Early payday answers mayday: How pay cycles affect employees

A manager holds money behind his back before paying employees. [Getty Images]

Payday feels like the answer to a mayday. When the end month nears, employees frantically refresh their cash wallets to see if salaries have been deposited to their accounts.

Month in month out, the end-month triggers the same emotions, especially for those who live from one paycheck to another.

But financial crises mean that companies sometimes delay salaries. This practice, if consistent, could create apathy among the workforce, human resource experts warn.

They say companies that pay early are more likely to have a more motivated, and better-performing workforce.

Even in normal times, some companies are assured of paying in the first days of the following month.

This is an overwhelmingly common practice. A few are determined to compensate their workforce within the last week of the month.

Victor Chesang, a Human Resource Officer at Sovereign Group, says companies that pay early and do it consistently, have their workforce satisfied.

“It is not uncommon to register the dissatisfaction from employees when salary delays. In such instances, the companies’ services may end up suffering,” says Chesang.

Employees that are in the lowest cadres in companies suffer the most when salaries are delayed, says Chesang. These are the most vulnerable people and the worst hit when the company faces financial turbulence.

“When they do not have money, maybe because they have not been paid yet, such employees may abscond duty. Some even depart, looking for sources of livelihood elsewhere,” he says.

“We have had so many cases in security companies where the lowest earners even run into disciplinary issues once their money is depleted and no salary is forthcoming.”

The lack of morale that comes with delayed payments of salaries might lead to some workers handling their roles in an unsatisfactory manner.

Others even ask for handouts from the company’s clients, embarrassing their employers.

Picture this: a client whose payment company awaits so that the employees can be paid coming to the same facility where the workers are completely dissatisfied and unwilling to work due to delayed payment.

The client receives horrible treatment and may wish to sever contact with the company. It is a cycle in which all parties have considerable liability.

“A lot of companies depend on the collection of revenues from their clients, which they use to then pay their staff. Only once the clients are able and willing to pay can the staff receive their dues,” Chesang says.

The downside of this is that the clients, even with the companies’ insistence, may not be punctual in making their payments. The employers ultimately suffer.

To avoid such situations, many companies have an agreement with banks where they can subscribe to an overdraft. This prevents inconsistencies in making payments to staff by availing money on payday.

Business owners

The problem of delayed payments is global, both for individuals and businesses.

A majority of United States’ small business owners say they have direct experience with late payments from their larger corporate, public sector, and non-profit clients.

Over half believe those delays are “deliberate” (55 per cent) and should incur significant interest (50 per cent) according to Businesswire, which quotes a 2021 survey by Melio and YouGov.

In the cases where delays are expected, good communication channels can prevent revolts from employees, Chesang says.

Many companies make sure that in their contracts, they outline their payment plans, including the dates of possible disbursements of salaries.

He says that companies should make sure they come up with solid, standard payment plans.

“They should do everything to make sure employees are paid in good time. They should also make sure that they have fixed dates for payments of such salaries, no matter what happens,” he says.

There should also be a change in how companies view their employees. For many, paying salaries, especially for their staff in lower cadres, is not usually among their highest priorities.

Chesang says that before any other undertakings, companies should ensure employees are compensated. The lowest cadre should be the first to be considered, he observes.

The best companies in the world ensure their employees are paid on time. They make sure they do that consistently.

The employees are their priority. In December 2021, companies that paid early, mostly in the last week of the month, brought the payday ahead of the normal schedule.

They made sure they had paid their staff the week before Christmas. The employees had money to spend during the festivities.

The downside was that many of such employees were in for a rough January, having spent all their earnings and accumulated debts during the festivities.

“Many companies that had paid by early in December were aware that their staff was overdrawn. They thus gave salary advances and paid early in January as well,” Chesang says.

According to the Employment Act, a written contract should stipulate the intervals at which remuneration is paid.

Staggering dates of payment are, thus, illegal.

Other companies that can pay well and early have flat out refused. In a recent interview with The Standard, Ken Gichinga, the chief economist at Mentoria Economics, said the few employers who have the financial muscle to increase salaries are instead riding on high unemployment levels and weakened bargaining power in the labour market to hire talent for a song.

“Many employers feel there is readily available cheaper talent out there, and there isn’t much pressure to try and keep up with inflation to retain workers,” said Gichinga.

“The problem is that purchasing power starts to weaken since you find that many people have never had a salary review, say for the last five years, but the cost of basic commodities has gone up.”

General labourers, including sweepers, gardeners, house servants, day watchmen and messengers working in Nairobi, Mombasa and Kisumu, are supposed to be earning a minimum of Sh13,573 monthly.

Caretakers of buildings are supposed to earn at least Sh28,148. But the reality has always been different, with many workers in such jobs being paid as low as Sh5,000.

Companies that pay early, pay well and make the practice consistent, have a likelihood to have a more productive workforce than those that wait until the new month.