Notes

Are Instant Paychecks the Method in the Future?
During a former job, many years ago, when this glorious time arrived, the secretary in a booming voice announced that the “eagle had landed.” rewards of our previous month’s work. If you get compensated once a month, it is a long period between payment, so these initial few days after a week or so of being broke were awesome. I even recall when I waitressed and received my little brown envelope of cash which was waiting at the end of every week!

These days most workers are paid electronically, but little else has changed.

Many employees battle to stretch their pay from paycheck to paycheck – a recent study found that over 50% of workers live with issues covering their expenses between pay periods, while almost a third said an unexpected cost of around $500 could make them unable to meet other financial responsibilities. Yet another study found that almost one in three employees run out of money, even those making in excess of $100,000. 12 million Americans use payday loans each year, and each year $9 billion is collected in payday loan fees. The average annual percentage interest rate (APR) for a payday loans is 300%.

Based on PayActiv, over $89B are paid in costs from the 90M people living paycheck to paycheck, which is two-thirds of the US population. Real-time payroll would each year put over $25B into employees wallets, merely through savings from abusively high APR costs.

The need forces innovation

We are on the edge of a new paradigm that has connection with pandemics or shifting work environments, and a lot to do with why people desire to receive their pay. Workers, not able to survive between paychecks and frustrated from turning to high-interest loans to bridge the gap, desire to receive their hard-earned money as and when needed. More than 60% of U.S. workers who have struggled monetarily between pay periods in the past six months believe their financial situation would improve if their employers permitted them immediate availability to their earned wages, without of charge.

Of course various people could consider this a political point, the fact is it is about financial wellness. According to SHRM, 4 out of 10 employees are unable to pay an unexpected cost of $400. The report also references Gartner information that discovered that less than 5% of large US organizations 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 a worker need to wait for days or weeks to receive pay for their time and ability?

Enhancing the employee environment
Providing workers access to their pay instantly could upset, perhaps even, change, the way we collect pay and view our paycheck. Currently the potential is noticed, also, in many instances, companies use it to differentiate their company and bring in fresh talent. For example, to stimulate interest for personnel, Rockaway Home Care, a NY care operation, is promoting its flexible earning options on the internet.

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

The alteration of payroll is not confined to the amount of payments. PayPal, Zelle, and other app provide flexibility and transaction services that employees currently expect from their paycheck. They want to be able to receive their earnings when they need to, not each 2 weeks or on a monthly period. Much of this expectation has come from the gig economy and Gen Z generations – who expect to be able to receive the money they have earned when they want it.

payroll compliance increasing rise of employees without bank accounts
In 2018 it was calculated that in excess of 1.7 billion adults worldwide don’t have access to a banking relationship. In America, 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 keep using financial services outside the bank system like payday loans to survive. In the United Kingdom, there are over one million people without bank accounts.

There are many consequences of having no banking relationship. In a few cases, it may result in problems receiving financing or acquiring a home; 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 increasingly searching for alternative ways to process payroll, specifically for hourly paid workers. Some are leveraging pay cards, that are topped-up electronically each time an employee gets paid. These pay cards function the way a debit card does, allowing owners to withdraw cash or shop online.

It’s obvious that instant payroll is something that is going to be part of the financial wellness discussion for a while ahead.

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