Why Instant Paychecks Will Be A Necessity Instead Of A Luxury

While many advancements have been made over the last five years toward enabling 9-to-5 employees to gain instant access to wages they already earned, the progress has been uneven at best.

But as PYMNTS and Mastercard demonstrated in a survey last fall, the progress of speeding up pay for the gig economy, in particular, has been quick, consistent and highly impactful.

As of 2018 (the last full year with data available), gig workers were paid out $236 billion in such wages. And as of 2019, instant access to wages was already in use by over one-third of U.S. gig workers who had the option of accessing their wages instantly.

More notable is how sharply the demand for instant pay was already rising as of the end of 2019. Some 31.8 million gig workers – or roughly one-third of the 96 million people in the gig economy – said they would be interested in such an option if it were available.

And how are workers planning to use those funds? Perhaps unsurprisingly (since many gig workers live paycheck to paycheck), 39.7 percent reported they would save their wages for emergencies.

Another 37.6 percent said they would pay their personal bills, while 35.6 percent reported the money would go toward a necessity for their gig job – specifically, purchasing gas for their vehicles so they could work more.

A large range of respondents noted that having the ability to access their wages as soon as they’d earned them would increase their peace of mind about finances or make it easier for them to stay ahead of their bills. As such, these respondents said they’d be willing to pay a nominal fee to access the money.

While our study focused on the massive advantages that instant wages provide to gig workers, Adam Granoff, Mastercard’s senior vice president of digital partnerships, noted in a conversation last fall with Karen Webster that much of gig employees’ concerns are echoed by hourly workers as well.

“There has been a lot of focus on workers entering the gig economy, but what we know is that the cash flow issue and financial stresses gig workers face are often also faced by hourly workers – especially those who don’t have consistent hours,” Granoff said.

And that was last October, before the words “COVID-19,” “mandatory stay-at-home order,” “social distancing” and “global pandemic” had become common parts of the vernacular. Today, the need for instant access to wages has skyrocketed for hourly workers, Cecilia Frew, global head of Visa Direct sales, told Webster in a recent discussion.

Frew said that for the eight out of 10 U.S. consumers who live paycheck to paycheck, the level of anxiety over making ends meet has escalated. After all, 55 percent of Americans surveyed believe the pandemic will last longer than their personal savings will.

Frew noted that in an environment that is already so financially precarious for so many, having instant access to wages already earned is no longer just a “nice to have.” Rather, it can mean the difference between workers being able to pay their bills or having to choose between what to buy – or tapping into options like payday loans, which can solve an immediate emergency but potentially cause financial pain down the road.

That’s a sentiment echoed in Karen Webster’s recent conversation with David Ossip, chairman and CEO of Ceridian, about how the pandemic has exposed the need to rapidly update and digitize payroll processes across the entire employment ecosystem.

The health crisis has shown us that within the broader workforce, regardless of whether people are salaried or hourly, the majority don’t have enough savings in the bank to last them for a one-week or two-week period,” Ossip said.

Both Ossip and Frew noted that until recently, it simply wasn’t possible to pay employees in real time because of the two-step nature of the traditional payroll process. Paying a worker relied on connecting data captured in a time-and-attendance system with a totally separate system to process the data and disburse the payment. Given the requirement to connect those two systems, running payroll once a day wasn’t technologically feasible.

But that limitation no longer exists, so the two-week pay cycle no longer really needs to exist, either. Both Frew and Ossip noted that’s good news not only for workers, but also for employers.

Frew pointed out that instant pay is critical from an employee retainment and productivity perspective. Workers who access their wages faster don’t just stay with companies longer, she said, but are also willing to work longer hours, are more engaged by their tasks and begin to demonstrate what Frew called “a productivity bump.”

Perhaps just as notably, they’re also willing to vote with their feet when the opportunity to get paid faster is on the line. “We have gotten interesting feedback from employers that some of their employees who call in sick for a shift log onto a gig platform to do work because they can get paid immediately when they’ve finished working,” Frew said.

Ossip noted that adding instant payment capability for employees can do more than just protect against loss of worker loyalty or productivity – it’s also an opportunity for companies to pick up and improve their own cash flow by innovating around payroll.

Once employees can tap into a service that pays on demand and then trues-up against the regular payroll distribution, companies can actually switch their in-house payroll system to a monthly distribution instead of a biweekly one.

That’s less expensive on the whole, and it also allows companies to flexibly control funds that would otherwise have to be committed to payroll every other week, Ossip said. Workers can be paid when they want, while on the back end, the employer is also improving its cash flow over the course of the month.

But perhaps most importantly, Ossip and Frew said the time for waiting to implement instant pay has simply run out. What was once technologically difficult can now be fairly easily accomplished with an API, leveraging the power of things like Visa Direct and Mastercard Spend with a few days or weeks of integration work.

“It’s very hard to argue that people should be paid in arrears as of 2020,” Ossip said. “Moving effectively to same-day pay or continuous pay is the right thing to do by your employees. And once employees have seen that this is an option, it will be a big factor in where they choose to work.”