Exploring the Structure of On-Demand Payroll Solutions

For the past three years, I have been engaged in the Earned Wage Access sector. My objective has been to furnish prospects, partners, and investors with an understanding of the service's worth, advantages, and notably the prospects which it can offer. In this article I will take you through the internal workings of on-demand pay, elucidating how it operates and the benefits it can bring, this time from a slightly more technical standpoint. Before diving into the specifics, let's explore the purpose of on-demand pay: recent PwC research suggests that 60% of Americans rely on their paycheck to meet basic needs like rent, bills, cards, food, and schooling. What is the difficulty in this scenario? Most workers don't get paid on the same day their bills come due. That may not matter to those who make over $70,000 annually. But for those with incomes closer to or below the poverty line, it's an issue they can't overlook. An unexpected financial emergency happening during this period can be a nightmare. How can these folks take care of it? They have some choices: request money from friends and family (ever been in a situation where you had to ask for money and tell people you'd pay them back once you got paid?); second is to use a credit card but bear in mind that low-income households may not be qualified; third is taking out short-term loans, also called Payday Loans, with high-interest rates sometimes going as high as 500% (it is not a typo); last option is not making the payment and incurring late fees. The most advantage of on-demand pay is apparent here. It breaks up the usual payment cycle and allows employees to retrieve their wages whenever necessary provided the wages are already earned and without strain on the employer's money flow. Payment on demand can be provided through a business relationship or directly to customers. Here, my attention will be restricted to the former, which involves the involvement of a supplier, employer, and employee. In the majority of circumstances, employers have no costs associated with setting up this partnership; employees are charged a nominal fee for each transaction, though there are some options with no charge or fees subsidized by the employer. By leveraging data, on-demand pay enables employees to track their hourly earnings and then convert those hours into an accessible balance that can be withdrawn whenever they desire. The information exchanged between systems is stored in two primary sources from the employer's viewpoint: Payroll (PEOs, Payroll, etc.) and Time and Attendance (Scheduling platforms, POS systems). To join both data sets, APIs are employed or, if necessary, flat files or SFTP files are used based on the capability of the On-Demand Pay provider. It is essential to guarantee complete protection at both ends as payroll information is always classified. Once the On-Demand Pay provider has ingested the two data feeds, the hours are converted into accessible balances that the employee can monitor or view, usually via a mobile app. Essentially, there are two primary ways to achieve this in the realm of space. The first, referred to as the direct approach, preserves the existing banking setup of employees. The advantage of this process is that workers can move the funds to any account of their choosing when needed. It should be noted that for the repayment, the provider will incorporate a deduction line item on that paycheck (which will be discussed in more detail below). Alternatively, the second approach to provide on-demand pay is to have the employee change their banking relationship, requiring them to switch direct deposits. Doing so means giving employees access to a bank account plus a debit card to use the service; however, this may lead to greater complexity and potential risks. But alternatively, it offers a lower fee for the service. One of the most important considerations, no matter the approach used, is how quickly the funds can be made available. Most providers offer two options: a 24-48 hour payout (a standard ACH), or the more popular choice of an immediate payout, usually via Visa or Mastercard (like what Venmo or Zelle use for immediate peer-to-peer payments). The true value of this service comes from the fact that on-demand pay is more than just a piece of software, it is a financial service. Every time an employee withdraws money, the on-demand pay provider covers the funds for them, so the employer does not suffer any change in cash flow since these funds will be paid back on the regular payday. It is easy to see the advantages for businesses in this case. Essentially, the provider extends a free credit line to employers and takes any risk on their behalf, creating a highly valuable service. Now, if an employer was to try to do this in-house, they would have to have a large amount of cash on hand to guarantee this flexibility to their employees, which could be an expensive endeavor. Therefore, doing this service in-house makes little sense. If your staff are functioning using the system over a given period, then I'll utilize a two-weekly salary schedule as an illustration. On the day of payment, the on-demand pay provider will execute the following: The direct method adds a deduction line item to the paystub, which is usually done by an API, and shows the total amount withdrawn for employees. This line item designates the difference between what an employee should be paid and the amount they took in advance. In this method, their original bank account remains the same; either their direct deposit or a hard check will be given. Is it valuable? This way, the risk of non-repayment is practically eliminated, since the money is collected directly from the employer. If the provider requests a change in direct deposits, the employer will typically deliver the full amount to the new bank account (supplied by the on-demand pay provider). Simultaneously, the provider will also deduct any previously taken amount on their platform. Do you understand this flow? By controlling the account, the provider is able to manage when to debit the amount and thus reduce the risk of nonpayment substantially. On-demand pay is merely the beginning. I think that on-demand pay is just the start of something much bigger. To borrow a phrase often used by our CEO, this is only the beginning. From my point of view, on-demand pay is a starting point for achieving financial wellbeing while providing access to financial services. Once you enable an employee to overcome that immediate financial challenge, you can start introducing supplementary items, essentially teaching them “how to fish.” This is why we observe providers introducing additional products such as savings accounts, debit cards, credit products, and so on. Today is all. Subsequently, forthcoming blogs will concentrate on assessing the importance of payroll details and how it can be used to propose additional financial facilities. Of course, if you are interested in OrbisPay, you can go to our web or talk to me!'s parents were adamant that he attend college. Pablo's parents were insistent that he go to college.

Source: https://medium.com/@pabloandresalva/the-anatomy-of-on-demand-pay-768186803da6?source=rss------fintech-5