B2B Payments

On-Demand Payroll Without The Cash Flow Disruption

The payroll industry and its biweekly or monthly pay schedule hasn't changed in decades. However, as awareness grows about the dangers of predatory payday lenders and the costs of bank overdrafts, employees demand better alternatives.

Researchers are beginning to explore the potential for on-demand wages to address some of professionals' personal cash flow challenges. On-demand payroll technology company ZayZoon analyzed and found that more than one quarter of employees are distracted at work because of their own financial problems, so supporting employee financial wellness may boost productivity and talent retention.

While employers may embrace a heightened role in their employees' financial wellness, changes in pay schedules can mean disruption to cash flow management and forecasting, as well as added administrative burdens. Tate Hackert, co-founder and president of ZayZoon, recently told PYMNTS that it's key for employers to offer wages on demand without changes to their administration or cash flows, while still maintaining a presence in their employees' financial lives.

"Our hope is for employers to see the need for financial education, wellness [and health]," he said in an interview. "That they'll know inherently that there is an issue: I'm not retaining my staff, I'm having trouble recruiting, turnover is high maybe it has something to do with the way I'm paying my employees."

On-demand payroll is not entirely new, but recent revelations in the pitfalls of payday lending and overdraft fees have opened up a broader market for this kind of payroll solution. According to ZayZoon, there are 70 million professionals using payday loans or bank overdrafts on a regular basis, revealing just how widespread cash flow challenges and financing needs are for employees.

In the U.S., both the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) have highlighted issues surrounding payday loans, an industry now worth an estimated $46 billion with payday lenders making $7 billion a year in fees alone, according to the Pew Charitable Trusts. Despite their popularity, over the years, payday loans have developed a stigma that has spread into the broader market of fast-cash providers and that sometimes includes on-demand payroll.

"There's a lot of stigma around the need for short-term capital," said Hackert. However, that stigma is finally shifting, especially when it comes to on-demand wage access. One of the biggest reasons why, he noted, is because of Walmart.

Last year, the commerce conglomerate introduced its own program, allowing employees to access their earned wages early. Developed in partnership with PayActiv, the program links workers to a mobile app that lets them take out half of their earnings before their biweekly payday, interest free.

Though Walmart said the solution should only be used as a "last resort," Hackert said that the adoption of an on-demand payroll solution by one of the largest U.S. employers  Walmart's operations in the country involve 1.44 million employees  signaled to corporates and professionals alike that on-demand payroll should be taken seriously, without the stigma. Recently, Hackert noted a change in how people talk about such tools.

"People are finally realizing that 'it's not my issue; it's a fundamental issue of payroll operations,'" he said. "People are changing their language from thinking of this as a short-term advance or loan product, or as something they're borrowing, and they're recognizing it as their own money and a way to access their pay on demand."

Today, ZayZoon services companies with employees that make $12,000 a year part-time, spanning to those with professionals making $200,000 a year, further evidence that the stigma is being lifted.

Aside from its societal stigma, on-demand payroll technology has begun to build on the overall payroll industry's reputation as a hub for FinTech innovation. While issues of employee cash flow struggles may stem from payroll's inability to make any major changes in recent decades, this market is one with potential to embrace cutting-edge solutions in particular, Hackert said, faster and real-time payments.

The ability for employers and FinTech players to more quickly move wages into employee bank accounts is a significant opportunity, as is the ability for payroll professionals to no longer have to initiate direct deposit transactions several days in advance of payday. Instead, he said, employers are beginning to recognize the importance of real-time payroll, and the value in payroll solutions augmented by FinTech that can improve their employees' lives.

Real-time payments are likely to lead to more competition in the on-demand payroll space, he added, both from FinTech firms and employers themselves. Yet, it's ultimately a positive industry shift for workers across industries and tax brackets who struggle to cope with the traditional biweekly paycheck.

"Payroll hasn't changed since ... ever," said Hackert. "It's so strange to me that people work every day, but they don't have the option to get paid every day. Instead, they build their lives on a biweekly or monthly basis. People now are just starting to realize how big of an issue short-term liquidity is."



Banks, corporates and even regulators now recognize the imperative to modernize — not just digitize —the infrastructures and workflows that move money and data between businesses domestically and cross-border.

Together with Visa, PYMNTS invites you to a month-long series of livestreamed programs on these issues as they reshape B2B payments. Masters of modernization share insights and answer questions during a mix of intimate fireside chats and vibrant virtual roundtables.