Perhaps As Demanded Paychecks the Way of the Future?
During a former job, several years back, when this amazing moment appeared, the secretary in a loud voice stated that the “eagle had landed.” Then as soon as possible, we all worked our way to her location to receive the Payment for our previous month’s working. When one gets compensated once every month, it’s a long time between payment, so those first few days passed a week or so of being broke were great. I can even remember when I worked in a restaurant and received my small brown packet of cash which was waiting at the end of every pay period!
These days most of us are compensated electronically, but little else has changed.
Many employees battle to stretch their pay from paycheck to paycheck – a recent poll found that over half of workers have issues covering their expenses between pay periods, while almost a third stated a surprise cost of around $500 can make them unable to pay other financial obligations. Yet another study found that almost one in three employees run out of money, even those making over $100,000. 12 million Americans use payday loans during the year, and annually $9 billion is paid in payday loan fees. The average annual percentage interest rate (APR) for payday loans is 396%.
According to PayActiv, over $89B are paid in charges from the 90M workers struggling paycheck to paycheck, which is two-thirds of the US population. Instant payroll can annually put over $25B into peoples wallets, just through reduction of abusively high APR costs.
The desire pushes creation
We are on the verge of a new world order that has little to do with pandemics or changing workplaces, and much to do with why employees desire to receive their remuneration. Workers, unable to last between paychecks and frustrated from turning to outrageous loans to fill the gap, want to access their earned pay as and when needed. Over 60% of U.S. employees that have struggled financially between pay periods in the last six months believe their financial situation would improve if their employers allowed them immediate access to their earned wages, free of charge.
Of course some people might consider this a political issue, the fact is it is about financial health. Based on SHRM, 4 out of 10 employees are unable to pay an unexpected cost of $400. The report additionally references Gartner data that found that less than 5% of big US companies with a majority of hourly-paid employees use a flexible earned wage access (FEWA) solution, yet it is thought 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 skills?
Enhancing the worker experience
Giving workers access to their money instantly will upset, perhaps even, deconstruct, the manner in which we collect payroll and observe our paycheck. Currently the potential is recognized, and, in some cases, companies are using it to differentiate their company and attract fresh talent. As an example, to stimulate interest for recruitment, Rockaway Home Care, a NY care operation, is promoting its flexible earning options on the internet.
Others currently provide on-demand pay – where employees complete a shift, they can receive their money as early as 3 a.m. the following day. Via an app, employees may transfer their salary to a bank account or debit card. Walmart is yet another case of a company that offers its employees access to their pay. Employees can access wages early, up to eight times per year, for free. The reaction from employees is incredible, and Walmart is anticipating increased adoption. Meanwhile, Lyft and Uber both offer their drivers the ability to be paid once they have earned a specific amount.
The change of payroll is not limited to the frequency of payments. Venmo, Zelle, and other app offer flexibility and transaction services that employees now expect from their payroll. They want to be able to receive their pay whenever they need to, not each 2 weeks or on a monthly cycle. Most of this expectation has come from the gig economy and Millennial generations – they expect to be able to access the money they have earned when they want it.
The growing rise of workers without bank accounts
In 2018 it was estimated that in excess of 1.7 billion adults worldwide 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 survey discovered that workers who either don’t have a bank account, or have an account, but still use financial services outside the banking system like payday loans to make ends meet. In the United Kingdom, there are over one million people without bank accounts.
There are many results of having no banking relationship. In some cases, it may result in difficulty receiving financing or buying a house; it also presents employers with specific issues. How do international payroll if there is no bank relationship to transfer the money into? As a result, employers are frequently looking for other ways to process payroll, specifically for hourly paid workers. Some are leveraging pay cards, that are loaded virtually every time a worker gets paid. These pay cards function the way a debit card does, allowing holders to remove cash or shop online.
It’s clear that instant pay is something that is going to be part of the financial health conversation for some time ahead.