Why Frontline Workers Are Living Paycheck to Paycheck and How Employers Can Help
Updated: Aug 10
Wages for frontline workers have increased at their fastest pace in years as a result of current U.S labor shortages. However, with inflation having worsened in May, rising much more than expected on surging food, rent and energy costs, "Inflation remains stubbornly high in the United States, reflecting global food and energy shortages caused by the Russia-Ukraine conflict, as well as the high momentum of domestically-determined prices like house prices, rents, and medical care," said Bill Adams, chief economist at Comerica Bank.
While companies such as Amazon.com have boosted wages to attract new hires, the increases amount to “pennies” per hour as a result of soaring inflation.
Table of contents:
Why inflation is cutting into wage gains for frontline workers
After years of stagnation, wages are on the rise however when you take into effect inflation, those seemingly robust increases amount to not very much at all.
Although 13 of the biggest and most profitable fast-food, retail and grocery companies in America have hiked up average wages, a recent study by Brookings Institution study concluded that higher prices for rent and food have completely negated the percentage bump.
Moreover, the starting salary for frontline workers from these industries is so low that even though workers may be given a 10% increase, it's still a very low wage. Companies like Chipotle have increased the average wage to $15 an hour amid a tight labor force, however Amazon remains the only company, from the ‘big 13’, who pay an average wage that now meets the standard of a living wage.
Currently wage inflation rates remain less than half the current rate of inflation. BLS reported a 7.9% increase in the Consumer Price Index (CPI) against wage increases of 3.4%. Real (inflation-adjusted) average hourly earnings fell 3% from May 2021 to May 2022. The change in real average hourly earnings combined with a decrease of 0.9 percent in the average workweek resulted in a 3.9-percent decrease in real average weekly earnings over this period. This means that workers' take-home pay is shrinking.
74% of workers say their current wages will not be enough to keep up with rising costs. While nominal wages are higher, American workers are not experiencing real wage gains with 66% of workers saying inflation has outpaced any salary gains they’ve made in the past 12 months.
Social Security cost-of-living adjustment (COLA) for January 2022 was 5.9%, the highest increase in 40 years, due to the current increased cost of living. It’s been predicted that the Social Security COLA for 2023 could be as high as 8.9% or even above.
Why most frontline workers are still not earning enough to get by: the impact of inflation on the cost of living
Recent figures from the March 2022 Consumer Price Index (CPI), which is published by the U.S. BLS revealed that between March 2021 and March 2022, the all items index increased 8.5%, before seasonal adjustment. This marks the largest 12-month increase since the period ending in December of 1981.
The price of gas increased significantly in March 2022. The gasoline index was up more than 18% percent over the month. Gas price inflation accounted for more than half of the all items index monthly increase.
The food index increased 8.8% between March 2021 and March 2022, the largest 12-month increase since the period ending in May of 1981. Grocery store prices have also risen. The food index increased 1% percent in March 2022 and the food at home index increased 1.5%. Restaurant prices have increased, but not as significantly. The food away from home index rose 0.3% in March. The combined index for meats, poultry, fish and eggs increased nearly 14% between March 2021 and March 2022. One of the biggest increases was for beef, which increased 16% over the last year.
Healthcare costs in the U.S. are getting more expensive. In March 2022, the medical care index increased 0.5% in March, which also includes a .05% increase in the index for physicians’ services. However, the index for prescription drugs fell 0.2% in March.
The shelter index, which measures costs associated with housing, increased 5% over the last year, the biggest 12-month increase since May of 1991.
The index for household furnishings and operations grew by more than 10% over the past year. It was the biggest 12-month increase since the period ending in July of 1975.
Due to rising inflation 70-100 million Americans are living paycheck-to-paycheck.
While more than 1 in 4 workers do not set aside any savings each month, 40% can’t come up with $400 in the event of an emergency. Nearly 3 in 4 workers say they are in debt today - more than half think they will always be. More than half of minimum wage workers say they have to work more than one job to make ends meet.
