The concept of giving and receiving money in return for work carried out has been around for thousands of years. In fact, some of the earliest records of ancient civilizations include wage data scribbled on sheets of papyrus. Over the past several decades, approaches and methods of paying employees have evolved significantly. In this article, we’ll explore how new thinking and technological advances are further changing the “state of pay” to the benefit of all parties.
Paper checks were the dominant method for paying employees for much of the 20th century. But the drawback of paper checks is that employers have to cut and manually distribute them, while employees need to go into a bank to deposit them. This all changed in the 1970s and 1980s with the advent of direct bank deposits and the invention of the ATM machine.
The direct deposit method was enabled by changes to banking laws and technology that allowed for money to be transferred directly from one financial institution to another. (Before this, all transfers went by check through a central clearinghouse, a process that took several days.)
Direct deposits made it possible for employers to deposit their employees’ pay directly into their personal bank accounts in a matter of minutes. It eliminated the cost and administrative burden involved in printing, signing, and handing out checks.
As technology and thinking continue to evolve, new ways for allowing organizations to pay their employees even more quickly and conveniently are moving into the mainstream.
In 2018, ADP Research Institute® (ADPRI) surveyed both employers and employees about their changing attitudes toward pay. They found that people’s financial needs don’t necessarily match how they get paid. Many businesses still adhere to a very fixed pay schedule, where everyone is paid on the same day – regardless of their role or personal circumstances. Hourly wage earners, who make up a significant portion of the U.S. workforce, are typically paid weekly or bi-weekly.
The research revealed other notable findings, for example:
Modern human capital management trends and thinking have ushered in a move towards greater employee customization and personalization when it comes to pay. Forward-looking businesses recognize the wisdom of offering their people a more flexible pay schedule.
However, for now, direct deposit remains the preferred means of paying employees for most businesses. While this may suit some employees, it’s not always a satisfactory arrangement for everyone on the payroll. So, what if there was a way for the traditional direct deposit method to co-exist with more creative and flexible payment arrangements?
Let’s take a closer look at the direct deposit method, understand its pros and cons for both employers and employees, and then explore the ways that businesses can use technology to operationalize “hybrid” payment structures.
Let’s begin by recapping the benefits of the direct deposit approach for employers:
The direct deposit method saves payroll staff time (and the business money) on processing paper paychecks.
Direct bank deposits ensure that people receive their pay on the day it’s due – delays associated with physically distributing and cashing checks are eliminated.
Digital payment of wages can help a business securely process wages and gives them the ability to pay employees remotely, even over holidays or during disasters.
Many employees prefer the direct deposit method as it comes with convenience and safety benefits; for example, they:
There are some downsides to the direct deposit method for people that want and need faster, more convenient, and more regular access to their earned wages. What’s more, it’s not practical for the underbanked or unbanked sector of the population.
Additionally, lower-income workers and people living paycheck-to-paycheck can face emergencies, like car breakdowns or healthcare issues that can stretch finances until their next payday. To bridge the gap, they can be forced to borrow from family and friends or take short-term payday loans that come with high interest payments and fees that make them very expensive.
In recent years, more employers have started offering novel pay delivery options that utilize a pay card or debit card. With this approach, employees get their wages loaded on their card. They can use the card to pay bills online, transfer money to family or other third parties, and make ATM withdrawals.
The best pay card providers make it easy for people on the go to manage their funds from their smartphones. So, it’s as easy for people to manage their pay as it is to send a text message!
Earned Wage Access (EWA) – the concept of giving people access to money that they’ve already earned when they need it– is growing in popularity and can be enabled via the pay card approach. EWA allows employees to receive payments for the hours they’ve worked and tips they’re owed as and when they like – before their normal payday. They can access their pay as they need it – sometimes it might be part of their pay; other times, it might be all of it.
The best pay card providers also enrich their services with features to help people manage their finances better with tools that help them save and budget better. For example, employees can structure their pay so that a portion automatically goes into their savings, where they can even set up specific savings goals. These services can also allow people to track their spending to see if they’re meeting their budgets.
