How Digital Payments Benefit Workers, Employers

Onbe - Expanding Payment Choice Playbook - May 2022 - Learn how instant digital payroll solutions can help support workers and fight financial insecurity

Financial insecurity affects millions of workers: 52% of adults in the United States say they typically live paycheck to paycheck. This instability can mean unexpected expenses have massive ramifications, forcing some individuals to take out high-interest payday loans to help cover these costs, driving themselves further into debt.

Digital payments can help address these potential financial hardships, granting workers access to their wages the moment they are earned rather than forcing them to wait weeks for their pay to arrive. It could also significantly influence employment decisions and retention: 40% of gig workers said that faster pay or better working conditions are enough for them to choose to work for one company over another.

This month, PYMNTS explores the financial pitfalls many workers face due to challenges brought on by legacy payroll solutions and explains why switching to instant digital solutions can help support individual workers and aid employers suffering from turnover issues.

Problems With Existing Payroll Solutions

Payroll may seem like a simple operation, but myriad obstacles can prevent employers from paying their staff accurately and on time. The single biggest culprit is a reliance on outdated manual payroll processes, since 65% of companies complete at least some of these processes solely with human staff. This reliance on manual labor can have more far-reaching effects than employee dissatisfaction.

The Internal Revenue Service calculates that 33% of employers have made payroll errors that can cost them employee loyalty and invite stiff penalties from government regulators due to delayed payroll taxes. The American Payroll Association also found that companies using traditional timecards experience error rates between 1% and 8%.

These errors and delays are particularly damaging for freelancers and contractors, who lack benefits afforded to full-time staff and rely entirely on timely payments for their livelihood. A recent study showed that 29% of freelance invoices were paid late, with 90% of these late invoices taking up to a month to resolve. Invoices of more than $ 20,000 were much more likely to be delayed for longer.

Women were disproportionately paid late, facing payment delays 31% of the time, while men faced delays 24% of the time. Nearly one-third of freelancers said they had not been paid at all for completed work at some point in their career, with 40% of these stiffed workers reporting that their employers offered no explanations for their missing payments.

Improving the Work Environment for Both Employees and Corporations

Instant digital payroll is closer to reality than many might imagine, as 88% of Americans already have instant access to pay and benefit information, if not the payment itself, an improvement of 4% from 2020 to 2021. The demand for digital payroll is quickly growing, with four out of five workers in the US believing they should have access to their wages at the end of each day rather than having to wait out the traditional two-week pay period.

In addition, 78% of these workers said that on-demand payroll would increase their loyalty to an employer, a finding backed by another survey that found 42% of unemployed individuals would find instant payroll appealing when looking for a post-pandemic job.

Employers also benefit from instant payroll. One study found that employee turnover could be reduced by as much as 27% by offering access to same-day wages. However, the question of how to best implement it remains. Implementing instant payroll is hardly automatic, but various solutions are available to make it a reality.

One option is a physical or online debit card. Workers can transfer their earnings to their bank accounts, cash them out via an ATM or spend them using the card like any other debit card at retailers and merchants. This option also allows companies to implement loyalty rewards for using said payment card, discouraging employee turnover and saving money long-term on reduced onboarding costs.

Other companies leverage The Clearing House’s RTP network, depositing funds into employees’ bank accounts immediately after each shift or gig rather than at the end of a pay period.

Whichever option employers choose, instant payroll is a slam dunk from both an employer and employee perspective. Satisfied workers are more productive, while businesses create a healthier, less stressful work environment in one fell swoop.

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