A new generation of workers wants new payroll options. Here's why pay cards for employees are advised for any organization hiring Generation Z and Millennials.
Fax machines, payphones, VCRs — these are just a few technologies considered completely out-of-date by your Generation Z and millennial workers. Bank accounts could be joining this list soon. Younger Americans are using new ways to manage money, and your payroll department needs to keep up. Offering pay cards for employees is one way to do so.
George Mavrantzas, Vice-President of Strategy and Thought Leadership at ADP, explains why Gen Z and millennial workers want pay cards and how it benefits employers to offer them.
Banking Trends for Younger Americans
According to the FDIC, nine million American households do not have a bank account, and millions more have a bank account but still use financial products outside the banking system. A large segment of the population cannot open a bank account for many reasons (51.1 million Americans are considered underbanked); among them are they won't keep a large enough balance to avoid monthly bank fees and a lack of credit history. Moreover, many young Americans capable of opening bank accounts are choosing not to do so.
"Gen Z is truly the first mobile-only generation," Mavrantzas says. "They aren't interested in visiting a bank or speaking to someone face-to-face. With mobile pay, they can handle everything with their phone and that's what they want."
Younger Americans are less comfortable with actual money, as only 23 percent of Gen Z feels comfortable carrying $100 in cash, according to ADP's proprietary research, Paycards: Generational Trends Shaping the Future of Worker Pay. Pay cards are a natural fit for workers who don't want to deal with cash or a bank.
How Traditional Payroll Hurts Gen Z/Millennial Employees
If your organization only offers direct deposit and paper checks for payroll, it can negatively impact any worker who doesn't have a bank account. Gen Z and millennial employees will likely feel most of the impact. ADP found that 43 percent of Gen Z and 20 percent of millennials have paid $5 or more to cash a paper check, compared to only 9 percent of baby boomers.
"Your younger employees are also going to be wasting their free time cashing checks," Mavrantzas says. "If your payroll department is temporarily closed, like during a blizzard, these younger workers are the ones who will be delayed getting paid, which can hurt morale."
Given that they are the ones mainly dealing with the headaches of paper checks, it's no wonder ADP research found 64 percent of millennials think pay cards should be offered as a payroll option. In fact, they are starting to see it as a right.
Why Gen Z and Millennials Want Paycards
With pay cards, employees don't have to waste time or money dealing with paper checks. They can also transfer money to others instantly and monitor account balances through their phones.
"Pay cards give younger employees access to their money in the way they want access," Mavrantzas says. "On payday, they could get a text message saying their card has been loaded up with another $1,000. Employees can provision their card to work through mobile apps such as Apple Pay®, Google Pay and Samsung Pay® enabling making purchases with a touch of their phone."
"While baby boomers might prefer calling customer service or visiting a branch in-person, Gen Z and millennial workers may want to tweet about a problem or ask questions through social media," he says. "Pay card companies are a little quicker at adapting these new methods."
Finally, pay cards help employees better manage their money than if they receive a paper check. They can set up spending limits on their card to create a budget or they can make automatic transfers into savings accounts.
"Gen Z, in particular, is more frugal, having grown up during the financial crisis," Mavrantzas adds. "They are very interested in budgeting and avoiding costly bank fees. Pay cards help them do just that."
Employers can also save money by offering pay cards. The National Federation of Independent Business (NFIB) estimates employers pay on average $3 for each paper check issued. As Gen Z and millennial workers make up a larger share of your workforce, more unbanked employees should be expected. By offering pay cards instead of paper checks, you'll keep this cost under control.
At the same time, Gen Z and millennial workers are starting to expect pay cards as a payroll option, in the same way baby boomer employees assume a job will offer direct deposit. Forty-seven percent of Gen Z workers and 31 percent of millennials said they would turn down a job offer if it didn't let them select their payroll method, according to ADP's research. If your organization doesn't offer pay cards for employees, you could miss out on the next generation of quality workers.
Pay check only options can be inconvenient and costly for younger workers. By setting up pay cards, your organization will show Gen Z and millennials you understand their new financial needs. And you'll likely cut down payroll costs at the same time.
For more information on the generational trends shaping worker pay, check out ADP's research report: Paycards: Generational trends shaping the future of worker pay.