Notes

Are Instant Payroll the Method in the Future?
On a previous employment, several years ago, when this glorious moment appeared, the secretary in a booming voice declared that the “eagle had landed.” Which our previous month’s work. When one gets compensated once a month, it’s a long time between paychecks, so those first few days after a week or so of being flat-broke were awesome. I even remember when I waited tables and received my own brown packet of cash that was waiting at the end of every week!

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

Many people suffer to stretch their pay from paycheck to paycheck – a recent poll discovered that over 50% of employees live with issues covering their overhead between pay periods, and nearly one third said a surprise cost of less than $500 could make them unable to meet other financial responsibilities. Yet another study discovered that nearly one in three workers runs out of money, even those making over $100,000. 12 million Americans have to use payday loans each year, and annually $9 billion is collected in payday loan fees. The average annual percentage interest rate (APR) for a payday loans is 300%.

According to PayActiv, over $89B are paid in fees by the 90M workers living paycheck to paycheck, which is two-thirds of the US population. payroll compliance -time payroll could annually place over $25B into peoples wallets, merely from savings from abusively high APR costs.

The need drives creation

We are on the cusp of a new way of life which has little to do with pandemics or shifting workplaces, and much to do with how employees want to receive their pay. Workers, unable to survive between paychecks and frustrated from turning to outrageous loans to fill the gap, want to receive their earned pay as and when needed. More than 60% of U.S. employees who have struggled monetarily between pay periods in the past six months believe their financial circumstances would be enhanced if their employers permitted them immediate access to their earned wages, free of charge.

Of course various people may consider this a political point, the truth is it is regarding financial wellness. According to SHRM, 4 out of 10 workers are unable to pay an unexpected expense of $400. The report also references Gartner data 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, but it is expected that this will grow to 20% by 2023.

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

Enhancing payrll service
Giving workers access to their pay instantly may disrupt, perhaps even, change, the way we receive pay and review our paycheck. Currently the potential is noticed, and, in some cases, companies are using it to differentiate their company and bring in fresh talent. As an example, to encourage interest for personnel, Rockaway Home Care, a NY care operation, is promoting its flexible pay options on the internet.

Others are providing on-demand payment – where workers complete a shift, they can access their money as early as 3 a.m. the next day. Using an app, workers can move their pay to a bank account or debit card. Walmart is yet another example of a business that offers its workers access to their pay. Employees can access earnings early, up to eight times per year, for free. The feedback from employees is amazing, and Walmart is anticipating increased adoption. Meanwhile, Lyft and Uber each offer their drivers the ability to receive pay after they have earned a certain amount.

The metamorphosis of payroll is not limited to the frequency 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 pay when they need to, not every 2 weeks or a monthly period. Much of this demand has come from the emerging economy and Gen Z generations – they expect to be able to access the earnings they have earned when they need it.

The increasing rise of workers without bank accounts
In 2018 it was estimated that in excess of 1.7 billion adults globally don’t have access to a bank account. In the US, a 2017 review estimated that 25% of people 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 in excess of one million people without bank relationships.

There are many consequences of having no banking activity. In a few cases, it may result in difficulty getting financing or buying a home; it also presents companies with specific challenges. How do you process pay if there is no bank account to move the money into? As a result, employers are quickly looking for other ways to process payroll, especially for hourly paid employees. Some are leveraging pay cards, which are topped-up virtually every time an employee receives payment. These pay cards function the way a debit card does, allowing holders to withdraw cash or shop online.

It is clear that instant payroll is something that’s going to be part of the banking wellness conversation for some time to come.

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