As the modern-day labor force increasingly moves away from the confines of a traditional 9-5 office job and towards alternative avenues, the gig economy is experiencing incredible growth, effectively reshaping the global marketplace and giving us a glimpse into what the future of employment could look like.
Born out of necessity, the gig economy is now providing innovative solutions to the shortcomings of the traditional labor cycle in order to cultivate flexible work schedules and wage access models. These advancements have led to absenteeism in traditional industries as more workers become especially drawn to the concept of getting paid on demand.
Employers must recognize that providing their employees with earned wage access is the only way to remain competitive in a world so saturated by the gig economy. However, it is important to understand the existing limitations that need to be addressed before earned wage access becomes the norm across industries.
Earned Wage Access Gains Traction
Some employers, and even payroll companies like Ceridian, have already caught on to the benefits of implementing on-demand payment systems. Walmart has partnered with PayActiv, an earned wage access platform, to offer its employees the freedom to decide how and when they want to get paid; PayActiv called this decision a “watershed moment for employee financial wellness.” And it was. Before the Walmart announcement, employers were hesitant to offer the benefit to their employees, likening it to payday lending. After, they couldn’t sign up fast enough, having realized that it is a socially responsible alternative used by the world’s largest employer.
These mechanisms typically cost near-nothing to implement, and cost to employees is low because the risk is low, with on-demand pay companies being reimbursed through payroll deduction or direct deduction on pay day. Employees are more willing to accept this cost as they tend to use on-demand pay to cover unforeseen expenses that would otherwise necessitate far more expensive financial options like payday lenders. Some more progressive employers go the extra mile by opting to cover these costs and they quickly reap the rewards of increased engagement, productivity, and retention in their workforce.
By easing financial stress for employees, employers are then capable of fostering a healthier work environment, driving recruitment and cultivating a sense of loyalty for employees towards the company. This will in turn reduce turnover and absenteeism, typically the leading HR costs for companies.
On-Demand Pay: Still a Work in Progress
There is no question the gig economy has sparked change in all aspects of workforce management. Still, despite the many innovative solutions introduced to the pay cycle, employers will need proper guidance before implementing any new payroll services to their staff.
Understand that there is room for improvement in the space, and consider the following:
With innovation comes regulation - The gig economy has sparked regulatory backlash with government officials being quick to pump the brakes on the growing industry. For instance, the government in California passed a bill to ensure companies like Uber, Lyft, and other gig-type employers consider their workers as “employees” rather than independent contractors, in an effort to protect gig workers. The on-demand pay industry is newer, but certainly not immune to regulatory attention. While California has proactively enacted legislation around on-demand pay, the rest of the country has yet to catch up. Last year, 11 state regulators announced plans to look into the industry. That is why providers and employers both need to be in tune with the potential effects regulation can have on wage access. Without a proper understanding of all the implications involved with on-demand pay--going down to the state by state level--providers may find themselves at odds with either current or future laws and regulations.
Finding the right partner - Employers need to know what to look for when exploring on-demand pay service providers, to ensure the program best benefits their employees. Some providers charge per-transaction fees, others use a subscription model, while some go as far as requiring a change of the employee payroll banking relationship. It is important for employers to be selective and demand transparency from their service provider partners, especially when it comes to the various fee schedules associated with their offerings. They must look at typical employee behavior, then apply provider pricing models to that behavior to see which fits best for their business and employees.
Financial education is key - Despite the appeal of on-demand pay, it is the responsibility of employers to educate their workers on all the implications associated with these types of services. A continuous flow of regular pay advances may be beneficial in the short term, however it is equally important that employees have the know-how when it comes to long-term financial planning. That is why it is key to partner with a service provider that offers not just an on-demand pay solution but also financial education, management and wellness resources.
Though it has already made big waves in an otherwise tumultuous year, the New Economy is still in its infancy. Understanding how innovative solutions like on-demand pay services can help businesses navigate the complex landscape of today’s payments world, while supporting your employees, can set both parties up for success. And it’s important to understand that as the economy opens back up after Covid, employees will have more choices for employment. They will naturally gravitate toward those employers that offer the financial flexibility similar to what helped them navigate the difficulties of the last year.