Earned Wage Access- implications for global payroll
A lot is changing these days and a new hybrid working model is changing the way we work and interact with each other. So, it is not entirely surprising to find out that there may be changes coming down the line in the ways in which global employees are paid.
It’s a digital world and also something of an instant gratification world where the general public have been used to getting the information they want in a matter of clicks. Now, some people are asking why the same logic cannot be applied to the way they receive their compensation for the work they deliver to their global employers.
A debate or argument has been created that the current employee pay model with a one-off payment usually at the end of a month is open for radical transformation. If employees work hard and diligently deliver services on a daily basis-then why should they have to wait until a specific, pre-defined date to receive payment for their services? This is the crux of the logic behind earned wage access, a new way of paying employees that gives them additional flexibility and freedom when it comes to how and when they are paid.
In this article, we will examine how earned wage access works and what the implications are for both global payroll and global employers going forward.
What is Earned Wage Access?
Earned Wage Access is a process whereby employees receive or access their pay as they accrue it. They can either withdraw the full accrued amount or a portion of it at a time of their choosing as opposed to waiting for the normal, contract mandated month-end or fixed period pay date. The process would involve a calculation of an accrued amount on a daily basis and this figure would then be eligible for withdrawal.
This would represent a major shift in how people are paid but with various personal bills arriving at different times in the month, it is not hard to see the appeal for global employees. From their point of view, they will also view it as fully justified as earned wage access gives them access to wage or salary payments that they have certainly earned, just not yet been paid for. In the past, when bills have arrived several weeks before their salary payments were due to hit their bank accounts, global employees may have resorted to credit cards or payday loans to cover household expenses or personal financial matters-this was an unsatisfactory situation, and this new model of payment is a convenient and helpful work around that is likely to be embraced with enthusiasm by many employees.
Earned Wage Access-a possible recruitment differentiator?
HR leaders and teams putting together competitive compensation and benefit packages are also looking at earned wages access with interest. It may possibly represent a recruitment differentiator that could prove to be valuable in securing a candidate in the war for talent.
Hybrid and remote working have now become normal post the pandemic-location is less important and therefore employees have a great deal more choice in the type of company they work for. Some successful candidates out there may have multiple offers and will weigh up their decision on who to opt for based on the key differentiators. Compensation as well as how they are paid may play a role in their decision making and they might find the opportunity for earned waged access to be an attractive proposition and a decisive factor.
In general, human resources departments are looking to make changes to their compensation benefits and rewards packages in order to differentiate themselves in the market and appear innovative. So, they will be examining how they may incorporate earned wage access into their payments profiles, and they will be having conversations with the finance team and the CFO around the viability and sustainability of such a payment method. An EWA program for early wage access could be a strong retention factor as it is a good way to support employees.
To make earned wage access a reality, multinationals may need to partner with fintech companies whose software and applications naturally lend themselves to quick and efficient real-time bank transfers. Most companies will find that their traditional banking partnerships may not be entirely suited to such a flexible payments model. They also might be unwilling to take on any additional administrative burden that such a process might involve, so fintechs with a ready-made earned wage access solution via a mobile app for employee access may be ideal.
But, if they wish to remain competitive, they may have to move sooner rather than later, or risk being left behind in the war for talent. Some fintech startups are already in active negotiations with large global employers to see how they could make this work in the long run. Revolut have been quick to get onboard and recently launched a new ‘earned wage access’ product called Payday. The general consensus is that if the larger fintechs are making moves into this new space, many more will follow-this is simply the law of the land. Some are already choosing to market their services as a form of financial wellness benefit.
Implications for the global payroll department
Any change to how and when people get paid brings with it major implications for the global payroll processing team as well as local country payroll providers. EWA is essentially payment on demand, and this leads to an expectation among employees for 24/7 access to the money they have earned.
This can have a very significant impact on payroll calendars, specifically the traditional two-week or month-end pay periods. These pre-defined pay cycle times for payments may become a thing of the past or at least, subject to review.
A much more pressing concern for global payroll professionals is around the issue of technology-they will have valid concerns about whether or not their current technology stack is capable of responding to this new type of payment. Many global payroll professionals point to the fact that their current legacy technology is no longer fit for purpose when it comes to managing how they currently deliver payroll, so it is most certainly not going to be capable of managing such a nuanced change as earned wage access. This type of payment will certainly require flexible and agile technology built for rapid processing so those organizations not yet on a global payroll control platform should certainly look into one if they are considering introducing earned wage access in the future. It seems very likely that standardization and automation will also need to be part of any process dealing with earned wage access, furthering the need for innovative automation and integration technology in global payroll processing.
Data standardization is likely to be a key driver for fintech-anything that standardizes data and improves data workflows in the global payroll department will likely have a knock-on positive effect on payments. If a fintech payment partner came on board, they would certainly like to work with standardized data and a similar pay element structure across all payroll countries within the organization. This would likely facilitate smoother integrations with any fintech applications and cut down on data related work. Essentially, if the data is standardized, then the foundations are in place for smoother international digital payments.
A cloud based digital platform will likely be needed and so will a modern employee self-service module, so that employees can see and track how much of their wages they have asked to receive and how much is left for them to withdraw. This will be a must have as neither human resources, nor global payroll teams will have the time or resources to be continually answering queries around earned wage access.
Overall, there are clear benefits to implementing an earned wage access program at a multinational company. But full research and due diligence needs to happen first- an organization must be fully confident that their digital platform or technology stack is fully capable of handling any new demands placed on it.
The ideal approach is to develop a technology solution that enables global employees to manage the entire process themselves, from their own devices, without any need for assistance or clarification from either HR or the payroll team.
Earned wage access is another example of the evolving human resources, global payroll and employee benefits landscape. Expect it to grow in popularity over the coming years as wages and salaries become another thing that people would like to have ‘on-demand’
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