Expect Employers to Accelerate New Pay Practices as the Economy Recovers

Since the COVID-19 health crisis began, employers have needed to speed up use of contactless on-demand pay programs (sometimes called earned wage access), according to employee payment leaders speaking during a recent podcast of The Source, by DailyPay.

The pandemic and the resulting economic shutdown is “one of those events where those in HR, Payroll and Finance have had to think through sets of challenges that they never thought through before in their professional careers,” said DailyPay CEO, Jason Lee. Employers can no longer be “looking for a five-year plan for transformation, we are looking at now,” he said.

This has meant the adoption of new pay practices at an accelerated rate.

Even before the coronavirus struck, companies already had started to address the changing pay needs of a tech-savvy generation of younger workers that “actually values pay choice and pay flexibility sometimes more than salary,” said ADP, LLC, Vice President, Future of Pay Jeff Gies. 

“This has driven the need for providing pay choices to workers,” Gies said.

The challenge for employers is closing the gap between the technological tools available on a personal level to deliver experiences instantly, such as ordering dog-walking services via a mobile phone application, and the applications used to pay workers, which have lagged behind, Lee said.

While these other applications are useful and significant, one would argue that “the experience one has with pay is much more important,” Lee said.

Gies echoed the disconnect by noting that one retail chain recently reacted to the customer desire during this health crisis for a contactless pay option, which was implemented, while their workers were still getting paper pay statements, which could potentially carry virus and disease.

Additionally, employers need to recognize there remains a large segment of workers that, prior to the pandemic, had not adopted digital payment methods. These workers are having to, overnight, modify their behavior, and this is uncomfortable for them. Gies asked: “How can employers help people make that transition?”

Both DailyPay and ADP have safe, secure programs that “empower, enable and put the employee at the center,” Lee said. As employers make the transition to digital and on-demand pay quickly, they can be assured that both providers are compliant and are the “gold standard for how we protect that data and keep it secure, and we have redundant systems,” Gies said.

DailyPay, through its pay experience platform, PayEx™ seeks to “leverage technology to be sure that folks are compliant,” while staying behind the scenes, Lee said.

A key issue frequently overlooked before the pandemic struck, but now is a need-to-have for employers, is providing a “core foundation of financial wellness,” Gies said.

As employers scramble to rehire workers and those workers look to climb out of a period of financial hardship, it’s important for employers to provide “simple, real-life, easy ways to put more money back in the pocket” of workers that are living paycheck-to-paycheck, Lee said and “ADP has developed the right kind of programs to fill this need for their clients.”

DailyPay users have access to savings tools in the app, so when they look to access pay, workers can think “I’m getting my pay, and as I’m getting my pay, I’m thinking about my savings,” Lee said. “It has to be easy and native  . . . and in a way it has to be connected to your pay.”

Go to thesource-dailypay.com to hear or watch the entire podcast, and to access previous podcasts that discuss on-demand pay, also known in the industry as early wage access. 

For additional resources on this topic, see:

Payroll’s Third Wave

Back in 1980, author Alvin Toffler in his book, The Third Wave, divided civilization’s progress into three waves. The agricultural age was the first wave, followed by the industrial age, and the third is the information age, which is what we are moving into now as vestiges of the industrial age are gradually being replaced.

In payroll, I’ve similarly observed waves of change and transformation, and the third wave of change is happening now. Like the information age on overall society, this third wave will impact payroll much more than the other two. We need to be ready for that third wave.

Payroll’s First Wave: Automated Timekeeping

It seems like ancient history, but working as a payroll clerk in the early 1980s, while in college, I witnessed the first wave of payroll transformation: the use of electronic time clocks to record time.

The old process involved department managers, on the last day of each weekly pay cycle, adding up  employee hours from time card punch-ins/punch-outs, writing each day’s total time worked and paid time off on large timesheets (that looked a lot like Excel spreadsheets, except they were paper), and totaling the amount at the end of each row. 

Managers would then wrap all the time cards for their teams in their timesheet, put a rubber band around it, and drop it off at the payroll clerk’s space (I didn’t have an office, and hardly a desk). 

I then had to double-check the accuracy of the time recorded on the sheet against each time card. Often there were addition and rounding issues that I had to resolve, and only then could we submit the time to a central facility that processed the payroll.

