Notes

Is Instant Payroll the System in the Future?
In a previous job, many years back, when this glorious day appeared, the secretary in a clear voice announced that the “eagle had landed.” rewards of our previous month’s labor. When you get compensated once every month, it is a long period between paychecks, so these first few days after a week or so of being without money were great. I even remember when I waited tables and received my little brown envelope of cash that was waiting at the end of every pay period!

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

Many employees battle to save their money from paycheck to paycheck – a recent study revealed that over 50% of workers have trouble covering their costs between pay periods, and almost a third claimed an unexpected cost of around $500 could make them unable to meet other financial responsibilities. Yet another study discovered that almost one in three workers runs out of money, even those earning in excess of $100,000. 12 million Americans must use payday loans each year, and each year $9 billion is paid in payday loan fees. The average annual percentage interest rate (APR) for payday loans is 320%.

According to PayActiv, over $89B are paid in fees by the 90M people living paycheck to paycheck, that is two-thirds of the US population. Real-time payroll could each year add over $25B into employees accounts, just from savings from abusively high APR fees.

When desire forces creation

We are on the edge of a new way of life that has relationship with pandemics or changing workplaces, and a lot to do with how people want to receive their pay. Workers, not able to last between paychecks and frustrated from turning to abusive loans to bridge the gap, need to receive their hard-earned money as and when needed. More than 60% of U.S. workers that have struggled financially between pay periods in the past six months believe their financial situation would be enhanced if their employers permitted them instant access to their earned pay, free of charge.

Perhaps a few people could consider this a political point, the truth is it is about financial wellness. According to SHRM, 4 out of 10 employees are not able to pay an unexpected expense of $400. Their report also refers to Gartner information that found that less than 5% of major US organizations with a majority of hourly-paid employees use a flexible earned wage access (FEWA) platform, but it is expected that this will grow to 20% by 2023.

Why would an employee need to wait for days or weeks to get paid for their time and ability?

Enhancing the employee relationship
Giving workers access to their money instantly might upset, perhaps even, change, the manner in which we collect payroll and observe our paycheck. Currently the potential is observed, also, in some instances, companies use it to differentiate their company and bring in new talent. As on-demand payroll , to stimulate interest for recruitment, Rockaway Home Care, a New York care operation, is promoting its flexible pay options on social media.

Others are providing on-demand pay – where workers complete a shift, they can access their money as soon as 3 a.m. the following day. Via an app, employees may move their pay to a bank account or debit card. Walmart is another example of a business that offers its workers access to their paychecks. Workers can access pay early, up to eight times per year, without cost. The reaction from workers is amazing, and Walmart is anticipating increased usage. Meanwhile, Lyft and Uber each provide their drivers the ability to be paid once they have earned a specific amount.

The metamorphosis of payroll isn’t limited to the amount of payments. PayPal, Zelle, and other app offer flexibility and transaction services that employees currently expect from their payroll. They want to be able to access their pay when they need to, not every 2 weeks or on a monthly period. Most of this expectation has come from the gig economy and Gen Z generations – they expect to be able to access the earnings they have earned when they want it.

The increasing rise of employees without bank relationships
In 2018 it was estimated that more than 1.7 billion adults globally do not have access to a bank account. In the US, a 2017 survey estimated that 25% of people are either unbanked or underbanked – 7% unbanked and 17% underbanked. The survey found that people who either don’t have a bank account, or have an account, but still use financial services outside the bank system like payday loans to make ends meet. In the UK, there are over one million people without bank accounts.

There are several consequences of having no banking account. In some cases, it can result in difficulty getting financing or acquiring a house; it also presents companies with specific challenges. How do you process pay if there is no bank account to move the money into? As a result, employers are quickly looking for alternative ways to process payroll, especially for hourly paid employees. Some are utilizing pay cards, that are topped-up virtually every time a worker receives payment. Those pay cards function the way a debit card does, letting owners to withdraw cash or shop online.

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

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