Are On Demand Paychecks the Way in the Future?
In a previous job, many years back, when this glorious day appeared, the secretary in a booming voice announced that the “eagle had landed.” Then as soon as possible, we each worked our way to her location to get the Payment for our previous month’s labor. If you get paid once a month, it’s a long period between paychecks, so these initial few days after a week or so of being without money were great. I can even recall when I waited tables and received my own brown packet of cash which was waiting at the end of each week!
These days most of us are paid electronically, but little else has changed.
A lot of employees struggle to stretch their pay from paycheck to paycheck – a recent poll discovered that over 50% of employees live with issues paying their expenses between pay periods, and almost one third stated a surprise expense of less than $500 may make them unable to pay other financial obligations. Yet another study found that almost one in three workers runs out of cash, even those earning 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 a payday loans is 396%.
According to PayActiv, in excess of $89B are paid in fees from the 90M workers struggling paycheck to paycheck, which is the majority of the US population. Real-time payroll can annually place over $25B into employees wallets, merely through reduction of insanely high APR costs.
When need drives innovation
We are on the cusp of a new paradigm that has relationship with pandemics or changing workplaces, and a lot to do with how people want to receive their remuneration. Employees, unable to last between paychecks and tired of turning to high-interest loans to fill the gap, desire to access their hard-earned pay as and when needed. More than 60% of U.S. employees who have struggled financially between pay periods in the last six months firmly believe their financial situation would improve if their employers permitted them immediate availability to their earned wages, without of charge.
Of course various people might consider this a political issue, the fact is it is about financial health. Based on SHRM, 4 out of 10 workers are not able to cover an unforeseen expense of $400. The report additionally references Gartner information that discovered that less than 5% of large US companies with a majority of hourly-paid workers use a flexible earned wage access (FEWA) solution, yet it’s thought that this will increase to 20% by 2023.
Why should a worker need to wait for days or weeks to get paid for their time and ability?
Enhancing payrll service
Giving employees access to their pay on demand might disrupt, perhaps even, change, the way we receive pay and observe our paycheck. Currently the potential is noticed, and, in some instances, companies are using it to differentiate their company and attract new talent. For example, to encourage applications for recruitment, Rockaway Home Care, a NY care operation, is promoting its flexible payment options on social media.
Others currently provide on-demand payroll – when workers finish a shift, they can receive their money as early as 3 a.m. the next day. Via an app, workers may transfer their salary to a bank account or debit card. Walmart is another case of a business that offers its workers access to their paychecks. Employees can access wages early, up to eight times per year, without cost. The reaction from employees is amazing, and Walmart is expecting more and more usage. Meanwhile, Lyft and Uber both offer their workers the ability to be paid once they have earned a specific amount.
The change of payroll is not confined to the amount of payments. PayPal, 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 every 2 weeks or a monthly cycle. Much of this demand has come from the emerging economy and Gen Z generations – who expect to be able to receive the money they have earned when they want it.
The increasing rise of workers without bank relationships
In 2018 it was calculated that in excess of 1.7 billion adults globally do not have access to a bank account. In global payroll , a 2017 review estimated that 25% of households are either unbanked or underbanked – 7% unbanked and 17% underbanked. The report found that workers who either do not 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 relationships.
There are numerous results of having no banking relationship. In some cases, it may result in difficulty getting financing or buying a house; 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 quickly searching for alternative ways to process payroll, especially for hourly paid employees. Some are utilizing pay cards, which are loaded electronically every time an employee gets paid. These pay cards function the way a debit card does, allowing holders to withdraw cash or shop online.
It’s obvious that on-demand pay is something that is going to be part of the payroll wellness conversation for some time ahead.