Notes

Is On Demand Paychecks a Way of the Future?
In a previous job, a few years back, when this glorious day arrived, the secretary in a loud 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 working. When you get paid once every month, it’s a long period between payment, so those first few days after a week or so of being broke were fantastic. I even remember when I waitressed and received my own brown envelope of cash which was waiting at the end of each pay period!

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

Many people suffer to stretch their money from paycheck to paycheck – a recent study found that over 50% of workers live with trouble covering their expenses between pay periods, while nearly one third said a surprise expense of less than $500 can make them unable to meet other financial obligations. Yet another study found that nearly one in three workers runs out of cash, even those earning over $100,000. 12 million Americans 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, in excess of $89B are paid in costs by the 90M workers struggling paycheck to paycheck, which is the majority of the US population. Instant payroll can annually add over $25B into workers wallets, merely through savings from abusively high APR costs.

When need pushes innovation

We are on the edge of a new paradigm that has little to do with pandemics or shifting workplaces, and much to do with how employees want to receive their payroll. Employees, not able to last between paychecks and tired of turning to high-interest loans to fill the gap, want to receive their earned pay as and when needed. More than 60% of U.S. workers that have struggled financially between pay periods in the last six months believe their financial circumstances would be enhanced if their employers allowed them immediate availability to their earned pay, without of charge.

Perhaps some people may think this a political point, the truth is it is about financial wellness. Based on SHRM, 4 out of 10 workers are unable to cover an unforeseen cost of $400. Their report additionally refers to Gartner data that discovered that less than 5% of big US companies with a majority of hourly-paid employees use a flexible earned wage access (FEWA) platform, but it is thought that this will increase 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 worker experience
Providing employees access to their money instantly may upset, perhaps even, change, the way we collect payroll and review our paycheck. Currently payrll service is observed, also, in some cases, companies use it to differentiate their company and attract new talent. For example, to encourage interest for personnel, Rockaway Home Care, a New York care operation, is promoting its flexible payment options on the internet.

Others are providing on-demand pay – where workers finish a shift, they can receive their money as soon as 3 a.m. the next day. Using an app, employees can transfer their salary to a bank account or debit card. Walmart is another example of a business offering its workers access to their payroll. Workers may access wages early, up to eight times per year, for free. The feedback from workers is amazing, and Walmart is expecting increased usage. Meanwhile, Lyft and Uber each offer their workers the ability to receive pay once they have earned a specific amount.

The change of payroll isn’t limited to the frequency of payments. Venmo, Zelle, and other app provide flexibility and transaction services that workers now expect from their paycheck. They want to be able to access their pay when they need to, not each 2 weeks or on a monthly cycle. Most of this demand has come from the emerging economy and Gen Z generations – who expect to be able to receive the earnings they have earned when they want it.

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

There are numerous consequences of having no banking account. In a few cases, it can result in problems getting loans or buying a house; 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 other ways to process payroll, especially for hourly paid employees. Some are leveraging pay cards, that are topped-up electronically every time an employee receives payment. These pay cards perform the way a debit card does, allowing owners to withdraw cash or shop online.

It is clear that instant pay is something that’s going to be part of the payroll health conversation for a while to come.

Read More: https://immedis.com/blog/make-payroll-a-strategic-asset-for-your-global-company/