Perhaps As Demanded Payroll a Way of the Future?

In a former job, several years ago, when this glorious time appeared, the secretary in a booming voice stated that the “eagle had landed.” rewards of our previous month’s working. When you get paid once every month, it is a long time between paychecks, so those first few days passed a week or so of being flat-broke were great. I even recall when I worked in a restaurant and received my little brown envelope of cash which was waiting at the end of each pay period!

These days most of us get compensated electronically, but little else has changed.

A lot of people suffer to save their pay from paycheck to paycheck – a recent study found that over half of workers experience issues covering their overhead between pay periods, and nearly one third stated an unexpected cost of around $500 could make them unable to meet other financial responsibilities. Another study found that nearly one in three workers runs out of money, even those making over $100,000.  12 million Americans have to use payday loans during the year, and each year $9 billion is paid in payday loan fees. The average annual percentage interest rate (APR) for payday loans is 310%.

Based on PayActiv, in excess of $89B are paid in charges by the 90M workers struggling paycheck to paycheck, that is two-thirds of the US population.  Instant payroll could each year place over $25B into employees wallets, merely through reduction of insanely high APR costs.

The need pushes innovation

We are on the cusp of a new working relationships that has relationship with pandemics or shifting workplaces, and lots to do with why employees desire to receive their remuneration. Employees, not able to survive between paychecks and frustrated from turning to outrageous loans to bridge the gap, need to access their hard-earned pay as and when needed.  More than 60% of U.S. workers that have struggled monetarily between pay periods in the past six months believe their financial circumstances would be enhanced if their employers permitted them instant availability to their earned pay, without of charge.

Perhaps a few people might think this a political issue, the fact is it is regarding financial wellness.  Based on SHRM, 4 out of 10  employees are unable to cover an unexpected expense of $400.  The report also refers to Gartner data that found that less than 5% of major US companies with a majority of hourly-paid employees use a flexible earned wage access (FEWA) platform, but it’s thought that this will grow to 20% by 2023.

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

Improving the worker experience
Giving employees access to their pay on demand might disrupt, maybe even, change, the manner in which we receive pay and review our paycheck. Already its potential is recognized, and, in some cases, companies are using it to differentiate their brand and bring in new talent. For example, to encourage interest for workers,  Rockaway Home Care, a NY care operation, is promoting its flexible pay options on social media.

Others are providing on-demand payment – when employees finish a shift, they can access their money as soon as 3 a.m. the following day. Using an app, employees may move their salary to a bank account or debit card. Walmart is yet another example of a business offering its employees access to their pay.  Workers can access pay early, up to eight times per year, for free. The feedback from employees is amazing, and Walmart is expecting more and more usage.  Meanwhile, Lyft and Uber both provide their drivers the ability to receive pay after they have earned a certain amount.

The change of payroll is not limited to the amount of payments. Venmo, Zelle, and other app offer flexibility and transaction services that employees currently expect from their paycheck.  They want to be able to access their earnings when they need to, not every 2 weeks or on a monthly period. Most of this demand has come from the emerging economy and Gen Z generations – who expect to be able to access the money they have earned when they want it.

The increasing rise of employees without bank relationships
In 2018 it was estimated that more than 1.7 billion adults worldwide do not have access to a bank account. In  payrll service , a 2017 review estimated that 25% of households 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 still use financial services outside the bank system like payday loans to make ends meet. In the UK, there are over one million people without bank relationships.

There are numerous consequences of having no banking relationship. In a few cases, it can result in problems receiving financing or buying a home; it also presents employers with specific challenges. How do you process pay if there is no bank relationship to move the money into? As a result, employers are frequently looking for other ways to process payroll, especially for hourly paid employees.  Some are leveraging pay cards, that are loaded electronically each time a worker gets paid. Those pay cards function the way a debit card does, letting owners to withdraw cash or shop online.

It is clear that on-demand pay is something that is going to be part of the financial health conversation for a while ahead.