Notes

Perhaps Instant Paychecks the System in the Future?
During a former employment, several years back, when this glorious day arrived, the secretary in a loud voice announced that the “eagle had landed.” Which our previous month’s employment. If one gets compensated once per month, it’s a long period between payment, so these initial few days passed a week or so of being without money were great. I even recall when I waited tables and collected my little brown packet of cash which was waiting at the end of every pay period!

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

Most people suffer to stretch their pay from paycheck to paycheck – a recent poll discovered that over half of employees have trouble covering their expenses between pay periods, and nearly one third said a surprise cost of less than $500 may make them unable to pay other financial responsibilities. Yet another study discovered that almost one in three workers runs out of cash, even those making over $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 payday loans is 310%.

According to PayActiv, over $89B are paid in costs from the 90M workers struggling paycheck to paycheck, that is the majority of the US population. Instant payroll can each year add over $25B into employees wallets, merely from reduction of abusively high APR costs.

When desire pushes creation

We are on the verge of a new way of life that has connection with pandemics or changing work environments, and much to do with why employees want to receive their remuneration. Employees, unable to survive between paychecks and tired of turning to high-interest loans to bridge the gap, want to access their hard-earned pay as and when needed. Over 60% of U.S. employees who have struggled monetarily between pay periods over the past six months firmly believe their financial situation would improve if their employers permitted them instant access to their earned pay, free of charge.

Of course some people may consider this a political point, the fact is it is about financial health. Based on SHRM, 40% of workers are unable to pay an unexpected cost of $400. Their report also refers to Gartner data that found that less than 5% of big US organizations with a majority of hourly-paid employees use a flexible earned wage access (FEWA) solution, but it’s expected that this will grow to 20% by 2023.

Why would an employee need to wait for days or weeks to get paid for their time and skills?

Improving the worker experience
Giving employees access to their money on demand will disrupt, maybe even, deconstruct, the way we collect payroll and review our paycheck. Already Immedis Payroll Service is noticed, and, in many instances, companies use it to differentiate their brand and bring in new talent. As an example, to stimulate applications for recruitment, Rockaway Home Care, a NY care operation, is promoting its flexible earning options on the internet.

Others currently provide on-demand payroll – when employees complete a shift, they can access their money as early as 3 a.m. the next day. Using an app, workers can transfer their pay to a bank account or debit card. Walmart is yet another example of a business that offers its workers access to their payroll. Employees can access earnings early, up to eight times each year, for free. The reaction from employees is amazing, and Walmart is anticipating more and more adoption. Meanwhile, Lyft and Uber both provide their drivers the ability to be paid after they have earned a specific amount.

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

The increasing rise of employees without bank accounts
In 2018 it was estimated that in excess of 1.7 billion adults worldwide do not have access to a bank account. In America, a 2017 survey estimated that 25% of households are either unbanked or underbanked – 7% unbanked and 17% underbanked. The report discovered that workers who either do not have a bank account, or have an account, but still use 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 numerous results 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 issues. How do you process payroll 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 utilizing pay cards, that are topped-up virtually every time a worker gets paid. These pay cards function the way a debit card does, allowing holders to withdraw cash or shop online.

It’s obvious that instant pay is something that’s going to be part of the financial wellness conversation for some time ahead.

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