The typewriter had a good run. It ruled the roost as far as corporate word processing went for well over 100 years before the computer-based word processing showed up in the mid-1970s to replace it, though those scrappy little typewriters hung on for a while — by the end of the 1990s, they’d gone the way of the dodo bird. At the end of 2011, the last typewriter manufacturer on earth (Godrej and Boyce) officially shut its doors.
As Gusto CEO Josh Reeves told Karen Webster for this week’s edition of the Monday Conversation, when he thinks of biweekly payroll arrangements that most U.S. workers use, he can’t help but think of the typewriter. It’s a tool, he noted, that had a clear and useful purpose during its time and place, but is now ready to be displaced by better technology and methods.
“This should seem like common sense in the future, and not just for us, but for everyone,” he said. “We should look back at the time and day when you had to wait for weeks to get paid after you’ve done the work in the same way we look back at when we used typewriters instead of using a computer. An idiosyncrasy of the past.”
The solution the future offers, Reeves said, is flexible payments — or allowing workers to get paid for the work they do once they have done it. It is the way teenagers mowing lawns are paid, he noted, and it is only reasonable that adult professionals should be able to exercise the same option.
Gusto has been piloting its Flexible Pay system in Texas for the last six months. Fresh off that successful test drive, it is getting ready to roll out the program across its customer base in the U.S.
“The outcome we hope to see,” Reeves said, “is workers who need to take out fewer payday loans, or open [fewer] credit cards or get hit [less] with massive overdraft fees, when they’ve already earned the funds that could prevent all of these things.”
In addition, he added, as good as this arrangement is for the workers, it’s also good for the employers that hire them.
Innovation For Businesses And Workers
Gusto’s main line is a payroll and HR benefits provider focused on small businesses (SMBs) — a demographic that Reeves said is particularly in tune with the cash flow needs and liquidity challenges of its workforce.
“If you are a small business owner with a 10-person team, you know those team members very well. And if they have a pain point in liquidity, you are going to feel it. This is pain that SMBs deal with very directly,” he said.
At first blush, it would seem that solving the employee’s pain point might create a new one for its employer — moving from a predictable, timed payroll run to one that becomes, more or less, on demand.
That’s where Reeves said Gusto has innovated. Gusto takes the risk of advancing funds to the employees without requiring any underlying changes to how businesses schedule their payroll cycles. Gusto administers this Flexible Pay program, and from the business owner’s point of view, nothing changes.
Using that program (set up by Gusto as part of a new subsidiary called Gusto Capital), employees are paid, and that payment is deducted from their next “official” payroll payment. The Texas pilot version of the program was free for both employers and employees — though there will likely be some costs built in as the program expands, even though Reeves said the goal isn’t to create a new revenue center for Gusto. Reeves said that Gusto is thinking about fees in terms of a few dollars, which is obviously much better than an employee going to a payday lender, where workers often turn when they hit a cash shortfall between pay days.
“Breaking even is the goal, not a profit center,” Reeves said. “The future we are trying to create aligns closely with the best interests of our customer[s], and that is something we can present to businesses as an additional reason to use Gusto for payroll.”
As for the employees the company has already worked with, Reeves said, what has been mostly seen so far is that Gusto becomes a vehicle for allowing workers to simply have a choice about their wages and how they want to access those funds. Some employees use it to better manage cash flow, permanently altering the pay schedule so they are paid weekly, instead of biweekly. The majority of users, however, tend to exercise their Flexible Pay option as a one-off solution to cover an emergency — the car that broke down or the dental surgery that came up unexpectedly.
“What we have seen so far is that people are really grateful,” Reeves remarked. “We had one woman who signed on with the program and noted that it gave her tremendous peace of mind to know she could access her income whenever she wanted. This person only actually ever used Flexible Pay a few times, but just the feeling that she had this power was a positive on its own.”
Managing For Risk
Beyond administration hassles, the challenge in working with SMBs on this program is to ensure that the business can make payroll as scheduled, once funds have been paid to those employees using the Flexible Payments program.
While Reeves agreed that risk is an issue (and always will be when one is extending funds), in its own case, that risk is mitigated by how well Gusto knows its clients and their financial standing. Reeves said that being a payroll services provider gives the company historical data on how financially sound its clients are, based on prior payroll history and any cash flow challenges that may have surfaced.
That data, he noted, gives Gusto a very clear of picture of firms that will be able to fund their payroll, barring something unlikely or unforeseen, which means Gusto just has a much lower risk of funds not being paid back. Reeves also said that the fees Gusto plans to charge employees will offset that risk.
Gusto’s pilot started in Texas for reasons both obvious and not. The obvious reason is that Texas is a large state with all kinds of businesses and workers, making it a good jumping-off point for the pilot. It's also a state with many needs.
“The statistics I have seen is that one in 12 Texans have taken out a payday loan,” Reeves explained, adding that it's 45 percent more than the national average.
However, with Texas now up, running and succeeding, the goal is to move forward. Reeves said that in the first half of 2019, the goal is to get Flexible Pay open for business in 10 states, providing the service to several hundred-thousand workers. From there, he noted, there will be 39 states left to go.
Bigger than that, though, he noted, there is industry to change — and payroll is ready for its next major innovation. That's because, in a world where expenses and pay days are often out of sync, workers need a better solution than going to payday lenders to pay massive fees on relatively small amounts of money.
“This is money that is already [in] the worker’s earnings,” Reeves explained. “It is so odd that, in the past, this person had to pay $70 in fees [to a payday lender] to access money they’ve already earned the right to access and use.”