This process completely changed when the company became one of the first major clients of a new startup company that had developed automated time collection. Managers no longer calculated hours worked. The time clocks automatically calculated punches and hours worked, and stored that data as well.  

There were a lot of issues with these early systems that had to be addressed — there was no employee self-service, for example — but in the end, these programs produced more accurate time submissions and produced great data for human capital management. 

Fast forward to today, and according to a recent survey of payroll professionals by Bloomberg Tax & Accounting, more than 60% of respondents said they received all time submissions electronically, and more than 27% had a great majority of their time submissions received electronically.

That timekeeping company has now transformed itself into a big player in the HCM space.

Payroll’s Second Wave: Direct Deposit

The history of post-1900 wage payments starts with cash. Employers used to have payday wagons and armored cars, some with clerks bearing firearms, to distribute each employee’s wages in cash as they lined up on payday. Then, as the paper check became more accepted, employers moved away from cash envelopes to adopt this cleaner, less risky way of paying employees. 

But printing all those checks on special stock was expensive, and paper checks could be faked, lost, stolen, and could otherwise burden employers in clearing accounts. As the banking system started automating payment transactions, payroll began adopting new applications to pay workers electronically directly into their bank accounts. 

By the late 1980s, the process called direct deposit was proven to be faster, much cheaper, and less likely to be tampered with than any cash or paper check method of payment. Employers scrambled to adopt direct deposit and encourage all workers to use it, beginning the movement to an all-electronic payroll.

The advantages to employees were simple: no more paper check to run to the bank and deposit, and earned pay was guaranteed to be in the account on payday. 

More than 99% of respondents to that recent survey of payroll professionals conducted by Bloomberg Tax & Accounting said they now offer direct deposit to their employees.

Payroll’s Third Wave: Daily Pay

If the first wave dramatically transformed time collection, and the second wave almost completely changed how people got paid, the third wave is revolutionizing when people get paid. 

According to the recent survey, nearly two-thirds of respondents said they paid some workers biweekly, and more than 16% said they paid monthly. Recognizing that employers may have different pay cycles for different sets of workers, the survey data showed more than 24% have weekly pay cycles and/or semimonthly pay cycles. 

Employees wait an average of four days after the pay cycle ends to be paid. That means someone paid biweekly does not have access to wages they earned for services performed at the start of the pay cycle for 17 or 18 days.

Contrast that with workers in the so-called gig industry, such as those in the ride-sharing business. These workers can get paid almost immediately after they provide their services. 

While there is a debate about classification for gig workers, it is clear that those on an employer’s payroll, classified as employees, must wait until payday to cash in on their earned pay. More people are saying this is unfair, especially when solutions exist to give employees their wages on demand.

This discrepancy is being addressed, and the remedy is turning what we know as payday upside down. This is payroll’s third wave.

Employees can now get access to wages earned during the pay cycle, through a simple system when they want, and not as a loan through some web-based payday lender. Employees can benefit because they can leverage their earned income instead of putting more dollars on an interest-bearing credit card.

Earned pay access, done right, is helping employers retain workers in an economy of nearly full employment. Employers offering this benefit stand out to prospective employees as employers of choice.

But beware. Some providers claim to have a solution, but they are merely neo-payday lenders. Here are the characteristics of a legitimate daily pay benefit provider:

  • Any fees associated with accessing funds are fully transparent and established, like ATM fees. Some employers cover these ATM-like charges, which stay the same for each transaction regardless of the amount accessed. 
  • There is no interest or debiting of end-user bank accounts.
  • Access to wages is not subject to a set, specific calendar day, but can be available as long as wages have been earned.  
  • Employees can use this benefit to check their available balance, without making a transfer and without paying any fee. 
  • No changes to payroll processes are needed, including the timing of funds and withholding of taxes.

Access to earned wages, on-demand, is here, and the benefits are clear. Payroll’s third wave has arrived.

You Shouldn’t Have to Run Payroll Daily

I am protesting daily payroll.

In a world where technology has enabled all services to be delivered with a tap of a button — and to be delivered instantly — the thought of “daily payroll” is horrifying.

