Notes

Are Instant Paychecks the System in the Future?
In a former employment, several years back, when this amazing moment appeared, the secretary in a booming voice declared that the “eagle had landed.” Then as quickly as possible, we all worked our way to her desk to get the Payment for our previous month’s working. When you get compensated once a month, it is a long time between paychecks, so these first few days after a week or so of being without money were awesome. I can even recall when I waitressed and collected my own brown packet of cash which was waiting at the end of each pay period!

Today many of us get paid electronically, but little else has changed.

Many workers battle to save their money from paycheck to paycheck – a recent poll revealed that over half of workers have trouble covering their costs between pay periods, and nearly one third said an unexpected expense of around $500 would make them unable to meet other financial obligations. Another study discovered that nearly one in three employees run out of cash, even those making in excess of $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 396%.

According to PayActiv, over $89B are paid in fees from the 90M workers living paycheck to paycheck, which is two-thirds of the US population. Instant payroll can each year place over $25B into peoples accounts, just from savings from insanely high APR costs.

The need forces innovation

We are on the edge of a new way of life which has relationship with pandemics or shifting workplaces, and lots to do with why workers want to receive their pay. Employees, not able 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 who 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.

Of course a few people might consider this a political point, the fact is it is about financial health. Based on SHRM, 40% of workers are not able to pay an unforeseen cost of $400. The report also refers to Gartner data that found that less than 5% of large US organizations with a majority of hourly-paid workers use a flexible earned wage access (FEWA) platform, yet it is expected that this will grow to 20% by 2023.

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

Improving the employee experience
Giving employees access to their pay instantly will disrupt, perhaps even, deconstruct, the manner in which we collect payroll and review our paycheck. Already its potential is observed, and, in many cases, companies are using it to differentiate their company and attract new talent. For example, to encourage interest for workers, Rockaway Home Care, a New York care operation, is promoting its flexible pay options on the internet.

Others currently provide on-demand payroll – when employees finish a shift, they can receive their money as early as 3 a.m. the following day. Using an app, workers may move their pay to a bank account or debit card. Walmart is another example of a company offering its employees access to their paychecks. Workers may access earnings early, up to eight times each year, without cost. The reaction from employees has been incredible, and Walmart is expecting more and more adoption. Meanwhile, Lyft and Uber each offer their drivers the ability to receive pay after they have earned a specific amount.

The alteration of payroll is not limited to the frequency of payments. PayPal, 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 want to, not every 2 weeks or a monthly cycle. Much of this expectation has come from the emerging economy and Gen Z generations – they expect to be able to access the money they have earned when they want it.

The growing rise of workers without bank accounts
In 2018 it was calculated that more than 1.7 billion adults worldwide don’t have access to a bank account. In America, a 2017 survey estimated that 25% of people are either unbanked or underbanked – 7% unbanked and 17% underbanked. The report discovered that people who either do not have a bank account, or have an account, but keep using financial services outside the bank system like payday loans to survive. In the UK, there are over one million people without bank accounts.

There are several consequences of having no banking account. In some cases, it can result in difficulty receiving financing or buying a house; it also presents employers with specific issues. How do you process pay if there is no bank relationship to transfer the money into? As a result, employers are frequently searching for other ways to process payroll, specifically for hourly paid workers. Some are utilizing pay cards, that are loaded virtually every time a worker gets paid. international payroll pay cards function the way a debit card does, allowing owners to withdraw cash or shop online.

It is clear that on-demand payroll is something that is going to be part of the financial health discussion for some time ahead.

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