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Is payday your most anticipated day of the month? For some, it’s a celebration on par with a wedding or birthday. Simply put, payday for many Americans is the difference between making ends meet and being out on the street.
More than 78% of workers were living paycheck-to-paycheck to survive in 2017, according to a study from that year by CareerBuilder. The payroll industry at large has subscribed to a system of weekly, semi-monthly, biweekly and monthly pay schedules, which I believe has yet to be retrofitted for our modern workforce landscape.
I’ve spent the past 11 years in payroll, payments and human resources technology. I started in 2009 selling cloud-based payroll products, and since then, I have been on just about every side of the issue — ranging from mom-and-pop payroll providers to payment startups and enterprise software companies. I’ve had a front-row view of payment trends from participating in multiple payroll associations, and now, my own company is tackling payroll for the on-demand gig economy.
On-demand payments are slowly becoming more accessible for some.
Uber, Lyft, Postmates and Airbnb are just a few of the companies at the forefront of the gig economy, a marketplace for requesting and paying for services. Workers’ services are increasingly becoming more on-demand, and I believe wages are as well. Given our technological progress, I believe workers no longer need to rely on a system of traditionally scheduled payments.
Influenced by the power of automation and technology, an on-demand economy hits workers and employers with a sense of urgency that constitutes payment immediately after completion of a job. Make no mistake about it, instant on-demand pay isn’t just about contractors and freelancers in the gig economy. Traditional W-2 employees are slowly beginning to have access to this type of pay as well. Some businesses, such as McDonald’s and Outback Steakhouse, use tools to provide daily paychecks to their workforce. Another example is Gusto, a payroll and HR provider that launched its flexible pay feature this past year.
Once you combine technology and an increasingly younger workforce, I predict we will have millions of workers who expect to be paid immediately. In turn, the future of work might mean adapting to these expectations to compete for talent.
There are a few things to keep in mind when it comes to flexible payments.
If you’re considering making a change in how you pay your workers, Martin Armstrong, vice president of payroll shared services at Charter Communications, recently explained what companies should consider before doing so. A few of these tips include changing your internal policies to allow an advanced payroll cycle, as well as providing employee incentives to remain as an employer of choice within your industry.
From my perspective, there are a few other important considerations to keep in mind if you’re contemplating offering on-demand payments and a flexible payroll:
• Talk to your workforce prior to implementing new payment strategies. Each organization is unique. Seek worker feedback so you have data to drive your decisions.
• Don’t just listen to what your workers say — understand what they do. Behavior is the best indicator for meeting your workforce’s needs. For example, I’ve seen lots of workers who say they want on-demand pay, but when presented with the option, they still opt for weekly checks. In these cases, many of them actually want access to funds in case of an emergency or unexpected cost. That’s a different need than paying on-demand regularly, so it’s important to understand your team members’ actual needs.
• Prioritize what’s best for your employees. Based on my observations of companies that charge a fee for providing on-demand payments to workers, I’ve found that many employees are willing to pay to get their money faster. If you do decide to go this route, be sure you implement solutions that are still healthy financial options for your workers. Solutions that charge exorbitant amounts can take advantage of workers, are bad for retention and can hinder you in recruiting new talent.
Michael Baer, managing editor of Bloomberg Tax, pointed out that there are also some concerns about on-demand pay, especially for traditional W-2 employees. He said, “There is a concern that on-demand transaction models pushed to market have not been fully vetted for whether they meet legal and regulatory requirements for federal and state wage-payment purposes.”
I’ve also learned throughout my experience helping companies and platforms pay freelance workers that policy is always a legitimate concern with new macro shifts, especially when technology is the core driver. It can be difficult at times for policymakers to keep up with the speed of technology innovators.
Financial stress plays a big role in most workers’ lives. For some, alleviating financial stress could mean providing flexible payment options. Technology is enabling some workers to choose the payment schedule that’s right for them. If this becomes ubiquitous and widespread, I predict no one will ever really go back, especially considering that 84% of contractors said they would do more gig work if they were paid faster, according to the PYMNTS Gig Economy Index.
I believe attracting new workers in the future of work could mean leveraging innovative payment methods. To do this, look at what the market is standardizing to meet the demand of the new workforce. It was reported in 2017 by Intuit that the gig economy is expected to be 43% of the U.S. workforce by the year 2020. There are potential challenges to providing flexible payment options today, but I believe the rate at which the gig economy is growing shows on-demand payments shouldn’t be ignored. From my perspective, the future of payments could be unfolding right before our eyes.
July 5, 2019 at 08:07AM
Forbes – Entrepreneurs