Will Indian startups ever adopt a bi-monthly payment model?

Getting paid on time is of paramount importance for the working class as they have to take care of their expenses such as rent, EMIs, school fees and other bills by the first week of every month.

Financially stable and well-capitalized companies pay salaries on time, some even a few days before the month-end. And there are some startups and small firms or MSMEs who struggle to do so because of their tight cash flow situation during the current pandemic, or even otherwise. 

While timely salary is a concern for a major chunk of India’s workforce, the trend of bi-monthly wage payment has gained ground in the US with 36.5% of US private businesses paying their employees every 2 weeks, according to a report by U.S. Bureau of Labour Statistics. 

This system of payment eases the pressure on a section of workers and employees who often live by the salary paid every month and eagerly await that most lovely message that their bank can send: “Salary has been credited”. More so now during the lockdown induced economic and social hardships that have taken a toll on people’s livelihood and financial security. 

But the two weeks payment system is yet to be talked about in India, let alone embracing the concept.

Accepting the new reality and the challenge, some large companies In India have begun to introduce the concept now like Reliance which has started paying salaries bi-monthly to employees who draw a salary of under Rs 30,000 per month. And we found that a startup too has introduced the concept, paying its employees and workers bi-monthly for the past 12 months.

Pune-based Markk, a two-year-old startup, has been paying its employees and vendors every 14 days. It has an app that currently allows users in Los Angeles to take pictures and videos of items in stores and tag the location for others to see.

According to Markk’s co-founder and CEO Sachin Bhardwaj, fortnightly payment lessens financial prudence and maintains proper cash flow for staff and the organization as well. 

“The struggle of liquidity crunch and lack of money should be borne by the founders. You can't give excuses to the employees and vendors at the time of paying salaries and dues. They have their EMI and cash flow issues,” Bhardwaj said.

While bi-monthly wage payments seem to be a welcome move by Markk, it may not gain ground in India in the near future for a variety of reasons but mostly led by the premise that people have become accustomed to the monthly payment cycle and have prioritized their financial planning accordingly.

“We explored the feasibility of the fortnightly payment model but we didn't end up doing it because the concept disrupts the financial planning of employees. Moreover, there is no real benefit of paying in India every fortnight, especially with additional complexities which include payroll, PF, and taxes, et al,” said Kartik Mandaville, CEO of Springworks. 

“Overheads involved with the two weeks payment model India is much more due to which I don't think the concept is viable in the near future.”

Human resource veterans also echo Mandaville’s views as they don't think the Indian system is yet ready to adopt a two weeks pay model in the immediate future. According to them, the absence of compliance and statutory things are major roadblocks. 

“Employees might feel happy getting their paycheques after every 15 days but these are all deliberations right now, nothing is concrete. The concept can be adopted in the future as more jobs are becoming contractual in nature, especially in the blue-collar sector. I am not seeing this model being preferred across the larger organizations because they require regular or permanent workforce,” said Rajneesh Singh, MD and founder of human resource service and support firm Simply HR.

While the Indian government has proposed the ‘The Code on Wages’ last year that brings the provision of weekly and fortnightly pay for blue-collared jobs, it’s still collecting feedback from the stakeholders.

So it appears that the concept of bi-monthly wages may remain a perk for a few in India, introduced by conglomerates or startups who are willing to take on the challenge of playing their part in helping their employees and workers overcome financial difficulties at the time of a global pandemic, or even beyond.