There is a new standard in the world of work: a young generation of professionals who value flexibility and technology. Giving birth to the odd-job economy and a new face of self-employment, these professionals are also changing the way employers work, including the way they pay these workers.
In the latest analysis of PYMNTS, Payroll advances: the new norm in the gig economy, a collaboration with Mastercard, research reveals some of the most dramatic impacts the gig economy has had on payrolls.
The ability to access salary advances can be essential for gig workers who often live paycheck to paycheck. According to PYMNTS research, nearly 44% of gig workers in the United States have received full or partial prepayment for their services – and are also willing to pay a fee for that prepayment.
Last year, employers made $ 236 billion in advances to their employees, the report found, with the market expecting the number to continue to rise.
It’s possible that this trend will spill over into the traditional workforce as well, as more FinTechs introduce ways for full-time and part-time employees to receive a portion of their paychecks before the day. payroll. According to PYMNTS analysis, $ 245.1 billion in wages could be paid in advance to unskilled workers – if that option were more readily available.
Driving the possible end of the two-week payroll cycle, these solutions support the financial well-being and strong cash flow of employees, while promoting talent retention for employers.
Employers are getting started
FinTech solutions are emerging to promote this trend.
Walmart signed an agreement with Even in 2017 to provide real-time access to salaries for retailer employees, while last year payroll company ADP announcement DailyPay, a new solution allowing its merchant customers to access the salaries earned daily via the ADP Marketplace, two initiatives demonstrating the interest of companies in offering such an incentive to their staff.
And earlier this year, Visa and PayActiv partnered on a solution that allows employers to access earned wages in real time, noting in their announcement of the collaboration that “the demand for instant access to earned wages has grown. now extended to batch pay “.
“This is not a loan,” said Cecilia Frew, senior vice president of Visa Direct and responsible for North America, in a later article. interview with Karen Webster. “It is money owed to the worker that he chooses whether he wants to access it early or not.”
This is a critical distinction given the growing controversy over predators payday loans.
As FinTechs and payment technology companies explore ways to use technology to connect employees to their on-demand paycheck – often with the goal of helping workers avoid the sometimes damaging trap of payday lending – these solutions can also help employers avoid equally dangerous risks.
A recent report in the Associated press warned of the dangers of employees providing loans to their employees in order to promote cash strength and loyalty among their staff.
“Many small business owners lend money to employees who run out of money before payday or have unforeseen expenses or crises,” the publication writes. “The risk that the bosses face is not being reimbursed.”
According to reports, current labor laws make it very difficult for employers to recover the funds they have loaned to employees.
The AP reported business owner Matthew Ross, co-owner of the Slumber Yard mattress review site, who agreed to give an employee a $ 15,000 loan to buy a new car, and another loan. of $ 10,000 for a down payment on a condo. Both agreements were interest-free, with employee borrowers making their payments from their future paychecks.
“It’s a big financial risk for my business partner and I, but we believe that keeping our people is one of the best things we can do for the overall health of the business,” Ross told the publication.
Still, reports stressed the importance of developing written agreements with employees to ensure everyone understands what scenarios may make them eligible for such a loan, as well as repayment plans.
Insperity consultant Rick Gibbs told the AP that tapping into other financial resources can help employers promote the financial well-being and satisfaction of their staff without taking the risks themselves.
As FinTech solutions explore how to connect gig workers and other professionals to parts of their paychecks before payday, the industry will certainly continue to explore new methods to provide employees with affordable and affordable financing. fair who uses future paychecks in their repayment plans – both to help employees avoid the threat of predatory payday loans and to help employers avoid the risk of default.