7 trends eroding the two-week pay cycle

The precarious financial situation of many American workers is well documented — 69% are living paycheck-to-paycheck, according to a 2020 survey by the American Payroll Association. While the figure is down from 74% in 2019, it shows how many Americans still rely on getting paid on time just to meet their financial obligations.

Any variability in that pay could cause major problems.

“Hourly workers see the value of getting timely cash flow because it has real implications,” added Siddiqi. “If the timing is off you are forced to make hard decisions. We used to see rent affordability as a top concern among hourly workers. Being able to pay utilities and groceries are now the top financial concerns during this time. It shows you how stressed people are.”

A Federal Reserve 2018 report on the economic well-being of households found 41% of households would be unable to pay for an unexpected expense of $400, such as car repair or replacing a broken appliance, without undue hardship.

Stay-at-home orders, operating capacity limits and business closures — while important to reduce the risk of COVID-19 transmission — have had a dramatic effect on the livelihoods of many Americans.

According to a Branch Hourly Workers report, about three-fifths (62.3%) of hourly workers reported that their hours and work shifts have been impacted by COVID-19. Only one quarter (27.7%) stated that they were working about the same amount of hours as before the COVID-19.

“Reduced hours and shifts led to a number of employees to look for a second job to supplement their income just to pay their bills,” said Siddiqi. “It’s gotten to the point where millions of Americans are falling behind on rent and utilities because their employers have had to cut back staffing hours or even close. Take for example the entire restaurant industry.”

According to a survey by the National Restaurant Association, in the first six months of the COVID-19 pandemic, about 100,000 restaurants closed permanently or for the long-term — and nearly three million restaurant workers were unemployed. All told, the Association estimated that the industry would lose upwards of $240 billion in sales for 2020. Additionally, the survey found that among restaurants that were allowed to be open, they operated with only 71% of the normal number of restaurant staff.

Even before the pandemic hit, lower-paid workers (consumers earning less than $25,000 annually) often struggled to pay bills and bank penalty fees, as their cash flow was not in line with when their bills were due. While overdraft fees are a source of revenue for financial institutions, the burden tends to fall on a minority of people. Now with many workers experiencing irregular work shifts, their cash flow is even more strained, putting them at higher risk of exposure to bank penalty fees.

Over 78% of overdraft and non-sufficient funds (OD/NSF) fees are paid by less than 10% of checking account holders, based on data from the Consumer Financial Protection Bureau (CFPB). Almost two thirds of account holders never paid an OD/NSF fee.

The CFPB data showed that frequent overdrafters are younger (about 37 years old), have subprime credit (average FICO score of 563), use debit cards very frequently (average of 29.1 POS debit transactions per month) and have relatively low credit card ownership rates (48.9% own a credit card).

In contrast, non-overdrafters are the oldest of all bank account holders (about 46 years old), have superprime credit (average FICO score of 747), rarely use their debit cards in stores (average 4.6 POS debit transactions per month) and have high credit card ownership rates (86.6% own a credit card).