Digital Wallets' Role In The Future Of Payroll
Next-Gen Debit

ADP On Prepaid Cards, Digital Wallets' Role In The Future Of Payroll

Biweekly direct deposit is losing its cha-ching with job seekers — more Gen Z candidates expect to access their earnings instantly via ready-to-use payment tools. But redesigning company processes to support those options is easier said than done. In this month’s Next-Gen Debit Tracker, ADP Division Vice President Belinda Reany discusses how employers can meet workers’ demand for faster and more flexible payroll.

Employees choose employers based on several "good fit" metrics, including how they pay — and how much. Younger, more tech-savvy generations are rising into the workforce, and companies that only offer biweekly paychecks or direct deposits will not stand out when trying to recruit.

A global study of 7,000 employers and employees conducted by human resources and payroll services provider ADP found that nearly half of Gen Z job seekers would reject offers that did not include options for how they receive their earnings. Businesses must thus refine their payroll approaches to encourage America’s younger workers to join their ranks, as Belinda Reany, division vice president and general manager at ADP, explained in a recent interview with PYMNTS.

“[Younger generations] want more choices,” she said. “Speed, access and engagement are the three pillars [that matter to them].” 

Employers looking to grow must update their strategies and solutions to meet their workers’ new payroll expectations, including the growing demand for speed. 

Speed of Disbursements

Younger workers are well-accustomed to the on-demand ecosystem, Reany explained, and many of them want to be paid daily or immediately. This could mean receiving funds onto payroll cards or mobile apps, as both technologies free them from having to cash checks or wait for money to appear in their bank accounts. 

Doing away with employers’ and payroll providers’ traditional biweekly pay structures is easier said than done, however. Employers must consider their disbursements’ speed, determining whether to make earnings available 24/7 through real-time rails or to keep a regular schedule but shrink the time between disbursements. Meeting the demands for quicker, more frequent payments or on-demand funds access requires employer-adopted capabilities that rapidly assess and deduct taxes and other contributions to calculate take-home pay in real time. 

Faster disbursements also mean businesses can no longer rely on holding the same amount of working capital as they do when running payroll once every two weeks, Reany noted. Larger employers likely have the budgets to more easily handle such financial changes, as well as the administrative processes for workers’ on-the-go earnings requests. Smaller companies may struggle to make such updates, but can play it safe by providing on-demand access to earned wages through the right partnerships. 

Cash flow and working capital is much harder for small businesses,” said Reany. “Solutions for employers that could help them stay competitive [for] employees [could include] early access to earned but unpaid wages, where the employer doesn’t necessarily have to front that money and use working capital to make it available. There are now partners and players in the space that are testing solutions around that.” 

Payroll and human resources companies are actively exploring ways to help SMBs keep up with employees’ evolving payments needs, including access to quick disbursement speeds as well as alternative payment options. 

Access and Choices

Employees may not request immediate payment every day, but many still want to know it is a possibility. Nearly 40 million Americans — one-eighth of the national population — reportedly struggle to pay off monthly bills and would be incapable of covering unexpected expenses out of pocket, Reany said. ADP research from 2019 found that 36 percent of respondents worldwide take into account whether they can choose how often they are paid when considering a job offer, and 26 percent said accessing same-day pay is important. This makes sense, especially for those living paycheck-to-paycheck who likely want reassurance that they could quickly access earnings in emergencies. 

Workers want to select how their money arrives, too. That means deciding whether to have some or all of their funds delivered by direct deposit, paper check or payroll card. ADP surveyed 500 U.S. employees who were paid in late 2016 and early 2017 and found that nearly 35 percent were paid via direct deposit. The survey, which was not released to the public, found that members of that 35 percent each held two or three prepaid cards on average and used them to budget, designating different cards for different spending buckets. 

“More than half the people we spoke to [said], ‘I need to save me from myself,’” Reany explained. “[They said], ‘I know I need to be more disciplined about my spending, but I need structure. I need to be able to segregate the money into my entertainment envelope or rainy-day fund or whatever, so I can get into that rhythm.’ [There’s a] shift toward supplementing traditional banking accounts with alternative payment mechanisms.” 

Employers need to realize that workers may not simply want to choose between two options, but instead select several different ones. They might wish to send some earnings to bank accounts and other portions to prepaid cards, for example. 

Engagement in Financial Wellness

The desire to improve financial health may be eliciting employees' demand for additional payroll services. Struggles to make ends meet can harm employees’ physical health, hindering their ability to engage at work, causing illness and forcing others to take time off to handle financial problems. Thus, employees often value digital tools that track or manage spending, advise them and foster a more stable financial footing. 

Direct deposit ousted paper checks from their primary place in payroll, Reany said, and payroll cards and mobile apps could displace direct deposits. Employers should not expect one single disbursement method to win all workers over, however, as employees have unique concerns and increasingly want to choose options that best suit them. Younger workers are even willing to walk away from job offers that do not cater to such preferences, which pressures competitive employers to offer speedy disbursements, multiple payment options and engaging financial wellness supports. These elements might just be the difference between recruiting new hires and watching them work for competitors. 

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