Real-Time Payroll: Not Just For Gig Workers

Employees making $10 an hour or working gigs with companies like Uber and Lyft aren’t the only ones who struggle to make ends meet. Retail workers and even high-paid freelancers face many of the same challenges as gig workers, from finding health insurance to budgeting for expenses, both planned and unplanned. Now, traditional employers are beginning to look to some of the same solutions.

In retail, employees are essentially salaried, even though they get paid by the hour. Paychecks come once every two weeks. That’s been the case for 50 to 100 years, and it’s been a problem for at least the past several decades, as workers turn to payday loans to meet unexpected costs as they arise.

Meanwhile, in the gig economy, technology enables platforms to pay workers in real time, on demand, for the hours they’ve worked; that’s part of how gig-based companies make themselves sticky.

Tomas Likar, VP of strategy for Hyperwallet, says engagement is key in this space because workers have so many options. If they don’t like Uber, they can drive for Lyft. They have the choice to list their home on Airbnb or HomeAway. One critical way to create that engagement is by paying people when they’ve earned it … and, more importantly, when they need it.

The exact same scenario is now emerging in retail, Likar said. Employees have options. They may even be taking on gig work on the side. To engage the workforce, employers must look to new strategies. Disbursing payments in real time was not possible for much of retail’s history, but now that it is, and now that other spaces are doing it, Likar said the time has come for retailers to embrace the trend.

But it’s not just about paying people faster, Likar said. Not having enough money is just one of the financial challenges faced by participants in the gig economy and retail workforce. In a recent Matchmakers interview with Karen Webster, Likar explained how flexible payment solutions can deliver benefits for employees of traditional and on-demand platforms alike.

Money + Knowledge = Power

Many participants in the gig ecosystem feel anxiety over whether they’ll get paid for their work at all – which is scary when unexpected costs like car troubles can demand immediate cash output to keep the business running. That is the risk and tradeoff of working gigs, said Likar.

Meanwhile, retail’s salaried employees get paid by the same employer each week, so that anxiety doesn’t exist. And they know how many hours to expect in the coming days and weeks, which makes it easier to budget.

In either case, though, low-wage employees can find themselves in an unexpected bind, said Likar. Therefore, it’s not enough just to pay them faster or on demand. Financial education is also important.

Likar noted that a key first step is helping people understand their revenue compared to the costs they may be putting into a gig position: Are the earnings worth the investments, or might they be better off taking a more traditional salaried position in a retail environment?

“Just giving people additional funds faster means that, in two weeks, they will get less on their next paycheck,” Likar said. “They need proper budgeting and an understanding of their expenses over the next month, or their next paycheck won’t cover it.”

Likar said the smartest companies are pairing these capabilities with budgeting platforms to deliver just such a combination of funds and knowledge, putting financial power in their employees’ hands.

Beyond Marketplaces

At Hyperwallet, Likar and his team focus on powering flexible payments in marketplaces like Uber and Airbnb, but he said that is just the beginning of where and how this capability could be applied.

Hotels, to give just one example, are looking for ways to get funds into their bank accounts faster than 30 or 60 days. Meanwhile, for small- to medium-sized businesses (SMBs), these payments represent working capital: The sooner they get their funds, the sooner they can acquire and sell more goods.

At the individual level, real-time, on-demand payments can take the place of payday loans, which Likar said are a chronic issue in the United States. If a gig worker’s car breaks down or her computer needs repairs, these things must be addressed right away because they impact the employee’s ability to work.

And by “gig worker,” he also means higher-paid freelancers like developers, engineers, consultants, graphic designers, marketing professionals and others who are paid on a project-by-project basis. Even though each payment is larger, it is just as important for workers to receive them quickly, he said.

“Platforms want to create peace of mind that income will be there when the unexpected happens,” Likar pointed out. “Companies that employ freelancers have been looking at this for a while. Due to the sheer number of employees in retail, it makes sense to scale there first, but soon we’ll start to see it in other verticals, too.”

Payments As A Benefit

Gig workers and freelancers have to figure out specific challenges, like how to get health insurance, how to manage working capital, how to keep their assets up and running so they can continue doing their job and how to get a mortgage – banks, Likar noted, don’t know how to underwrite somebody whose hours and income fluctuate, and they want to see two years of steady employment before issuing a loan.

Successful platforms don’t want their workers to deal with issues like these, Likar said. Instead, they know to bring paid services under one umbrella and offer them to employees on a referral basis, taking the hassle out of the daily lives of people who work for their platform.

Today, the ability to pay people faster has become table stakes, but the ability to make payments a benefit in this fashion is still a differentiator. Likar predicted that this will change in another few years. Employers are going to realize that offering these benefits will enable them to attract and retain better employees, he said.

“Take care of your freelancers,” Likar advised. “If the platform does this well, it will see more loyalty and engagement from workers.”