Financially stressed Americans pay $170B a year in fees while waiting for their next paycheck. This includes $35B in bank overdraft fees and $10B in late fees. Frontline workers earn daily but often only have access to their salaries every 2 weeks. This means that by the end of the month people have run out of money and struggle to cover their expenses.
What can help ease the burden on these essential workers? In recent months things have started to improve. Wages have risen, albeit nominally for many frontline workers, however inflation is at its highest in nearly 40 years which is driving many employees to quit their jobs in search of better paid roles or resort to taking loans from payday lenders. Why is this such a problem? In states like Kentucky and Texas there is no maximum limit on the amount of interest companies can charge borrowers. In some cases, people borrowing $300 are expected to pay back $900 at an interest rate of 760% which creates a bigger problem rather than solving the initial one. The average annual borrower asks for a total of $3,000 per year while paying over $500 in interest
The question is, what can policymakers and employers do for healthcare frontline workers who spend more than they make and live paycheck to paycheck?.
Why EWA is not a means to improve employee financial wellness
Some companies give their employees an EWA (early wage access) option which means they can collect some or all of their earned wages ahead of their traditional payday. However many of the companies now rushing to provide this service, amid recent economic turmoil, “are just a kinder version of payday loans”, National Consumer Law Center Associate Director Lauren Saunders said in an interview regarding the coalition of 92 consumer protection groups and their petition to the Consumer Financial Protection Bureau for further industry regulations.
EWA perpetuates the same cycle of repeat borrowing because those employees who take an advance on their salary are inevitably left in the same position as before, chasing money, month to month. This “quick fix” fails to improve long term financial wellbeing as employees don’t have access to more money, they just have quicker access to the money they already have. Moreover, employees may also be subject to additional charges and hidden penalties when accessing funds while employers can be charged high fees by EWA providers.
How Sorbet provides a win-win PTO solution for better financial wellbeing
To improve their financial wellbeing, employees need more money, however wage inflation is already at its highest level since December 1981 and wage advances or payday loans are inadequate solutions. To keep up with rising costs, 16.7% of frontline workers in accommodation and food services followed by 14.5% in retail trade and 10.8% in administrative and support and waste management and remediation services have more than one job.
As a result, frontline workers are stressed to the brink. To make matters worse employees are not taking time off, either because they cannot afford a vacation or need to work extra hours to supplement their income, which results in higher burnout rates and turnover costs for employers. Furthermore, when employees don’t take time off, it accrues creating a liability on the company’s balance sheet which balloons with increases in pay. This has resulted in over $300B in annual accrued PTO liabilities in the US.
At some point, every employee will leave their job. If employees have accrued a significant amount of PTO, employers are often faced with expensive payouts which are impacted by wage inflation.
Sorbet’s one-of-a-kind solution allows employees to exchange unusable portions of their PTO for cash, leaving their monthly salaries untouched. For employees, PTO is an illiquid asset that they may lose entirely or can't cash out until they leave their company. However with Sorbet, employees gain control of their PTO usage and can choose how they want to spend their PTO, by either using their days or converting the unusable portion of their time into cash.
With Sorbet, an average US worker would be able to unlock approx. $3,000 a year by accessing the value of their accrued PTO, tapping into their own hard earned money, instead of them having to turn to pay advances or loans.
At the same time, companies using Sorbet can remove PTO liabilities from the balance sheet. This can be achieved if PTO can be turned from an unpredictable liability into a predictable payment. This ensures greater control and predictability of cash flow which allows CFOs to forecast finances more accurately which is particularly important during a financial downturn.
In the end, it is most important for employers to give real value to the frontline workers who are looking for personalized options that address all of their human needs including education assistance, child and elder care and paid time off.
Allowing employees to cash out their unusable PTO provides them with instant cash when they need it the most. During this period when interest rates, mortgages and cost of living are sky high, giving employees the choice and freedom to use their PTO in a way that works for them provides real added value, financially and emotionally.
Give employees extra cash when they need it the most WITHOUT touching their salary!
Cash out unusable PTO with Sorbet for better financial wellness. click here to schedule your free Sorbet demo today.