Are On Demand Payroll a Way in the Future?
In a former employment, a few years ago, when this glorious time appeared, the secretary in a booming voice declared that the “eagle had landed.” rewards of our previous month’s employment. When you get paid once a month, it is a long time between paychecks, so those first few days after a week or so of being without money were fantastic. global payroll can even remember when I waited tables and collected my little brown packet of cash which was waiting at the end of each week!
Today most workers are compensated electronically, but little else has changed.
Many people struggle to save their pay from paycheck to paycheck – a recent study revealed that over 50% of workers live with issues paying their expenses between pay periods, and almost one third claimed an unexpected cost of less than $500 can make them unable to pay other financial responsibilities. Yet another study found that almost one in three workers runs out of cash, even those earning over $100,000. 12 million Americans must 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 310%.
Based on PayActiv, over $89B are paid in charges from the 90M workers struggling paycheck to paycheck, which is two-thirds of the US population. Real-time payroll would each year add over $25B into workers wallets, just from reduction of abusively high APR fees.
The need pushes creation
We are on the verge of a new world order that has connection with pandemics or changing work environments, and a lot to do with why people desire to receive their payroll. Employees, not able to survive between paychecks and frustrated from turning to high-interest loans to bridge the gap, want to receive their earned pay as and when needed. Over 60% of U.S. workers who have struggled financially between payment periods over the last six months know their financial circumstances would be enhanced if their employers permitted them immediate availability to their earned wages, free of charge.
Perhaps a few people might consider this a political issue, the fact is it is about financial wellness. Based on SHRM, 40% of workers are not able to cover an unforeseen cost of $400. The report also refers to Gartner information that discovered that less than 5% of major US organizations with a majority of hourly-paid employees use a flexible earned wage access (FEWA) solution, but it is thought that this will increase to 20% by 2023.
Why should an employee need to wait for days or weeks to receive pay for their time and skills?
Improving the worker experience
Giving employees access to their money instantly may disrupt, perhaps even, deconstruct, the manner in which we collect pay and observe our paycheck. Already its potential is recognized, also, in some instances, companies use it to differentiate their brand and attract fresh talent. For example, to encourage interest for recruitment, Rockaway Home Care, a NY care facility, is promoting its flexible payment options on the internet.
Others are providing on-demand payment – when workers complete a shift, they can access their money as soon as 3 a.m. the next day. Via an app, workers can transfer their pay to a bank account or debit card. Walmart is yet another example of a company offering its employees access to their payroll. Employees can access pay early, up to eight times each year, for free. The reaction from employees has been amazing, and Walmart is expecting increased usage. Meanwhile, Lyft and Uber each provide their drivers the ability to be paid once they have earned a specific amount.
The alteration of payroll is not confined to the frequency of payments. Venmo, Zelle, and other app offer flexibility and transaction services that employees now expect from their paycheck. They want to be able to receive their earnings when they want to, not every 2 weeks or a monthly period. Much of this expectation has come from the gig economy and Millennial generations – they expect to be able to receive the earnings they have earned when they want it.
The growing rise of employees without bank accounts
In 2018 it was calculated that more than 1.7 billion adults worldwide do not have access to a bank account. In America, a 2017 review estimated that 25% of people are either unbanked or underbanked – 7% unbanked and 17% underbanked. The survey found that workers who either don’t 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 activity. In a few cases, it can result in problems getting financing or acquiring 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 searching for other 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 perform the way a debit card does, letting holders to withdraw cash or shop online.
It is clear that on-demand pay is something that is going to be part of the financial wellness discussion for some time to come.