As South Africa comes to terms with Health Minister Zweli Mkhize’s warning to provinces that the country has entered the early stages of a Covid-19 third wave, companies should move swiftly to soften the blow on employees already buckling under financial strain, says SmartWage CEO Simon Ellis. He says Workers’ Month provides the perfect opportunity to reimagine employee benefits to include support to help them make ends meet now.
Employee benefits are broadly defined as a form of compensation or support that employers provide for employees over and above their regular wages. These may include contributions towards retirement and even a portion of medical cover. “These are paramount,” says Ellis, “but let’s not turn a blind eye to the reality of South Africa. Millions of employees begrudge deductions precisely because they need more cash to make basic ends meet, such as paying for public transport to get to and from work,” he says, referencing research SmartWage has conducted for its social impact report that will be released in the coming weeks.
“A priceless benefit for an employee in this situation would be alleviating their financial stress and perpetual cycle of payday debt by allowing them access to a portion of their salaries or wages they have already earned. The time has come for every employee to ask: ‘If I have earned the money in carrying out my obligations for my company, why can’t I have access to it?”
Ellis refers to a type of benefit that has gained traction around the world, and one which SmartWage provides in South Africa: earned wage access (EWA). “It would be irresponsible to provide access to everything, in effect digging a deeper hole for people already drowning in debt, so SmartWage, the market leader in EWA in South Africa only provides a portion (usually up to 25%). This does two things: it aligns the need to have access to cash for bills as they arise, while simultaneously ensuring the bulk of wages arrives on pay day.”
He says that by providing access to a portion of their earned wages as and when the emergency need arises – such as paying for emergency medicine for a child – the employer effectively cuts off the entry of loan sharks and payday lenders. “Most employees don’t have any other means of access to quick cash – mainstream financial institutions simply won’t assist them – and when this is the case, where do they turn to when they need to bridge expenses?”
Some findings from the SmartWage social impact report indicate that in the past nine months, SmartWage’s EWA product has saved employers a collective 500 workdays, where employees would have either been absent or late in the days leading up to pay day because of an inability to pay for transport. “The effect on productivity cannot be overestimated,” says Ellis.
Staggeringly, between February 2020 and March 2021, 31% of all SmartWage transfers – that’s the disbursing of earned wages – were used for transport costs for employees.
Another crippling challenge for individual employees is the amount of interest they pay to informal lenders every month. By providing EWA to these employees, the mashonisas are effectively cut out, saving vital money for employees. During the same period of February 2020 to March 2021, the employees surveyed from just three companies using SmartWage collectively saved R394 318 in loan fees and interest, which equates to roughly R314 per employee per month.
To demonstrate this effect, SmartWage put forward two employees whose savings were calculated as a direct result of using EWA. By providing EWA as a benefit to their employees, Miriam’s employers, an Africa-based financial services company, have saved her an estimated R2 167 in six months, which is a quarter of her monthly salary. Thandeka saved R12 200 over the course of nine months, calculated on the interest rates charged by her stokvel. This is almost one month’s salary saved for this one employee alone.
Ellis, who believes some payday lenders make matters worse for indebted staff, says that employees do not carry the burden of paying for EWA. Rather, he says, employers subscribe to SmartWage, which administers the benefit. He says that the product includes a technology-driven financial education tool, further bolstering a company’s efforts to support its workforce.
The concept of EWA has been designed to be a win-win for employers and employees. Employees’ massive stress related to payday debt is eased so that they can focus on their jobs, while employers benefit from a more engaged and productive workforce with reduced absenteeism.
“If a company cares about its workforce, it should do everything in its power to stamp out informal lenders and loan sharks. It’s as simple as that.”
