep up the pace. Monthly or bimonthly pay cycles just aren’t practical any more. Change is here.
The success of the emerging gig economy and the workers who fuel it depend on the disruption of traditional payment cycles. Specifically, the introduction of daily access to their earnings.
In Canada, monthly, semi-monthly, biweekly or weekly pay cycles are the norm. As payroll is a time consuming, expensive process, longer pay periods are beneficial to businesses. Businesses deeply steeped in legacy processes, technology and operating systems do not inherently embrace change. Accustomed to their own cash flow cycles, they are not incentivized to upset the apple cart, although they welcome the opportunity of a third-party doing it for them.
In the past, when employees spent their entire career working for one employer, and received benefits along with regular paycheques, long payroll cycles were not only manageable, they made sense. But payment cycles that made sense in the 20th century don’t make sense today. To achieve financial inclusion for new and young Canadians in today’s economy, contingent workers need access to daily pay.
It’s long been argued that longer pay periods encourage employees to be more financially responsible and that shorter pay periods would lead individuals to spend beyond their potential. This simply isn’t true. Far from being irresponsible with their money, people who live from one paycheque to the next carefully track every cent they make as their earnings are allocated to ensure all of their expenses are covered.
The five principles of effectively managing same-day earnings
1. Apply payment to your planned expenses daily with your earnings, i.e. fuel, transportation costs, etc.
2. Reserve a percentage of your daily earnings for savings; earmark for various life events such as weddings, births, tuition or school books.
3. Set aside a small daily percentage for emergency funding. Even at as little as $2.00 a day, the balance will slowly climb and in six months, on the unfortunate day you blow a tire or your transmission, you’re ready.
4. Invest in yourself and your future, i.e. a new course, an adventure or new tools of your trade.
5. Bask in the financial freedom of avoiding credit-card debt.
The rising cost of living and growth of income disparities accompanied by the irregular income associated with gig work is making it more and more difficult for contingent workers to cover their basic living expenses. According to an Ipsos poll conducted on behalf of MNP Ltd. in December, 2017, 48 per cent of Canadians are within $200 of not being able to pay their bills and debt obligations, and 48 per cent of Canadians don’t think they’ll be able to cover all living and family expenses in the next 12 months without going further into debt.
An unexpected expense, such as auto repair or maintenance, or a sharp rise in the cost of fuel, can suddenly leave gig workers unable to work. Alternatively, they may be forced to turn to costly credit cards, lines of credit or payday loans, which may start a cycle of debt from which they cannot extract themselves.
Daily pay mitigates stress
Daily access to earnings is transformative for gig workers as it reduces the financial stress associated with unexpected bills. By giving contingent workers immediate access to 100 per cent of the net money they’ve earned, while they’re earning it, they can cope with everyday and unplanned expenses. When gig workers aren’t bound to traditional pay cycles, they are able to prioritize payments, including paying off high interest credit cards and loans. They can avoid becoming beholden to steep payday lending rates. By knowing exactly how much cash they have, gig workers can work longer or more frequently when they’re faced with an unexpected expense.
Flexible tech-driven solutions are fuelling the gig economy and businesses are benefiting. Today, employers can forgo expensive full-time hires and instead engage workers who have the specific skills they need for a few hours, days or weeks with no strings attached. The cost efficiencies are significant. While temporary, flexible engagements provide benefits to workers, too, these benefits should not come at the cost of being left financially vulnerable. Daily pay reduces this vulnerability.
When businesses enroll with an instant pay provider, their workers are equipped with mobile-banking applications paired with debit cards. The user can perform all of the traditional banking functions, including cashing out their earnings multiple times daily, viewing their card balances, transaction and earnings histories, transferring money, paying bills and depositing cheques, multiple times daily at a fraction of the cost of a traditional bank. It’s a simple, modern solution to meet the needs of today’s workers.
Daily pay is not going to cause gig workers to spend themselves into a financial trap. However, expecting them to manage their expenses with traditional payroll cycles when the cost of living is at an all-time high and their work is irregular may ensnare them in that financial trap.