Notes

Are On Demand Paychecks a Way of the Future?
On a previous job, several years back, when this amazing moment appeared, the secretary in a clear voice announced that the “eagle had landed.” Then as quickly as possible, we each made our way to her desk to receive the Payment for our previous month’s work. If Immedis Payroll Service gets paid once a month, it’s a long time between paychecks, so these first few days passed a week or so of being without money were awesome. I can even recall when I waitressed and received my small brown envelope of cash which was waiting at the end of each week!

Today most of us are compensated 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 live with trouble paying their bills between pay periods, while nearly a third stated a surprise expense of less than $500 may make them unable to meet other financial responsibilities. Yet another study discovered that almost one in three workers runs out of money, even those making over $100,000. 12 million Americans have to use payday loans all year, and annually $9 billion is collected in payday loan fees. The average annual percentage interest rate (APR) for payday loans is 396%.

According to PayActiv, over $89B are paid in costs from the 90M workers living 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 insanely high APR fees.

The desire drives innovation

We are on the verge of a new world order that has relationship with pandemics or shifting workplaces, and lots to do with how workers want to receive their remuneration. Workers, unable to survive between paychecks and tired of turning to high-interest loans to fill the gap, want to access their earned money as and when needed. More than 60% of U.S. employees that have struggled monetarily between pay periods in the last six months believe their financial situation would improve if their employers permitted them instant access to their earned wages, without of charge.

Of course a few people could consider this a political issue, the truth is it is about financial health. Based on SHRM, 4 out of 10 workers are unable to cover an unforeseen cost of $400. Their report also refers to Gartner data that found that less than 5% of big US organizations with a majority of hourly-paid employees use a flexible earned wage access (FEWA) solution, yet it’s thought that this will grow to 20% by 2023.

Why would a worker need to wait for days or weeks to receive pay for their time and ability?

Enhancing the worker environment
Providing employees access to their money on demand could disrupt, perhaps even, deconstruct, the manner in which we collect payroll and review our paycheck. Already its potential is recognized, also, in many instances, companies use it to differentiate their company and attract fresh talent. For example, to encourage applications for personnel, Rockaway Home Care, a New York care facility, is promoting its flexible payment options on the internet.

Others currently provide on-demand payment – where employees complete a shift, they can access their money as soon as 3 a.m. the following day. Using an app, employees may move their pay to a bank account or debit card. Walmart is yet another case of a company that offers its workers access to their pay. Workers can access wages early, up to eight times per year, for free. The feedback from workers is amazing, and Walmart is anticipating more and more adoption. Meanwhile, Lyft and Uber each offer their drivers the ability to receive pay after they have earned a specific amount.

The alteration of payroll is not limited to the frequency of payments. PayPal, Zelle, and other app provide flexibility and transaction services that workers now expect from their paycheck. They want to be able to access their earnings whenever they need to, not every 2 weeks or a monthly period. Most of this demand has come from the gig economy and Gen Z generations – they expect to be able to access the money they have earned when they need it.

The growing rise of workers without bank relationships
In 2018 it was calculated that more than 1.7 billion adults worldwide do not have access to a banking relationship. In the US, a 2017 survey estimated that 25% of households are either unbanked or underbanked – 7% unbanked and 17% underbanked. The survey discovered that workers who either do not 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 in excess of one million people without bank accounts.

There are many results of having no banking history. In some cases, it can result in problems getting loans or acquiring a house; it also presents employers with specific challenges. How do you process payroll if there is no bank relationship to move the money into? As a result, employers are quickly searching for alternative ways to process payroll, especially for hourly paid workers. Some are leveraging pay cards, that are loaded virtually each time a worker receives payment. These pay cards function the way a debit card does, letting holders to remove cash or shop online.

It’s obvious that on-demand pay is something that is going to be a part of the financial health conversation for a while ahead.

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