 

How does this work if my employees have garnishments, such as child support? What about those employees with benefits deductions in arrears? And how will I ever convince my CEO or CFO that I now need payroll dollars to fund payroll every day, rather than just on the scheduled payday? Continue reading “You Shouldn’t Have to Run Payroll Daily”

5 Takeaways from National Payroll Week 2018: Daily Payroll, Direct Deposit, Appreciating Payroll Managers

As we enter the fourth quarter of our fiscal business year, patterns for 2019 are starting to develop. How can we make next year more productive than this one?

 

Several trends for payroll process improvements and predictions were highlighted during National Payroll Week 2018.

 

Here is our recap of some of the most notable trends.

Continue reading “5 Takeaways from National Payroll Week 2018: Daily Payroll, Direct Deposit, Appreciating Payroll Managers”

Market forces driving payroll trends in 2018

Parallels Between the Movie Industry and the Payroll Industry

 

An image of an old Blockbuster card. In 2010, Blockbuster failed to respond to market trends being driven by Netflix.In the early 2000s, Blockbuster had several opportunities to acquire a small upstart called Netflix.

 

Secure in its belief that the home movie business would never change, Blockbuster declined every time. In 2011, Blockbuster went bankrupt, and today we can now watch a movie on our phone while waiting in line, thanks to Netflix.

Continue reading “Market forces driving payroll trends in 2018”

Comparing Weekly and Bi-Weekly Pay for Employees and Employers

Payroll schedules need to toe the line between appeasing employees and doing what’s right for your company’s bottom line.

The more frequently you run payroll at your organization, the more strain you place on your operations team. Higher frequency payroll is also more expensive to maintain. Reduced payroll frequency, however, interferes with employee happiness, which can cost a significant amount in lost productivity and engagement over the long run.

So, what’s the right balance? How do weekly and biweekly pay schedules compare from an employer and employee perspective? 

Or … is an on-demand pay benefit really the best of both worlds for employers and employees because employees can be paid daily while the employer runs payroll biweekly or even less frequently

READ MORE

The pros and cons of a weekly pay schedule

Pros 

Builds trust with employees and improves morale: Are you looking for a way to improve employee morale? Paying them more often might be an incentive to improve attendance rates and increase productivity.

Flows better with hourly pay structure: Hourly employees may have inconsistent weekly work schedules that can include overtime. Weekly pay matches this inconsistent flow of work. If an employee works overtime one week and less than full time the next, then weekly payroll ensures that the company pays the employee’s overtime faster.

It’s easy to get into a payroll flow: With weekly payroll, you can be more organized. There is no confusion about when time cards need to be in or when payroll needs to be completed. You simply choose a particular day of the week and stick to it week in and week out. This goes a long way to ensure that the task is completed, without deviation.

Cons

Expensive for businesses: Weekly checks are not financially smart for small businesses. According to NFIB, individual deposit fees range from about $1.50 to $1.90 per deposit, on average. If you are a mid- to large-sized business, these fees add up quickly. 

Time-consuming for businesses: Payroll administration needs to account for more than just the weekly payments provided to employees. It also includes the following:

  • Wage garnishments
  • Pay raises and pay cuts
  • Sick pay
  • Paid time off
  • Taxes
  • Other compensation-related issues

It’s time-consuming to track all of these items down. The more often you pay your employees, the less time you have for necessary administrative duties. 

The pros and cons of a biweekly pay schedule

Pros

Saves time: Paying employees biweekly instead of weekly requires an employer to process payroll only once every two weeks which reduces time spent on payroll processing and the likelihood of payroll errors, which can be equally time-consuming. 

Simplifies Reconciliation: A weekly payroll means employees might not get around to cashing paper checks in a timely manner and tracking live outstanding checks can be a burden for payroll. A more frequent payroll can also make it more difficult to account for taxes so distributing taxes over a longer period lowers the possibility of paying the IRS for mistakes.

Saves money: If you use a payroll vendor, it’s likely they charge for each payroll run. If you have dozens of employees on weekly schedules, these fees can add up. Depending on the number of employees that still receive paper checks, payroll costs could also be significantly lower with biweekly pay.

Con

Your employees are paid less frequently: Payroll is closely associated with the morale of the workplace. The more often employees see the fruits of their labor, the higher morale may be. Paying employees more often may also help alleviate financial burdens for employees. 

So, what is the happy medium?

