Employee turnover is one of the highest costs for companies in high-turnover industries: According to The Center for American Progress, for all jobs earning less than $50,000 per year (or more than 40 percent of U.S. jobs), the average cost of replacing an employee amounts to an estimated 20% of the person's annual salary. Another study by the SHRM found that it can take 42 days to replace a single employee. Judging by these two studies, the countless hours and resources spent on recruiting, training, outfitting, and onboarding new employees — only to see that employee quit in one month — can be staggering.
Understanding Why Turnover Occurs
Human resource departments have tried everything from pizza lunches to free swag to flexible schedules to try to retain employees. But there is one inexorable dynamic that we've studied: employees quit when they feel like they aren’t making enough money. When employees cannot pay bills on time, they feel stressed and might start looking for another job. In fact, a recent Paychex survey cites the No. 1 reason why employees quit is because of their low salary.
Looking To The Fintech Ecosystem To Solve The High Turnover Equation
The answer may be more simple than you might think: Pay employees quicker. When employees get money quicker, they are less likely to find themselves in the situation where they are unable to pay a bill as they wait for a future payday. In the past few years, a new segment in the Fintech industry has emerged that addresses employee financial burdens through faster pay.
Among the companies leading the movement are Stripe and FlexWage (my company, DailyPay, is also a part of this ecosystem). Each provides slightly different offerings: Stripe, for example, is a payroll system that works particularly well with contractors, FlexWage is a payroll debit card system, and my business is working on an app for employees integrated with their employers’ existing payroll system. All three aim to help companies pay their employees faster.
Stripe was the first payroll company to partner with a major rideshare provider, providing our industry with a valuable case study. In 2016, rideshare company Lyft set out to reduce their turnover by offering their drivers the ability to accelerate their pay. Historically, Lyft paid its drivers weekly, but through Stripe, Lyft enabled its drivers to receive those funds ahead of the scheduled payday, all at the push of a button. Lyft’s goal was to help drivers best meet their personal financial needs by providing on-demand access to pay, helping its drivers make rent, pay bills, and meet expenses. The result was extraordinary: according to Lyft, within less than a year, drivers accelerated $500 million of pay before their regularly scheduled payday.
Using Fintech To Improve Existing Business Systems And Processes
From an operational standpoint, if you’ve ever run payroll — or manage the department that does — you’re probably wondering why on earth you would ever want to endure that experience more than once a week (or once every two weeks, if you’re lucky). Today’s technology, however, is built on top of the payroll infrastructure and allows the employee to experience the best part of payroll — i.e., her money — without the company experiencing the worst part of payroll — i.e., processing it.
Oftentimes, it simply takes adding the technology to an existing and legacy system/product to meet the needs of the market. For example, Intuit's Mint.com famously solved a problem of consumers having multiple bank and card accounts by creating a consolidated interface to view all balances simultaneously. Instead of trying to push a new card or account, Mint simply linked all of the existing accounts under one interface, building on top of the existing bank account and card infrastructure.
As this technology trend continues to develop, we can expect to see more instant payout solutions emerge to help make the operational implementation seamless for the payroll staff, with no change to their existing payroll systems or processes.
