Notes

Perhaps Instant Payroll a Method of the Future?
In a former job, a few years ago, when this amazing moment arrived, the secretary in a clear voice declared that the “eagle had landed.” Which our previous month’s work. If you get compensated once every month, it is a long time between payment, so these first few days passed a week or so of being flat-broke were awesome. I even remember when I worked in a restaurant and collected my own brown packet of cash which was waiting at the end of each week!

Today most workers get paid electronically, but little else has changed.

Many employees suffer to stretch their money from paycheck to paycheck – a recent poll revealed that over 50% of employees experience trouble covering their overhead between pay periods, and almost one third stated an unexpected expense of around $500 would make them unable to pay other financial responsibilities. Yet another study found that nearly one in three employees run out of cash, even those making over $100,000. 12 million Americans use payday loans during the year, and each year $9 billion is collected in payday loan fees. The average annual percentage interest rate (APR) for a payday loans is 320%.

According to PayActiv, in excess of $89B are paid in charges by the 90M people struggling paycheck to paycheck, which is the majority of the US population. Real-time payroll would annually put over $25B into workers accounts, merely through savings from insanely high APR costs.

The need forces creation

We are on the cusp of a new paradigm which has connection with pandemics or shifting workplaces, and a lot to do with why employees desire to receive their remuneration. Workers, not able to survive between paychecks and tired of turning to high-interest loans to bridge the gap, desire to receive their earned pay as and when needed. Over 60% of U.S. employees who have struggled monetarily between pay periods in the last six months know their financial situation would improve if their employers permitted them instant access to their earned wages, free of charge.

Perhaps some people might consider this a political issue, the fact is it is regarding financial wellness. According to SHRM, 40% of employees are unable to pay an unexpected cost of $400. The report additionally references Gartner information that discovered that less than 5% of large US organizations with a majority of hourly-paid employees use a flexible earned wage access (FEWA) solution, but it’s expected that this will grow to 20% by 2023.

Why should a worker have to wait for days or weeks to receive pay for their time and skills?

Improving the employee relationship
Providing employees access to their pay instantly might upset, perhaps even, change, the way we receive pay and view our paycheck. Already its possibility is recognized, and, in some cases, companies are using it to differentiate their brand and bring in fresh talent. For example, to stimulate interest for personnel, Rockaway Home Care, a New York care operation, is promoting its flexible earning options on the internet.

Others are providing on-demand payment – where workers finish a shift, they can access their money as soon as 3 a.m. the next day. Using an app, workers can transfer their salary to a bank account or debit card. Walmart is yet another case of a company offering its workers access to their pay. Workers may access earnings early, up to eight times per year, without cost. The feedback from employees has been amazing, and Walmart is anticipating increased adoption. Meanwhile, on-demand payroll and Uber each offer their workers the ability to receive pay after they have earned a specific amount.

The change 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 access their earnings whenever they want to, not each 2 weeks or on a monthly cycle. Much of this expectation has come from the gig economy and Millennial generations – who expect to be able to receive the money they have earned when they need it.

The growing rise of employees without bank relationships
In 2018 it was calculated that more than 1.7 billion adults globally don’t have access to a bank account. In America, a 2017 survey estimated that 25% of people are either unbanked or underbanked – 7% unbanked and 17% underbanked. The report found that workers who either don’t have a bank account, or have an account, but keep using financial services outside the banking system like payday loans to survive. In the United Kingdom, there are in excess of one million people without bank accounts.

There are numerous consequences of having no banking history. In a few cases, it can result in difficulty getting loans or acquiring a house; it also presents employers with specific issues. How do you process payroll if there is no bank relationship to transfer the money into? As a result, employers are quickly searching for alternative ways to process payroll, specifically for hourly paid workers. Some are utilizing pay cards, which are topped-up virtually every time a worker receives payment. These pay cards perform the way a debit card does, letting owners to withdraw cash or shop online.

It’s clear that on-demand pay is something that is going to be part of the banking wellness discussion for a while to come.

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