Unemployment remains stubbornly high, yet pockets of resilience emerge.
The financial services industry saw 21,000 positions added in July. Yet, while financial institutions (FIs) have primarily avoided large scale layoffs and furloughs, many FI employees still feel the job-related impact of the coronavirus — for example, through spouses or family members who have lost their livelihoods. The ripple effect from 2020’s economic downturn has impacted a vast number of households and experts predict a long recovery ahead.
To further intensify matters, many Americans struggle to make ends meet — even with continued employment. PYMNTS has found about 60 percent of U.S. workers today are living paycheck-to-paycheck, with nearly half having less than $2,500 in accessible savings. So, it should come as no surprise that some financial services workers are also struggling to pay the bills and could benefit from accessing wages as they are earned through an on-demand model. In its absence, we find many individuals may turn to high-interest loan products such as payday loans to cover unexpected expenses as they arise.
In an interview with Karen Webster, Patrick Luther who is the industry principal of financial services at Ceridian, illustrated how on-demand pay can help improve the overall financial situation for those working in the sector.
The financial services industry, like almost all industries, pivoted its workforce to remote working during the pandemic. This created unique challenges for its workforce, ranging from employee burnout to caring for children at home. Any number of variables can highlight how the traditional two-week pay cycle puts pressure on the management of household finances.
Luther explained that living paycheck-to-paycheck often means a general alignment of income and expenses where at the end of a given month people break-even — but cannot build up a rainy-day fund or plan for the future. While finances may balance at month’s end, there is often some unevenness with timing for when earnings come in and expenses go out.
He pointed to advancements in technology that allow people to tap into wages as they are earned to help alleviate financial stresses.
“For many workers, accessing your pay a few days earlier can make all the difference. It’s well known that individuals must pay bank and auto loans, utility and credit card payments in a timely manner or risk facing penalties. Access to your money as you earn it may mean avoiding a late payment fee, a bounced check, an interest hike or relying on … high-interest cash advances,” he said.
A Fundamental Shift Is Underway
While the pandemic has created many challenges for financial services companies, it also creates an opportunity for leaders to reimagine what the future of work should be.
Drilling down into some fundamental shifts in the workforce and within the industry, embracing a work-from-home environment means individuals and families can opt for suburban life over the higher costs of urban living.
“We believe this is going to increase significantly moving forward,” said Luther.
The tax situation can also improve for individuals and their employers alike as workers move to leafier, suburban locales. As the workforce disperses, modern human capital management (HCM) technology can help alleviate the administrative burden for teams when it comes to tracking and monitoring state taxation compliance, while ultimately offering employees more flexibility.
For example, in New York state, the top marginal income tax rate is nearly 9 percent, plus another 3 percent in New York City. Yet, in neighboring Connecticut, the top income tax rate is 7 percent. Other states, like Florida, may have no state income tax.
Corporations may save on taxes, too, when employees move to jurisdictions with lower tax rates — and further save on reduced rental expenses if a brick and mortar, urban footprint is less important.
“If you’ve got a large cohort of your workforce that has become primarily remote and will likely remain so in the foreseeable future, you don’t need to be paying for high rent in downtown Los Angeles or Chicago. Plus, if these offices are sitting idle a large percent of the time, there is a business case for a reduced real estate footprint that can be rationalized,” he said.
Before the pandemic, the financial services sector was still largely holding onto the traditional work model. Luther suggested that expanding to a work-from-anywhere (WFA) policy — and offering on-demand access to wages or flexible scheduling — can become a way to attract and recruit talent.
Overcoming The Roadblocks
Looking ahead, Luther pointed to a learning curve tied to on-demand payroll in the financial services sector and in other industries. That’s especially true for firms that have been around for decades and where traditional payroll functions are firmly entrenched. It’s been reported that as many as 35 percent of those companies still use on-premise HR software that often creates costly capital expenditures whenever changes or upgrades happen.
In recent years, companies worldwide have begun the migration to modern cloud-based HCM software that reduces risk through consolidation, automation, and outsourcing, while at the same time increasing employee engagement and delivering quantifiable business value. By proactively addressing the complexities of payroll, forward-thinking organizations can better focus on strategic initiatives to support their customers and employees.
He emphasized, “increased financial stress and a focus on providing innovative solutions to support the financial wellness of workers prove the importance of instant access to earned wages are now and into the future.”