Once the payroll calculations are wrapped up, it’s time to move on to the next and probably most important part of the payroll process, which is issuing the payments to the employees.
With the growing acceptance of digital payments and the introduction of new technologies like Earned Wage Access, employers have more options than ever to pay their employees. Let’s take a look at the different salary payment methods available in the digital era.
There are three types of payment that have traditionally been very popular with employers. These payment methods are cash, check and direct deposit. Direct deposit is generally considered to be the most widely used payment option. In the United States, for instance, 82% of workers receive their salaries and wages via direct deposit.
Cash payments in payroll are in decline because they are neither practical nor allowed in every country. The same goes for traditional paper paychecks, which are costly, time-consuming, and easy to lose. What’s more, in the remote work era, where employees are enjoying the freedom of working from anywhere instead of coming into the office each day, cash and paper check payments are out of the question.
Cash and checks may have become obsolete in today’s world of work, but numerous new types of payment have taken their place. Here are some alternatives employers should look into:
Pay cards: A pay card (or payroll card) is a prepaid card which is topped up at the end of each pay period with the employee’s earnings. Employees can use it like a normal debit card. The big advantage is that the employee doesn’t need a bank account.
Mobile wallets: Mobile wallets, also known as digital wallets, are electronic wallets which are connected to a person’s smartphone and can be used for direct purchases. Instead of paying employees via direct deposit, employers can also make direct payments to the employee’s mobile wallet.
Cryptocurrency: Cryptocurrencies like Bitcoin or Ethereum are virtual currencies which are stored in a crypto wallet. Since cryptocurrencies are not controlled by a central authority, their value changes frequently, which makes them both an interesting (potential value growth) and risky (underpayment due to value loss) payment option. However, in many countries, paying employees in cryptocurrencies is not allowed.
Stock options: Stock options are typically offered to employees as an additional compensation element and incentive, since the stock will gain in value when the company is performing well. However, offering stock options to employees isn’t without risks because their value may also decrease.
Offering employees different options for how they want to receive their wages is an important step towards giving them financial stability, but there still are situations and circumstances that can put the employee’s financial wellbeing at risk, like unexpected car repairs or the simple fact that major living expenses like rent or utility bills have to be paid before the official payday.
This is where Earned Wage Access (EWA) comes into play. EWA, also known as on-demand pay, means that employees can access the money they have earned so far in the current pay period whenever they want, instead of having to wait until the official payday. An alternative option to help employees facing unexpected financial difficulties is to offer a payroll advance, which is a short-term loan to the employee who then pays the loan back through his or her following paychecks.
There are different opinions as to whether a business should offer its employees payroll advances or not. Read more about the pros and cons of cash advances and the potential pitfalls businesses should look out for in our related blog post:
The Lano Academy is for informational purposes only and should not be construed as legal advice. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this article.
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