Employers are beginning to see the value in giving people greater choice as to when and how they’re paid. If people prefer direct deposits (or even paper checks), that’s OK, and they should still be able to get them. However, the growing sector of the workforce who prefer pay cards, digital accounts, and on-demand pay should also be recognized and supported.
Ultimately, this will create a more equitable, employee-centric pay ecosystem.
Payactiv is on a mission to assist employees and employers to realize the benefits of on-demand pay and EWA while still enjoying the convenience of direct deposit.
If you’re an employee, you can look forward to the following benefits by using our pay card:
Get fast access to your money when you deposit to your Payactiv Visa® Card, use everywhere Visa® debit cards are accepted, pay bills directly from the app, and locate surcharge-free withdrawals at over 37,000 in-network MoneyPass® ATMs. With direct deposit:
Splitting the check for lunch? You can send and receive money between you and other Payactiv Visa Card* cardholders.
Our mobile banking technology does the work, so you stay on track with spending and saving goals.
Electronically disburse bonuses, expense reimbursements, and termination pay to employees’ pay cards. Payactiv provides a 2-day cash float.
Today’s workforce prefers to work for employers that support their financial wellness. Our EWA program is free with direct deposit to Payactiv Visa Cards.
We work with you to ensure a successful plan and launch of our program.
We prepare and provide customized materials to promote the program to your employees.
We are payroll compliant in all 50 states, and Payactiv is the only EWA provider with an approval order from the CFPB*.
We offer tools and training to get the most value out of the program and a dedicated Account Manager.
We provide 24/7/365 customer support in English and Spanish by toll-free phone and online live chat.
Our data is encrypted, SOC 2 compliant, and we have ISO 27001 controls in place. We don’t store sensitive employee data.
At Payactiv, we believe that a future of pay that’s faster, digital, convenient, and connected is already here. And your employees want and welcome this new reality. Now’s your chance to give them what they need.
* The CFPB Approval Order relates only to Payactiv’s Payroll Deduction EWA Programs and not to all Payactiv products or services. The Approval Order is a public document, and may be reviewed here.
* The Payactiv Visa Prepaid Card is issued by Central Bank of Kansas City, Member FDIC, pursuant to a license from Visa U.S.A. Inc. Certain fees, terms, and conditions are associated with the approval, maintenance, and use of the Card. You should consult your Cardholder Agreement and the Fee Schedule at payactiv.com/card411. If you have questions regarding the Card or such fees, terms, and conditions, you can contact us toll free at 1 (877) 747-5862, 24 hours a day, 7 days a week.
1 In order for you to be paid early, your payroll or benefits payment provider must submit the deposit early. It is important to note that your payroll or benefits payment provider may not submit the deposit or payment early each payment period. Be sure to ask your payroll or benefits payment provider when they submit your deposit information to the bank for processing. Early deposit of funds will begin upon the 2nd qualifying deposit. A qualifying deposit is defined as a direct deposit greater than $5.00 received from the same payer.
2 Visa Zero Liability policy covers U.S.-issued cards only and does apply to ATM transactions not processed by Visa, or certain commercial card transactions. Cardholder must notify issuer promptly of any unauthorized use. Consult issuer for additional details or visit www.visa.com/security.
* The Payactiv Visa Prepaid Card is issued by Central Bank of Kansas City, Member FDIC, pursuant to a license from Visa U.S.A. Inc. Certain fees, terms, and conditions are associated with the approval, maintenance, and use of the Card. You should consult your Cardholder Agreement and the Fee Schedule at payactiv.com/card411. If you have questions regarding the Card or such fees, terms, and conditions, you can contact us toll-free at 877-747-5862, 24 hours a day, 7 days a week.
**Central Bank of Kansas City is the issuer of the Payactiv Visa Prepaid Card only and does not administer, endorse, nor is liable for the Payctiv App.
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