As restaurants, retail stores, and manufacturers shut down in the wake of the coronavirus, one massive segment of the population is disproportionately affected: hourly workers. The Bureau of Labor Statistics reports that unemployment in March doubled to 7.1 million people from February. Fortune reported on April 9 that the real unemployment rate has likely exceeded anything since 1940, and estimates numbers of 14.7%. (In comparison, 2010’s peak was at 9.6%).
While shifts — and paychecks — stop, bills don’t. And as wages runs dry, one industry is cashing in on the crisis: payday lenders.
Hourly Workers Are Losing Cash to Payday Lenders
Even before the coronavirus hit, millions of Americans were already using payday loans to bridge the gap between expenses and paydays. In 2019 there were at least 12 million Americans using them. According to the Consumer Finance Protection Bureau, half were paying $185 in fees on top of exorbitant interest rates. For many, that’s the equivalent of over 20 hours of work before taxes.
Payday loans charge up to 20x the interest rates of credit cards and personal loans, but the people using them do so because they can’t qualify for anything else. An individual who borrows $500 a year will pay back almost $2,000 in fees and interest.
Employers Have a Responsibility to Help
Employees are living in a spiral of debt, forced to work second jobs while facing a barrage of harassing emails and phone calls from payday lenders. These companies will even go as far as contacting friends and family, calling work numbers, and showing up in person to demand payment.
Now employees also have fewer paid hours, health concerns, and childcare challenges due to school closures. In these trying times, businesses have a responsibility to help their most underprivileged employees.
Why Paying Daily is Good for Employees and Employers
For some, more hours in their workweek would help to protect them financially and reduce the need for payday loans. But in the coronavirus economy that’s impossible for employers.
One simple, effective solution that employers can consider is paying hourly employees immediately when they clock out of work. This eliminates the stress of juggling finances between paychecks. Sometimes you simply cannot wait until next Friday to fill up your car or to buy groceries. It also helps employees avoid unscrupulous payday lenders and ballooning debt payments.
Paying employees daily gives them a sense of optimism—something we all desperately need right now. Even the most loyal employee feels an extra boost of motivation knowing they will see the results of their work today, not in two weeks or a month. The World Bank reports that employees work harder and experience less stress when rewards for their work are timely.
Is this merely a nice thing for employers to do? Not quite. Todd Baker’s research from the Harvard Kennedy School found that employers who offer such financial programs lowered employee turnover by up to 28%. With average turnover costs at $3,300 for a retail employee, that’s a clear advantage for employers.
This is the time to transform the way we pay our employees and, by extension, eliminate some of the predatory businesses out there trapping people in a cycle of debt for life. You may not be able to give your employees more hours right now, but you can give them the confidence of knowing you have their back in this difficult time.
Nico Simko is CEO of Clair.