Notes

Perhaps On Demand Payroll the Way of the Future?
On a former job, a few years back, when this amazing moment appeared, the secretary in a booming voice stated that the “eagle had landed.” Then as soon as possible, we each made our way to her desk to get the Payment for our previous month’s working. If you get compensated once per month, it is a long period between payment, so these first few days passed a week or so of being without money were great. I even recall when I waited tables and collected my little brown envelope of cash that was waiting at the end of every week!

These days most workers are paid electronically, but little else has changed.

Most people struggle to stretch their money from paycheck to paycheck – a recent study discovered that over 50% of employees experience trouble paying their overhead between pay periods, while almost one third stated a surprise expense of less than $500 can make them unable to pay other financial responsibilities. Yet another study found that almost one in three workers runs out of money, even those making in excess of $100,000. 12 million Americans must use payday loans during the year, and annually $9 billion is collected in payday loan fees. The average annual percentage interest rate (APR) for a payday loans is 320%.

Based on PayActiv, in excess of $89B are paid in costs by the 90M people struggling paycheck to paycheck, which is two-thirds of the US population. Instant payroll would annually put over $25B into peoples wallets, just through savings from insanely high APR fees.

When need pushes innovation

We are on the cusp of a new world order which has little to do with pandemics or shifting workplaces, and a lot to do with how workers desire to receive their pay. Employees, unable to survive between paychecks and frustrated from turning to high-interest loans to bridge the gap, desire to access their earned money as and when needed. Over 60% of U.S. employees that have struggled financially between pay periods over the last six months firmly believe their financial situation would be enhanced if their employers permitted them instant access to their earned wages, without of charge.

While various people might consider this a political issue, the truth is it is about financial health. According to SHRM, 40% of employees are not able to pay an unforeseen expense of $400. Their report additionally refers to Gartner information that discovered that less than 5% of big US organizations with a majority of hourly-paid employees use a flexible earned wage access (FEWA) solution, but it’s thought that this will grow to 20% by 2023.

Why should a worker have to wait for days or weeks to get paid for their time and ability?

Improving the employee environment
Providing employees access to their pay on demand could disrupt, perhaps even, change, the manner in which we collect payroll and observe our paycheck. Currently the possibility is noticed, also, in many instances, companies are using it to differentiate their brand and bring in new talent. For example, to encourage applications for personnel, Rockaway Home Care, a NY care facility, is promoting its flexible payment options on the internet.

Others currently provide on-demand pay – when workers finish a shift, they can receive their money as soon as 3 a.m. the next day. Using an app, employees can move their salary to a bank account or debit card. Walmart is another case of a company that offers its employees access to their payroll. Workers may access earnings early, up to eight times per year, for free. The reaction from employees is amazing, and Walmart is anticipating more and more adoption. Meanwhile, Lyft and Uber both provide their workers the ability to be paid once they have earned a specific amount.

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

The growing rise of employees without bank accounts
In 2018 it was calculated 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 households are either unbanked or underbanked – 7% unbanked and 17% underbanked. The survey found that workers who either don’t have a bank account, or have an account, but keep using financial services outside the bank system like payday loans to make ends meet. In the United Kingdom, there are over one million people without bank accounts.

There are international payroll of having no banking activity. In a few cases, it can result in difficulty getting loans or acquiring a house; it also presents employers with specific challenges. How do you process pay if there is no bank account to transfer the money into? As a result, employers are increasingly looking for other ways to process payroll, specifically for hourly paid employees. Some are leveraging pay cards, which are topped-up electronically each time an employee receives payment. These 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 health discussion for some time ahead.

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