Notes

Is Instant Paychecks the Way of the Future?
In a former employment, a few years ago, when this glorious moment arrived, the secretary in a clear voice declared that the “eagle had landed.” Then as quickly as possible, we all worked our way to her location to get the Payment for our previous month’s employment. If you get paid once a month, it is a long period between paychecks, so those initial few days after a week or so of being without money were awesome. I can even recall when I worked in a restaurant and collected my little brown packet of cash that was waiting at the end of every pay period!

Today many of us get paid electronically, but little else has changed.

Many people battle to stretch their pay from paycheck to paycheck – a recent study revealed that over 50% of employees experience trouble paying their bills between pay periods, and nearly a third stated an unexpected cost of around $500 could make them unable to meet other financial responsibilities. Yet another study found that nearly one in three workers runs out of money, even those earning over $100,000. 12 million Americans have to use payday loans during the year, and annually $9 billion is paid in payday loan fees. The average annual percentage interest rate (APR) for payday loans is 396%.

Based on PayActiv, in excess of $89B are paid in charges from the 90M workers struggling paycheck to paycheck, which is the majority of the US population. Real-time payroll could annually place over $25B into workers wallets, just through savings from abusively high APR fees.

The need forces creation

We are on the verge of a new paradigm which has little to do with pandemics or changing work environments, and lots to do with how employees want to receive their remuneration. Employees, unable to last between paychecks and tired of turning to outrageous loans to bridge the gap, need to receive their hard-earned pay as and when needed. More than 60% of U.S. workers that have struggled monetarily between payment periods over the past six months know their financial situation would improve if their employers allowed them immediate access to their earned wages, free of charge.

While a few people might think this a political point, the fact is it is about financial wellness. According to SHRM, 4 out of 10 employees are not able to pay an unforeseen cost of $400. Their report also references Gartner data that found that less than 5% of large US organizations with a majority of hourly-paid employees use a flexible earned wage access (FEWA) solution, yet it is thought that this will increase to 20% by 2023.

Why should an employee need to wait for days or weeks to receive pay for their time and ability?

Improving the worker relationship
Providing workers access to their money on demand could disrupt, perhaps even, change, the manner in which we collect pay and observe our paycheck. Already its possibility is noticed, also, in some cases, companies are using it to differentiate their company and bring in fresh talent. For example, to encourage interest for recruitment, Rockaway Home Care, a NY care facility, is promoting its flexible pay options on social media.

Others are providing on-demand payment – when workers complete a shift, they can access their money as early as 3 a.m. the following day. Via an app, employees can transfer their pay to a bank account or debit card. Walmart is yet another example of a business offering its employees access to their payroll. Employees can access earnings early, up to eight times per year, without cost. The feedback from employees is amazing, and Walmart is expecting more and more usage. Meanwhile, Lyft and Uber each provide their workers the ability to be paid once they have earned a certain amount.

The alteration of payroll is not limited to the amount of payments. Venmo, Zelle, and other app offer flexibility and transaction services that employees currently expect from their payroll. They want to be able to receive their earnings whenever they want to, not every 2 weeks or a monthly period. Much of this expectation has come from the gig economy and Millennial generations – they expect to be able to access the money they have earned when they need it.

The growing rise of workers without bank accounts
In 2018 it was estimated that in excess of 1.7 billion adults worldwide don’t have access to a banking relationship. In America, a 2017 review estimated that 25% of people are either unbanked or underbanked – 7% unbanked and 17% underbanked. The report discovered that workers who either do not have a bank account, or have an account, but still use financial services outside the banking system like payday loans to make ends meet. In the UK, there are in excess of one million people without bank accounts.

There are several results of having no banking account. In a few cases, it can result in difficulty getting financing or acquiring a home; it also presents employers with specific issues. How do you process pay if there is no bank relationship to transfer the money into? As a result, employers are frequently searching for alternative ways to process payroll, specifically for hourly paid workers. Some are utilizing pay cards, that are topped-up electronically every time an employee receives payment. international payroll service pay cards perform the way a debit card does, letting owners to remove cash or shop online.

It’s clear that instant pay is something that’s going to be part of the financial wellness discussion for a while ahead.

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