Why on-demand wages could kill payday

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The weekly or bi-weekly payroll cycle can seem extremely long for about two-thirds of American workers who live on paychecks, especially if they are affected by unexpected and costly events. According to the most recent PYMNTS ™ Disbursement Satisfaction Index, this expectation is becoming unacceptable: 72.9% of consumers surveyed said that having a choice of how they received their disbursements was “very” or “extremely” important, and only 50.3% were offered a choice. at all.

The index also found that the odd-job economy is one of the first areas to disrupt the normal pay cycle. Faster payouts are starting to become a common concept for concert workers, with 53.5% of payouts made instantly. However, access to these types of payments is not limited to the odd-job economy.

Digital payroll provider Gusto, for its part, launched an instant payment solution – dubbed Flexible Pay – for small and medium-sized businesses (SMBs) last year, giving employees access to on-demand pay. . In a recent interview with PYMNTS, Mark Wes, head of risk, payments and compliance for the company’s subsidiary, Gusto Capital, spoke about flexible compensation and how on-demand wages challenge long-standing payday collections.

Help workers avoid financial pitfalls

Flexible Pay, which is currently used in small businesses in Texas, uses direct deposit to pay workers’ income in the form of consumer loans. Gusto says loans worth millions of dollars have been made to workers in the past nine months. On-demand wages allow them to be less accountable to scheduled pay periods, Wes said, adding that the service has seen increased adoption by SMEs in catering services, including bakeries, restaurants and cafes, where many workers work hourly.

“The bi-weekly payroll cycle is kind of a relic from the olden days,” he said. “[This] timing delays people from getting the money they have earned.

On-demand incomes offer workers a financial lifeline if they are blinded by unforeseen expenses. Flexible Pay quickly transfers funds to employees’ bank accounts, saving them from having to take out expensive payday loans or incur heavy credit card debt in these cases. Plus, the solution is available directly to employees, which means workers don’t have to explain to their managers or bosses why they’re looking for their pay earlier.

“The employee controls when he wants to cash out the salary he has already earned,” Wes said. “This means the employee doesn’t have to have that awkward conversation with [her] employer and request a payday advance.

Wes believes that this discretion and convenience could contribute to the overall happiness of workers.

“We think it helps create a better workplace because people can’t take this financial stress,” he said.

Align payroll with expectations

Workers’ frustrations with wages can be traced back to many of their first forays into money: compensation. Parents often leave household chores to their children, whether they mow the lawn or wash the family car. Then, when the work is done, the kids are instantly paid out of their parents’ wallet. Flexible Pay gives employees of SMEs the same quick access to the salary they enjoyed as children.

“We think this is the way payroll should work,” Wes said. “When you’ve earned those salaries, you should have access to them whenever you want, on your schedule. “

Given its speed, direct deposit has been the most efficient payment method for Gusto – it gives workers more flexibility to spend the money as needed.

“This contributes to the speed and ease of payments and [gives workers peace] spirit of being paid directly to their bank accounts, ”he noted.

Tools like Flexible Pay, with their quick and instant access to income, can help workers avoid financial traps. On-demand access to wages could make payday a more frequent occasion.

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NEW PYMNTS DATA: TODAY’S SELF-SERVICE PURCHASE JOURNEY – SEPTEMBER 2021

On: Eighty percent of consumers want to use non-traditional payment options like self-service, but only 35 percent were able to use them for their most recent purchases. Today’s Self-Service Shopping Journey, a PYMNTS and Toshiba Collaboration, analyzes more than 2,500 responses to find out how merchants can address availability and perception issues to meet demand for self-service kiosks.

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