Notes

Are Instant Payroll a Method in the Future?
In a former employment, several years back, when this glorious time appeared, the secretary in a clear voice announced that the “eagle had landed.” Then as quickly as possible, we all made our way to her office to receive the Payment for our previous month’s working. When you get paid once a month, it’s a long time between payment, so those first few days passed a week or so of being flat-broke were fantastic. I even recall when I waited tables and received my little brown envelope of cash which was waiting at the end of every week!

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

Most workers struggle to stretch their pay from paycheck to paycheck – a recent poll discovered that over half of employees have trouble paying their expenses between pay periods, while nearly a third said a surprise cost of around $500 could make them unable to meet other financial obligations. Yet another study discovered that nearly one in three workers runs out of money, even those earning in excess of $100,000. 12 million Americans use payday loans all year, and each year $9 billion is collected in payday loan fees. The average annual percentage interest rate (APR) for payday loans is 300%.

According to PayActiv, in excess of $89B are paid in fees from the 90M workers struggling paycheck to paycheck, that is two-thirds of the US population. Real-time payroll would each year add over $25B into workers wallets, just from savings from insanely high APR costs.

When need pushes innovation

We are on the edge of a new way of life that has connection with pandemics or changing workplaces, and a lot to do with how employees want to receive their payroll. Workers, unable to survive between paychecks and frustrated from turning to high-interest loans to fill the gap, need to access their earned money as and when wanted. Over 60% of U.S. employees who have struggled financially between pay periods over the last six months believe their financial situation would improve if their employers allowed them instant availability to their earned wages, free of charge.

Perhaps a few people may consider this a political issue, the fact is it is regarding financial health. Based on SHRM, 40% of employees are unable to cover an unforeseen expense of $400. Their report also refers to Gartner data that found that less than 5% of large US organizations with a majority of hourly-paid employees use a flexible earned wage access (FEWA) solution, yet it is thought that this will increase to 20% by 2023.

Why would a worker have to wait for days or weeks to get paid for their time and ability?

Improving the worker experience
Giving workers access to their pay on demand will disrupt, perhaps even, change, the way we collect payroll and observe our paycheck. Already its potential is observed, and, in many cases, companies use it to differentiate their company and bring in new talent. For example, to stimulate interest for workers, Rockaway Home Care, a New York care operation, is promoting its flexible earning options on the internet.

Others currently provide on-demand payment – where workers complete a shift, they can receive their money as early as 3 a.m. the following day. Via an app, employees can move their pay to a bank account or debit card. payroll compliance is yet another example of a company offering its employees access to their pay. Workers can access earnings early, up to eight times each year, for free. The reaction from employees has been amazing, and Walmart is anticipating more and more usage. Meanwhile, Lyft and Uber both offer their drivers the ability to be paid once they have earned a certain amount.

The alteration of payroll isn’t confined to the frequency of payments. PayPal, Zelle, and other app provide flexibility and transaction services that workers currently expect from their payroll. They want to be able to receive their earnings when they need to, not every 2 weeks or on a monthly period. Much of this demand has come from the gig economy and Millennial generations – who expect to be able to access the money they have earned when they need it.

The growing rise of workers without bank accounts
In 2018 it was calculated that more than 1.7 billion adults globally don’t 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 people who either don’t have a bank account, or have an account, but keep using financial services outside the banking system like payday loans to survive. In the UK, there are in excess of one million people without bank relationships.

There are several results of having no banking account. In a few cases, it can result in difficulty receiving loans or buying a house; it also presents employers with specific challenges. How do you process pay if there is no bank account to move the money into? As a result, employers are frequently looking for other ways to process payroll, especially for hourly paid workers. Some are leveraging pay cards, which are topped-up virtually each time a worker receives payment. Those pay cards function the way a debit card does, letting owners to remove cash or shop online.

It is obvious 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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