Financial insecurity affects millions of workers: 52% of adults in the United States say they typically live paycheck to paycheck. This instability can mean that unforeseen expenses have massive ramifications, forcing some people to take out high-interest payday loans to help cover those costs, driving themselves further into debt.
Digital payments can help address these potential financial hardships, allowing workers to access their pay as soon as it is 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 were enough for them to choose to work for a company over a other.
This month, PYMNTS explores the financial pitfalls many workers face due to the challenges posed by legacy payroll solutions and explains why switching to instant digital solutions can help support individual workers and help employers suffering from payroll. rolling problems.
Issues with existing payroll solutions
Payroll may seem like a simple operation, but a myriad of obstacles can prevent employers from paying their staff accurately and on time. The main culprit is the reliance on outdated manual payroll processes, as 65% of companies run at least some of these processes with only human staff. This reliance on manual labor can have greater effects than employee dissatisfaction.
The Internal Revenue Service calculates that 33% of employers have made payroll errors that can cost them employee loyalty and lead to stiff penalties from government regulators due to late payroll taxes. The American Payroll Association has also found that businesses using traditional timecards experience error rates between 1% and 8%.
These errors and delays are particularly detrimental to freelancers and contractors, who do not enjoy full-time staff benefits and are entirely dependent on timely payments for their livelihood. A recent study showed that 29% of freelancers’ invoices were paid late, with 90% of those late invoices taking up to a month to resolve. Invoices over $20,000 were much more likely to be delayed longer.
Women were disproportionately paid late, facing late payments 31% of the time, while men faced late payments 24% of the time. Nearly a third of freelancers said they had not been paid at all for work done at some point in their career, with 40% of these stiff workers saying their employers had provided no explanation for their missing payments.
Improving the working environment for employees and companies
Instant digital payroll is closer to reality than many might imagine, as 88% of Americans already have instant access to pay and benefits information, if not the payment itself, a 4% improvement from 2020 to 2021. Demand for digital payroll is growing rapidly, with four out of five workers in the United States believing they should have access to their pay at the end of each day rather than having to wait for the traditional pay period two weeks.
Additionally, 78% of these workers said on-demand pay would increase their loyalty to an employer, a finding supported by another survey which found that 42% of unemployed workers would find instant pay attractive when looking for a job after the pandemic.
Employers also benefit from Instant Pay. One study found that employee turnover could be reduced by up to 27% by providing same-day pay access. However, the question of how best to implement it remains. Setting up instant pay 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, withdraw them through an ATM, or spend them using the card like any other debit card at retailers and merchants. This option also allows businesses to set up loyalty rewards for using said payment card, discouraging employee turnover and saving money in the long run on reduced onboarding costs.
Other companies leverage The Clearing House’s RTP network, depositing funds into employee bank accounts immediately after each shift or gig rather than at the end of a pay period.
Whichever option employers choose, Instant Pay is a slam dunk from both an employer and employee perspective. Satisfied workers are more productive, while companies suddenly create a healthier and less stressful work environment.