The payroll industry in the UK has experienced a number of changes in the last decade. What began in the 1960s with the simple automation of payroll systems has evolved into a more complex and sophisticated industry that now includes offering banking products. Initially, the focus was on building tools to reduce the back-office workload around pay calculations and tax deductions. But over the last few years, with the growing need to contextually offer finance, we are seeing the integration of banking products directly into payroll offerings.

Companies like Salary Finance pioneered salary-based lending, while Wagestream and Hastee transformed earned wage access (EWA). Even traditional payroll software companies like Sage and ADP have embraced fintech partnerships to offer integrated financial products and services. The 2020 pandemic accelerated this, with remote work driving the need for more digital payroll systems as employees sought flexible access to their earnings.

However, this convenience came at a price. While EWA products and payday loans provide short-term relief, research has shown that the users of these products report increased financial anxiety. The savings crisis in the UK also paints a concerning picture‍—‌Money and Pensions Service reports that 11.5 million people have less than £100 in savings, while the Office for National Statistics data shows that household savings ratios hit historic lows in 2022. The pandemic's financial impact deepened these outcomes, with 40% of UK adults reporting a fall in their financial resilience.

The rise of Payroll Savings

Payroll savings presents a compelling solution to these challenges. The way it works is simple: employees authorise their employer to put a part of their salary directly into a savings account before it reaches their main account. This classic example of "paying yourself first" is built on behavioural economics principles and existing payroll infrastructure to make saving automatic and easy.

The UK has seen an adoption of this product across various sectors. Beyond Asda's recent partnership with Wagestream to roll out workplace savings for over 150,000 employees, another notable example is the NHS, through its partnership with Salary Finance implementing a savings scheme that has attracted over 100,000 healthcare workers. Even local councils, such as Leeds City Council, have implemented successful programs, demonstrating that payroll savings can work across different industries and companies.

At Griffin, we just announced our partnerships with Income Group, Sync Savings and PayCaptain to power payroll savings for these providers.

A win-win proposition

For employers, the business case for payroll savings is quite compelling. Yorkshire Building Society's research shows that companies implementing payroll savings see 22% reduction in employee financial stress and 17% decrease in absenteeism. Legal & General's workplace savings study found that companies offering these programs experienced 12% improvement in employee retention rates.

The financial benefits go beyond retention. Nationwide Building Society reported 45% reduction in employees seeking hardship loans and 30% decrease in salary advances after implementing a payroll savings program. These outcomes can be linked directly to reduced administrative costs and improved productivity.

For employees, the impact is life-changing. Unlike some EWA products, which can charge high fees per withdrawal, payroll savings typically involve no costs to employees. The Money and Pensions Service reports that regular payroll savers put away an average of £800 more per year when compared to non-payroll savers. More importantly, 82% of payroll savers continue their saving habit even after changing employers, demonstrating its effectiveness in building lasting financial behaviours.

Beyond savings: Building financial wellbeing

Many providers are building comprehensive wellness solutions around their savings products. Salary Finance, for example, combines its savings platform with financial education modules and one-on-one coaching. Wagestream's platform includes budgeting tools and personalised financial insights, helping employees understand and improve their spending patterns. Companies like PayCaptain are building in behaviour-specific features based on research to help more employees save.

Open banking technology has also contributed to this. Payroll providers can now offer real-time balance checking, automated savings goals, and personalised financial recommendations built on data from their banking partners. Some programs even allow employees to seamlessly connect their payroll savings to investment products, helping with both short-term savings and longer-term wealth goals.

The social impact is growing. Research from the Financial Inclusion Centre shows that employees with access to payroll savings are 44% less likely to use high-cost credit options like payday loans. They're also more likely to contribute to their pensions and maintain their insurance, creating a better financial safety net.

Looking ahead: Challenges and opportunities

Despite its many advantages, payroll savings also faces some challenges. Implementation can be complex, especially for smaller employers and payroll tech providers with limited resources. Integration with legacy payroll systems and banks can present technical hurdles, and employee engagement to drive adoption can be very demanding.

However, new technologies and partnerships are addressing these problems. Payroll providers are integrating with banks and offering special pre-built programs with features to optimise savings based on individual spending patterns. At the core of this solution is the banking partnership. Savings accounts by law can only be offered by banks and building societies, and payroll providers need banking platforms like Griffin with modern API-first infrastructure to power these sleek propositions.

The success of payroll savings will depend on continued collaboration between employers, banks, and payroll technology providers. Employers need to view these programs as essential components of their employee value proposition. Banks need to focus on positive outcomes while innovating their offerings and building in the technology that allows providers to offer payroll savings. And payroll technology providers need to continue to evolve their products to meet the growing demands of the workforce they service.

The momentum behind payroll savings in the UK reflects a growing recognition that financial wellbeing is a collective responsibility. By building on the employer-employee relationship and modern technology, we have an opportunity to help millions achieve lasting financial resilience.