Mark Putman, General Manager of Payments at ADP, sees major improvements in the near future regarding how employees receive and manage their wages. Increasing access to earned wages is not only more convenient for employees; it can also save them from having to rely on costly options like payday loans to make ends meet.
New payroll options like paycards and mobile pay have the exciting potential to lower costs for employers — especially compared to old-fashioned systems like paper checks. What's even more exciting is their ability to improve employee financial wellness.
This is an important consideration. According to the ADP Research Institute® study, Evolution of Pay, 78% of employees surveyed believe employers should take an interest in the financial wellness of their workers.
With this in mind, we spoke with Mark Putman, General Manager of Payments at ADP, to learn how the future of pay could change life for the better.
What Is Employee Financial Wellness?
Before looking at the actual payroll solutions, let's start by defining what financial wellness means for employees. Putman acknowledged that financial wellness is a broad term that can cover many different topics, from retirement planning and budgeting to making sure someone has enough money that they aren't forced to go to a payday lender.
But for Putman, financial wellness begins with making sure employees have access to quality transactional banking.
"Are your employees able to get access to their hard-earned wages without excessive fees? This means they have an inexpensive way to receive their paycheck, broad acceptance of their payment device and convenient access to ATMs with reasonable withdrawal fees," he says.
Putman points out that, for many Americans, "free" checking accounts are not truly free — they may cost as much as $40 per month, especially for the underbanked. Employers interested in employee financial wellness can address these problems by offering additional payment options.
New Employee Expectations for Payment
As employers review their payroll systems, they should keep in mind that employees have new ideas about when they should get paid.
"Rideshare companies have changed the game in terms of what employees expect for payment," says Putman. "It used to be standard to only get paid monthly or at the end of the week. But then the rideshare companies started paying their drivers immediately, as soon as they finished their shift."
This created the demand for quicker pay. ADPRI's research shows that 26% of employees say the ability to receive same day pay would make a difference in their decision to accept a job offer. Overall, 36% of employees say the ability to select their pay frequency would make a difference when considering a job offer.
Millennials tend to prioritize the speed of their pay more than older employees. In most regions, this younger cohort considers speed nearly as important as security.
However, Putman explains that it's not as easy to pay employees as quickly as Uber and Lyft pay their 1099 contractors. Employees are owed net pay, which means employers need to calculate and withhold state taxes, federal taxes, FICA and unemployment before sending out the paycheck, not to mention complying with wage statement requirements. 1099 contractors are simply given their gross pay and left to figure out the taxes themselves.
Working for the Underbanked and Unbanked
"How often do you go to the ATM versus 10 years ago?" asks Putman. The question illustrates the point that, between credit cards, debit cards and mobile wallets like Venmo and Zelle, there is no longer a need for most Americans to carry large amounts of cash.
But for the roughly 25% of U.S. households who are unbanked or underbanked, as measured by the FDIC, there are barriers to entering this cashless society. Instead, they must carry large amounts of money, which they risk losing. They also have to deal with check cashing fees and cannot shop online or with vendors who don't accept cash.
By offering new payment methods like paycards, employers can help bring underbanked and unbanked employees into the cashless society. Putman describes it as enabling employees to "cross the chasm of cash."
"Employees must be able to trust that the new system will give them convenient access to their wages where they can get their money for a reasonable fee," he says. "Once they get comfortable with the product, see that it supports PIN-based cash back and get used to making smaller transactions on the card, they'll be more likely to move off paper checks."
With that in mind, it's important to inform employees about the fees and rules associated with using their new card properly. If an employee gets penalized once at the beginning, they could become frustrated and never give the paycard a second chance.
The Challenges of Federal and State Payroll Regulations
Since electronic payroll methods can lower fees and make life easier for employees, it's understandable that employers may want to switch to a 100% electronic system. But Putman warns that you need to be cautious about how you move forward.
"For example, California state laws require you to offer paper checks as an option," he says. Putman also notes that the potential high costs to employers who make mistakes. Before changing your payroll options, he advises that you work with an organization that understands all the state and federal payroll regulations to help ensure compliance.
"ADP helps employers stay compliant with state and federal laws, while balancing the need to create new payment options for employees," he says.
The Future of Employee Financial Wellness
Though regulations tend to change slowly, Putman sees major improvements in the near future regarding how employees receive and manage their wages. He projects that more employees will be paid with features like real-time pay. And increasing access to earned wages is not only more convenient for employees; it can also save them from having to rely on costly options like payday loans to make ends meet.
"As faster pay options become more prevalent, payday lending will likely experience some changes," Putman says. "These companies may have to slash what they charge, as unbanked and underbanked employees will have faster access to their paychecks."
With alternative payment methods becoming more common, Putman also believes that banks will be pushed toward a fairer fee structure so their accounts can stay competitive. Finally, he predicts that consumers will have more connectivity to retailers through their payment methods, which may lead to more real-time rewards and discounts.
"When it comes to payment, employees want it faster, quicker and cheaper, just like with any other product," Putman says. "As new payroll methods achieve these employee financial wellness goals, it's a positive development for all of us."
- To learn more about people and pay, download the ADPRI report: The Evolution of Pay
- [Infographic] The Evolution of Pay: Workers want Speed, Security and Flexibility
- Explore ADP's latest labor market research.
[From the researcher's perspective] Evolution of Pay: Work Status and Payroll