Notes

Perhaps On Demand Paychecks the System of the Future?
During a former employment, several years ago, when this amazing time appeared, the secretary in a clear voice stated that the “eagle had landed.” Which our previous month’s labor. When you get paid once per month, it is a long period between paychecks, so these first few days after a week or so of being flat-broke were fantastic. I even recall when I worked in a restaurant and received my own brown envelope of cash which was waiting at the end of each pay period!

These days many workers get paid electronically, but little else has changed.

Many people struggle to stretch their money from paycheck to paycheck – a recent poll discovered that over 50% of workers experience trouble paying their costs between pay periods, while nearly a third claimed a surprise cost of around $500 would make them unable to pay other financial obligations. Yet another study discovered that almost one in three workers runs out of cash, even those earning over $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 payday loans is 396%.

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

The need drives innovation

We are on the edge of a new working relationships which has connection with pandemics or shifting workplaces, and much to do with why employees want 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 wanted. Over 60% of U.S. employees who have struggled financially between pay periods over the past six months firmly believe their financial circumstances would be enhanced if their employers permitted them instant access to their earned pay, free of charge.

Perhaps various people might consider this a political issue, the fact is it is about financial wellness. Based on SHRM, 40% of workers are not able to cover an unexpected expense of $400. The report additionally refers to Gartner data that found that less than 5% of major US companies 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 an employee need to wait for days or weeks to receive pay for their time and skills?

Improving the worker experience
Giving workers access to their pay instantly could disrupt, perhaps even, deconstruct, the way we collect payroll and review our paycheck. Already its possibility is noticed, and, in many cases, companies use it to differentiate their company and attract fresh talent. As an example, to stimulate applications for recruitment, Rockaway Home Care, a NY care facility, is promoting its flexible payment options on social media.

Others currently provide on-demand payment – when employees complete a shift, they can access their money as early as 3 a.m. the following day. Via an app, workers can transfer their pay to a bank account or debit card. Walmart is another case of a company that offers its employees access to their pay. Workers may access pay early, up to eight times per year, without cost. The feedback from workers has been incredible, and Walmart is expecting increased usage. Meanwhile, Lyft and Uber both provide their drivers the ability to be paid once they have earned a certain amount.

The metamorphosis of payroll isn’t limited to the frequency of payments. PayPal, Zelle, and other app provide flexibility and transaction services that workers currently expect from their payroll. They want to be able to access their pay whenever they want to, not every 2 weeks or on a monthly cycle. Most of this demand has come from the gig economy and Millennial generations – who expect to be able to receive the money they have earned when they want it.

Immedis Payroll Service growing rise of workers without bank relationships
In 2018 it was calculated that more than 1.7 billion adults globally do not have access to a banking relationship. In the US, a 2017 survey estimated that 25% of people are either unbanked or underbanked – 7% unbanked and 17% underbanked. The report found that people 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 survive. In the United Kingdom, there are in excess of one million people without bank accounts.

There are several consequences of having no banking history. In a few cases, it may result in problems getting financing or buying a house; it also presents employers with specific challenges. How do you process payroll if there is no bank account to transfer the money into? As a result, employers are quickly looking for other ways to process payroll, specifically for hourly paid employees. Some are utilizing pay cards, that are topped-up virtually each time an employee receives payment. Those pay cards function the way a debit card does, allowing holders to withdraw cash or shop online.

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

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