This summer, debate raged in Washington, D.C. on increasing the United States’ minimum wage. Amid the policy debates, many corporations, like CVS and Starbucks, independently increased their baseline hourly pay. And while legislators and lobbyists jockey around numbers — $12, $13.50, $15 — one math equation they aren’t considering is how paying workers daily versus every one or two weeks could improve millions of lives.
The idea of paying workers each day isn’t new. In fact, it’s thousands of years old. In the Neolithic Revolution (10,000 - 6,000 BC), workers were compensated with daily rations of beer, bread, grain, meat and cloth. Historians discovered that the first payrolls were inscribed on clay tablets, which tracked these daily “beer salaries.” Fast forward to Biblical times where it says in Deuteronomy 24:15, “Pay them their wages each day before sunset… [or]... you will be guilty of sin.”
So, when did society shift from daily compensation to the now standard two-week pay period?
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As labor historian Nelson Lichtenstein explains in a 2011 interview with The Nation, by the 1900’s, seamen, factory workers and other laborers were being paid each Saturday for the prior week’s work. Then, the modern system came into effect into the 1930’s with the advent of social security and payroll taxes. Employers needed a way to deduct these taxes and remit them to the nation’s treasury. But this 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 might be easier for businesses — they aren’t right for employees. Workers are consistently challenged to make ends meet between pay days, causing a cascade of societal issues:
- The 2.8 million Americans who use public transportation to get to and from work often find themselves unable to afford train or bus fare, causing absenteeism and further reducing their ability to earn income.
- Most daycares require parents to pre-pay each week. And when you consider that childcare costs have risen by 47%, it’s no surprise that many workers can’t mathematically make four childcare payments per month on just two paydays.
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As a result, Pew Charitable Trust estimates that each year 12 million Americans resort to predatory so-called “alternative financial services,” including payday lenders, to bridge the gap between paychecks. The exorbitant fees charged by these services effectively creates an almost $200 billion annual “poor tax,” which takes $3,174 out of the pockets of hard working Americans each year.
A return to everyday pay
It’s no surprise that 72% of workers want to be paid more frequently. Imagine finishing your work day, and hours later you receive a notification on your phone telling you the wages you just earned for the hours you just worked are available to you. This burgeoning FinTech sector, called earned wage access, has the ability to level the playing field for employees, and lead them down a path to financially coping and eventually, true financial wellness.
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Moreover, data from Instant Financial shows employers are now realizing the value of daily pay, too. For example, companies that offer access to earned wages benefit from an average 27% reduction in turnover. Because employers ultimately benefit from this service, some EWA companies have decided to charge transaction fees; consumer advocates maintain that employees should not pay for access to the wages they have already earned.
This employee retention equates to significant cost and productivity savings for employers. For example, if a company of 2,000 employees has just half of its workforce opted into an EWA program, that company will lower its annual hiring 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 time and resources for corporations, nearly 100 years later we have mounting evidence that maybe our ancestors were on to something smart with those daily “beer salaries.” EWA promises to improve employees’ whole lives while also boosting their employer’s bottom line.