As you can see, there is a great divide. Biweekly is more convenient for employers because of the costs and time associated with running payroll. And, weekly pay tends to be more beneficial for employees who want their money as soon as they earn it.

But what if a company could offer biweekly pay, and still allow their employees to be paid as often as they’d like?Consider offering an on-demand pay option, such as the one DailyPay offers, that allows your employees to be paid whenever they want, without having to change your payroll processes and without adding additional administrative burden to your payroll team!

Five Tips for Saving Money on Payroll

Payroll is a big deal. It’s a lifeline for employees, and it’s the largest expense for a company. The expenses directly tied to employee compensation are vast:

  • Regular and overtime wages
  • Bonuses
  • Commissions
  • Benefit days such as vacation and sick time
  • Severance pay
  • Fringe benefits
  • Health benefits

These don’t include mandatory liabilities like Social Security and Medicare taxes, federal and state unemployment insurance or additional taxes state and local governments may require.

When all is said and done, wages can account for 60 percent to 80 percent of many small businesses revenue. If you’re not careful, payroll mistakes can cut into small business’s revenue even more. Here are five tips for saving money on payroll.

1. If you handle payroll internally, consider outsourcing 

Are you spending too much time and internal resources on payroll? Payroll can be time-consuming and expensive. If you have a small or medium-sized business, you might not have the ability to dedicate the appropriate resources to the intricacies of payroll, either. It’s easy to miss deadlines, forget about new regulations, or make errors when calculating more technical aspects of payroll like items exemptions from payroll taxes.

By outsourcing, you can help

  • Mitigate the risk of payroll
  • Eliminate penalties
  • Complete payroll more cost-effectively

2. Switch frequency of payroll

Stellar Living, a company that uses DailyPay, recently learned how changes in payroll schedule can mean the difference of thousands of dollars.

Stellar Living knew their current payroll schedule was a major pain point for their employees. They are on a semi-monthly schedule, so employees are paid on the 10th and 25th of each month. This process poorly aligns with bills due on the 1st or 15th of the month.

Stellar Living inquired about the cost to switch from a semi-weekly pay schedule to a weekly pay schedule. Running 52 payroll activities a year, rather than 24, would more than double the price of their current payroll service. Stellar Living saved thousands of dollars by adding daily payment technology from DailyPay where employees can tap into their earned income whenever they’d like. DailyPay finances the daily payment advances and is reimbursed by the company on payday, which means that you don’t have to disrupt your payroll cycle.

In most cases, processing payroll bi-weekly is the cheapest and most simple way to process, regardless of whether you are running your payroll in-house or using an outsourced payroll vendor.

3. Improve direct deposit enrollment

Do you know the true cost of a paper check? It costs a business up to $2 to cut and process a hard-copy check versus 35 cents or less for direct deposits. If you can eliminate checks from payroll, you could save thousands of dollars.

Companies who offer perks like DailyPay see an increased amount of direct deposit enrollment because the software requires it.  Nicole Lehman from The Maids franchise noted that when her company signed on to DailyPay, “I had  three people  that  were  not  on  direct  deposit get  set  up  with  banking  information  just  so they could  use  the  DailyPay  service.”

If you have “unbankable” employees, or employees who are unable to get a bank account for whatever reason, try providing resources like pre-paid debit card companies as an alternative to paper checks.

4. Use a timekeeping system

Companies who use paper timesheets or employee generated electronic spreadsheets to calculate an employee’s time might be surprised at the amount of money they would save by investing in a timekeeping system. It is much easier to add a few minutes here or there to a paper timesheet or electronic spreadsheet than an actual time clock.

These systems often integrate easily into your current payroll system, resulting in fewer errors in payroll processing as well.

5. Improve employee retention

In industries that primarily pay minimum wages, the percentage of wage in relation to a company’s overall revenue may seem low, but with high rates of employee turnover, this isn’t actually the case.

Low wages may be great for business owners, but could cultivate higher amounts of turnover. Each time an employee quits, you lose time and money. This money gets added to the total cost of payroll, which includes time spent onboarding and offboarding employees, setting up banking or checking account information, and allotting accurate tax deductions for each employee. By improving employee retention, you can save money on payroll.

Find how DailyPay can improve your payroll process, and save money for your bottom-line.

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