Is As Demanded Paychecks a System in the Future?

On a previous job, many years ago, when this amazing time arrived, the secretary in a loud voice announced that the “eagle had landed.” rewards of our previous month’s employment. If you get compensated once every month, it is a long time between payment, so these first few days after a week or so of being without money were awesome. I can even recall when I waitressed and received my small brown packet of cash which was waiting at the end of each week!

Today many of us get paid electronically, but little else has changed.

Many people battle to save their pay from paycheck to paycheck – a recent poll discovered that over half of employees have trouble paying their bills between pay periods, and almost one third claimed an unexpected expense of less than $500 could make them unable to meet other financial obligations. Yet another study discovered that nearly one in three employees run out of cash, even those making in excess of $100,000.  12 million Americans have to use payday loans each year, and annually $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 by the 90M workers struggling paycheck to paycheck, that is the majority of the US population.  Instant payroll can each year put over $25B into workers accounts, merely from reduction of abusively high APR costs.

When desire pushes innovation

We are on the verge of a new way of life that has little to do with pandemics or shifting workplaces, and lots to do with why people want to receive their payroll. Employees, not able to last between paychecks and frustrated from turning to high-interest loans to bridge the gap, want to receive their earned money as and when wanted.  More than 60% of U.S. employees who have struggled monetarily between payment periods over the past six months firmly believe their financial circumstances would be enhanced if their employers allowed them immediate access to their earned pay, free of charge.

Perhaps various people could consider this a political issue, the fact is it is about financial wellness.  According to SHRM, 4 out of 10  employees are not able to pay an unexpected cost of $400.  Their report also refers to Gartner information that found that less than 5% of big US companies with a majority of hourly-paid workers use a flexible earned wage access (FEWA) solution, but it’s thought that this will grow to 20% by 2023.

Why should a worker have to wait for days or weeks to receive pay for their time and skills?

Improving the employee environment
Providing employees access to their pay on demand might disrupt, maybe even, deconstruct, the way we collect pay and view our paycheck. Currently  payroll compliance  is noticed, and, in some cases, companies are using it to differentiate their brand and attract new talent. As an example, to stimulate interest for personnel,  Rockaway Home Care, a NY care facility, is promoting its flexible payment options on the internet.

Others are providing on-demand payment – when employees finish a shift, they can receive their money as early as 3 a.m. the next day. Using an app, employees can move their salary to a bank account or debit card. Walmart is yet another case of a company that offers its workers access to their paychecks.  Employees can access pay early, up to eight times per year, without cost. The reaction from employees has been amazing, and Walmart is anticipating increased adoption.  Meanwhile, Lyft and Uber both offer their workers the ability to be paid after they have earned a certain amount.

The change of payroll isn’t confined to the amount of payments.  https://www.immedis.com , Zelle, and other app provide flexibility and transaction services that employees now expect from their paycheck.  They want to be able to receive their earnings whenever they want to, not every 2 weeks or a monthly period. Much of this demand has come from the gig economy and Millennial generations – who expect to be able to receive the money they have earned when they want it.

The increasing rise of workers without bank accounts
In 2018 it was calculated that in excess of 1.7 billion adults globally do not have access to a bank account. In America, a 2017 review estimated that 25% of households 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 in excess of one million people without bank accounts.

There are many results of having no banking relationship. In a few cases, it can result in difficulty getting financing or acquiring a home; it also presents employers with specific issues. How do you process pay if there is no bank relationship to move the money into? As a result, employers are increasingly looking for alternative ways to process payroll, specifically for hourly paid employees.  Some are leveraging pay cards, that are loaded virtually each time a worker receives payment. These pay cards function the way a debit card does, letting holders to remove cash or shop online.

It’s obvious that on-demand pay is something that is going to be a part of the financial wellness discussion for a while ahead.