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The Wait For Payday Doesn’t Have To Be So Long (#GotBitcoin?)

As lawmakers push for a faster payments network, companies may look for other ways to deliver paychecks faster. The Wait For Payday Doesn’t Have To Be So Long (#GotBitcoin?)

The Blockchain could actually deliver payroll payments on a minute-by-minute basis vs these stupid pay day loan advances involving fees and charges as mentioned below:

The rhythms of payday are familiar to millions of Americans. Sometimes, it’s a fun excuse to splurge; other times, it’s a painful wait that forces hard choices.

Increasingly, however, it may not have to be anything at all, according to financial-technology firms, lawmakers and others who want to change the infrastructure underlying paychecks so that workers get paid faster.

A clutch of tech startups, with more than $300 million in venture funding, have come up with ways to front workers their wages early and collect later on, when payday arrives. To do it, they are experimenting with charging some form of fee, or selling companies’ future payroll obligations to investors. Some startup banks also advertise faster paycheck access.

Democrats including presidential hopeful Sen. Elizabeth Warren of Massachusetts, as well as Sen. Chris Van Hollen of Maryland, Rep. Ayanna Pressley of Massachusetts and Rep. Jesús García of Illinois, have taken up the issue, pushing for a faster network to carry payments to consumers.

These changes might get workers paid only a day or two faster, but even that can make a big difference, advocates say.

Aaron Klein, a fellow at the Brookings Institution who researches consumer finance, pointed to a recent program at Wells Fargo & Co. called Overdraft Rewind that waives overdraft fees for people who receive a direct deposit the day after spending more than what’s in their account. More than 2 million customers avoided overdrafts under the program in 2018, the bank said.

Mr. Klein believes slow payments cost workers billions of dollars a year in overdraft fees, loans and other fees.

Some $30 billion is lent out each year in payday loans, according to a 2017 study by Financial Health Network, a consumer-finance advocacy group.

Payday has been evolving. Functions that once took days or weeks, such as tabulating workers’ hours and withholdings, now are often automated and calculated in minutes with software and mobile apps. Paychecks that used to crawl through the mail can now arrive digitally through direct deposit.

But payday could still be faster.

A direct deposit generally takes a day or two to arrive in a bank account, depending on how and when it is sent.

Sen. Warren took aim at this delay in a recent campaign policy statement. “Ever notice that it takes days for a paycheck to clear?” she wrote.

She and other lawmakers are seeking to require that banks make certain deposited funds available immediately, rather than the next day. They want to require the Federal Reserve to build a new payment network that moves money, including paychecks, instantly.

The Federal Reserve said earlier this month that it plans to build such a network over the next several years to potentially compete with other real-time systems offered by banks and card networks. Big banks that have built their own new instant-payments system had lobbied against it.

Still, even if paychecks were to clear through the banking system instantly, there are no guarantees they would arrive into employees’ accounts more quickly or frequently.

In effect, employees give their employers an interest-free loan for the period of their pay cycle.

Today, many companies transmit payroll payments a couple of days before employees expect them, to accommodate the delay in clearing or in accordance with the rules of payroll services providers. Corporate treasurers and bankers who work with them say that with instant payments, companies might simply hold on to employees’ money a day or two longer.

The amount of money in transit is substantial—and valuable. Payroll services provider Automatic Data Processing Inc., for example, throughout the fiscal year that ended in June 2018 held an average of $24.3 billion transmitted by companies but not yet paid to employees or tax authorities. That generated $466.5 million of interest revenue for ADP.

ADP and others now are starting to work with clients that want to offer options for faster pay, and to discuss faster pay with lawmakers and regulators, said Doug Politi, ADP’s president of compliance solutions.

For example, ADP works with startup DailyPay Inc., which works with companies to offer instant pay-access to their employees as a benefit.

ADP also is piloting a program to enable workers who are viewing their pay online to explore new ways of getting access to that money.

But there are costs associated with those sorts of services. In the future, ADP might earn less interest for holding cash and more fees for faster service, but that shift is in its early days, Mr. Politi said.

Increasingly, though, some experts view such programs as only intermediate steps, with the ultimate shift being for companies to take advantage of technology to simply pay workers more frequently.

Some gig-economy contract workers, like drivers for Uber Technologies Inc., can opt to get paid up to five times a day by receiving the money on a debit card, but few other workers have that option.

About 60% of U.S. private businesses pay employees roughly every two weeks for work they might do every day, according to the Bureau of Labor Statistics. Another 5% of the businesses pay monthly.

In the early days of the modern labor market, regular pay cycles were an innovation to attract workers. Biweekly paydays became the norm over the course of the 20th century, especially for office workers. Some manual-labor industries, like construction, often pay workers weekly.

But both the frequency of paychecks, and the way they move, are hard to change.

“You’ve got an enormous embedded infrastructure of payroll tied into doing things, and the cost of replacing it is pretty significant,” said Todd Baker, a senior fellow at Columbia University’s Richman Center for Business, Law and Public Policy.


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