Notes

Are Instant Paychecks a Method in the Future?
In a former employment, many years back, when this glorious moment arrived, the secretary in a booming voice announced that the “eagle had landed.” Which our previous month’s working. When one gets compensated once every month, it’s a long time between paychecks, so those initial few days after a week or so of being without money were great. I can even remember when I waitressed and collected my small brown envelope of cash that was waiting at the end of each week!

Today most of us are compensated electronically, but little else has changed.

Most employees battle to save their money from paycheck to paycheck – a recent study revealed that over half of workers have trouble paying their bills between pay periods, while nearly a third claimed a surprise expense of less than $500 could make them unable to meet other financial responsibilities. Another study found that almost one in three workers runs out of money, even those earning in excess of $100,000. 12 million Americans have to use payday loans during the year, and annually $9 billion is paid in payday loan fees. The average annual percentage interest rate (APR) for payday loans is 300%.

Based on PayActiv, over $89B are paid in fees from the 90M workers struggling paycheck to paycheck, which is the majority of the US population. Real-time payroll could annually put over $25B into workers accounts, just from reduction of insanely high APR fees.

When need forces creation

We are on the edge of a new way of life that has relationship with pandemics or shifting work environments, and lots to do with how people desire to receive their pay. Employees, unable to last between paychecks and tired of turning to high-interest loans to fill the gap, want to receive their hard-earned pay as and when wanted. Over 60% of U.S. employees who have struggled monetarily between pay periods in the last six months know their financial circumstances would improve if their employers permitted them instant availability to their earned pay, free of charge.

Of course a few people might consider this a political issue, the truth is it is about financial wellness. According to SHRM, 40% of employees are unable to cover an unexpected cost of $400. The report also refers to Gartner information that found that less than 5% of big US companies with a majority of hourly-paid workers use a flexible earned wage access (FEWA) solution, yet it is expected that this will grow to 20% by 2023.

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

Improving the employee relationship
Giving workers access to their pay instantly may upset, perhaps even, deconstruct, the manner in which we receive pay and view our paycheck. Already its potential is recognized, also, in many instances, companies use it to differentiate their brand and attract new talent. For example, to encourage applications for workers, Rockaway Home Care, a NY care facility, is promoting its flexible payment options on the internet.

Others currently provide on-demand payment – where workers finish a shift, they can receive their money as early as 3 a.m. the next day. Using an app, employees can move their pay to a bank account or debit card. Walmart is another example of a company offering its employees access to their pay. Workers can access pay early, up to eight times per year, for free. The reaction from employees is incredible, and Walmart is anticipating increased adoption. Meanwhile, Lyft and Uber both provide their drivers the ability to be paid once they have earned a certain amount.

The change of payroll is not confined to the amount of payments. Venmo, Zelle, and other app provide flexibility and transaction services that employees now expect from their payroll. They want to be able to receive their earnings whenever they need to, not each 2 weeks or a monthly period. Much of this demand has come from the emerging economy and Millennial generations – they expect to be able to access the money they have earned when they want it.

The increasing rise of workers 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 international payroll , a 2017 review estimated that 25% of people 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 banking system like payday loans to survive. In the United Kingdom, there are over one million people without bank relationships.

There are several consequences of having no banking account. In a few cases, it can result in difficulty getting financing or acquiring a house; it also presents companies with specific challenges. How do you process payroll if there is no bank account to move the money into? As a result, employers are frequently searching for alternative ways to process payroll, especially for hourly paid workers. Some are leveraging pay cards, that are loaded virtually every time an employee gets paid. Those pay cards function the way a debit card does, letting holders to remove cash or shop online.

It’s obvious that instant pay is something that is going to be part of the payroll health conversation for some time to come.

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