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September 23, 2021
Average Read Time: 4 minutes
Having trouble making ends meet between paychecks isn’t a new problem. But technology now offers a new solution to it: real-time access to wages.
With on-demand payment of earned wages, an employer can give employees instant access to their wages as often as they like, even at the end of every shift. Since they smooth out income peaks and valleys, instant payouts can help workers stay on top of bills and avoid debt. And employers benefit, too, from improved hiring, employee retention and productivity.With those advantages, it’s no wonder that the market for real-time payment technology is expected to reach $34.3 billion by 2023, more than quadruple 2018 levels. Read on to discover 8 reasons why real-time paychecks is growing in popularity among both employees and businesses of all sizes
1) Eliminate pay spikes and smooth out cash flow
According to a recent Salary Finance report, “Inside the Wallets of Working Americans,” almost one-third of workers run out of money before their next paycheck. A significant contributor to the problem lies in the typical pay cycle, whether it’s one week, two weeks, or twice monthly. Every payday becomes an income spike, and many people aren’t skilled at managing them.
In The Timing of Pay, academics Christopher Parsons and Edward Van Wesep explored the optimal timing of pay to smooth out consumption (paying bills, buying food, and so on). Their research found that workers who make less, and therefore have less of a savings buffer to help between paychecks, should be paid more frequently. Money coming in to match money going out removes the hard-to-manage income spike.
2) Help workers get over the COVID hump
In another recent survey by information technology company Highland Solutions of roughly 2,000 U.S. adults, nearly two-thirds of respondents have been living paycheck to paycheck since the pandemic began, up from 44% the previous year. As the country continues to battle its way out of the pandemic, many people are working to regain their economic footing. More frequent payment of wages can help them manage their finances more effectively.
3) Avoid adding personal debt
Smoothing out cash flow with real-time pay also can help workers avoid increasing debt. High-cost options such as payday and auto title loans, which many use to meet financial needs between paychecks, may provide momentary relief, but they can be difficult to satisfy. And the fees alone for bank overdrafts, late payments, and payday loans top $170 billion each year, according to the Financial Health Network – a heavy tax on those least able to afford it.
4) Improve hiring and retention
A recent ADP survey reported that recruiting qualified employees is one of the top two challenges for small business owners today, with one in 3 businesses reporting that they’re having trouble finding workers. In fact, that difficulty may lead to the second challenge business owners named: reduced sales. Fewer workers often mean fewer operating hours and sales. Many restaurants have been closing their doors an extra day or two each week because they lack employees, for example.
On the retention side, more than half of employees surveyed in North America plan to look for a new job in 2021, while separate research shows that a quarter of workers plan to quit their jobs outright once the pandemic subsides, the Society for Human Resource Management (SHRM) reports.
One way or another, it’s clear that a significant number of businesses are facing stiff competition for workers. Offering more frequent pay is one way to stay in front of that competition. It creates value for employees and helps your company seem more attractive even if another is paying the same or even higher wages.
5) Attract gig workers
Some 57 million Americans rely on freelance and contract work for at least part of their pay, and by 2027, that number could increase to 86.5 million. All told, about one-third of U.S. workers participate in the gig economy. Companies that employ gig workers will need the means to attract them – and fast access to pay would help. In fact, 85 percent of gig economy workers said they would work more often if they could get paid faster, a 2019 PYMNTS.com report says.
6) Relieve financial anxiety among employe
Nearly 69 percent of people in America would experience financial difficulty if their paychecks were delayed for a week, according to results from the 2020 “Getting Paid in America” survey conducted by the American Payroll Association (APA). Gig workers are even a bit more concerned about their finances: 45% of full-time gig workers report high economic anxiety, according to one study
Unsurprisingly, that kind of financial pressure causes a great deal of stress – more than relationships, careers, and health – 42% of respondents to the Salary Finance survey said. They were 11 times more likely to experience sleepless nights and 10 times more likely to have trouble completing daily tasks than those who didn’t report financial issues. Fast access to wages and a smoother cash flow can help them handle those worries.
7) Increase productivity
Financial struggles that take a toll on employees affect a business, too. According to a study by the Society for Human Resource Management (SHRM), 83 percent of HR professionals reported that personal financial challenges impact employee performance – in some cases, to a significant extent, as the Salary Finance survey found. Greater financial wellness among employees can mean a healthier business, too.
8) Streamline implementation and administration
Paying workers more frequently – even daily – may sound difficult, costly and time-consuming. When massive companies implement such an option, they may invest millions of dollars and thousands of hours to develop a custom system. But now, the recruiting and retention advantages of on-demand pay aren’t limited to the big guys with deep pockets and engineering resources. On-demand pay is now available to smaller and mid-size businesses that compete for the same workers because it is enabled by technology designed for that purpose.
First, the right tool makes implementation quick and easy with no development effort to get started. Second, real-time pay is simple for the worker. It takes advantage of push to card technology, which moves funds into a worker’s bank account via debit card, so no new or separate account, card, or app is required.
Third, businesses can continue to use their existing payroll providers for calculating pay, minimizing disruption to current processes. And finally, switching to electronic payments reduces cost and labor associated with printing and mailing checks and increases employee convenience by eliminating the need to cash or deposit checks.
Real-time access to wages won’t end all personal financial problems or solve all business woes. But it can improve several issues that are a significant drag on both employee and company well-being and performance. Add ease of implementation and use and the upside is clear. So what are you waiting for? Offer your employees on-demand pay today – and see the benefits just about as quickly.
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