Notes

Are Instant Paychecks a Method of the Future?
On a previous employment, a few years ago, when this glorious moment arrived, the secretary in a booming voice announced that the “eagle had landed.” Then as rapidly as possible, we all made our way to her office to receive the Payment for our previous month’s working. If you get compensated once every month, it’s a long period between payment, so those first few days after a week or so of being broke were great. I even recall when I worked in a restaurant and collected my own brown envelope of cash which was waiting at the end of every pay period!

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

A lot of people battle to stretch their pay from paycheck to paycheck – a recent poll discovered that over 50% of employees live with issues paying their bills between pay periods, while nearly a third claimed an unexpected expense of around $500 would make them unable to pay other financial obligations. Another study discovered that almost one in three workers runs out of cash, even those earning in excess of $100,000. 12 million Americans have to use payday loans all year, and each year $9 billion is collected in payday loan fees. The average annual percentage interest rate (APR) for a payday loans is 310%.

Based on PayActiv, in excess of $89B are paid in costs by the 90M workers living paycheck to paycheck, that is two-thirds of the US population. Real-time payroll would annually place over $25B into employees accounts, just from savings from insanely high APR costs.

When need drives creation

We are on the edge of a new paradigm which has little to do with pandemics or changing work environments, and a lot to do with why workers want to receive their payroll. Employees, unable to survive between paychecks and frustrated from turning to outrageous loans to bridge the gap, want to access their earned pay as and when needed. More than 60% of U.S. workers that have struggled monetarily between pay periods over the last six months know their financial circumstances would be enhanced if their employers allowed them instant availability to their earned pay, free of charge.

Perhaps a few people might think this a political point, the fact is it is regarding financial wellness. According to SHRM, 4 out of 10 workers are not able to cover an unforeseen expense of $400. Their report also refers to Gartner data that found that less than 5% of major US organizations with a majority of hourly-paid workers use a flexible earned wage access (FEWA) platform, but it is expected that this will increase 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 workers access to their pay on demand might upset, maybe even, deconstruct, the manner in which we collect pay and observe our paycheck. Currently the possibility is observed, also, in many instances, companies use it to differentiate their company and bring in fresh talent. For example, to encourage interest for workers, Rockaway Home Care, a New York care operation, is promoting its flexible pay options on social media.

Others currently provide on-demand payroll – when workers finish a shift, they can access their money as early as 3 a.m. the next day. Via an app, employees can transfer their salary to a bank account or debit card. Walmart is another case of a company that offers its workers access to their payroll. Employees may access pay early, up to eight times each year, for free. The reaction from employees has been amazing, and Walmart is expecting more and more usage. Meanwhile, international payroll and Uber both offer their drivers the ability to receive pay 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 workers now expect from their paycheck. They want to be able to receive their pay when they want to, not each 2 weeks or on 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 want it.

The growing rise of workers without bank relationships
In 2018 it was estimated 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 households are either unbanked or underbanked – 7% unbanked and 17% underbanked. The report found that workers who either don’t have a bank account, or have an account, but still use financial services outside the banking system like payday loans to survive. In the UK, there are over one million people without bank accounts.

There are several results of having no banking history. In a few cases, it may result in difficulty receiving loans or buying a house; it also presents employers with specific issues. How do you process pay if there is no bank account to move the money into? As a result, employers are quickly searching for other ways to process payroll, specifically for hourly paid employees. Some are leveraging pay cards, which are loaded electronically every time a worker receives payment. These pay cards perform the way a debit card does, allowing holders to withdraw cash or shop online.

It is clear that instant pay is something that is going to be part of the financial wellness discussion for some time to come.

Website: https://www.immedis.com