When considering the impact of diversity, equity and inclusion (DEI) investments throughout the tech stack, the areas of payroll and payments technologies are likely not top of mind for most people. However, advances in wage analytics and evolving payment processing capabilities are adding new levels of visibility into pay equity and offering new methods for employees to access their pay.
With HR typically the owner of both payroll and DEI initiatives, it was only a matter of time before the two areas converged. In this report, we break down the various advances in payroll and payments technologies, and detail their potential impact on DEI efforts and the employee experience.
With wages and compensation serving as differentiators for recruitment and retention, and key elements of the employee experience, it makes sense that there is so much innovation happening across payroll software and payments technologies. Our research shows that HR has a keen interest in these new approaches relative to payroll, and whatever the reasoning is for seeking these features, we believe the impact will go beyond recruitment and retention to create new opportunities for increased equity in hiring across various socio-economically diverse populations. Some of these technologies are still very new, and others can be difficult to implement at scale, but they represent the potential for payroll to become a bigger part of the DEI discussion.
When asked about missing features in their payroll software, HR respondents to 451 Research’s Workforce Productivity & Collaboration, Employee Lifecycle & HR 2023 survey point out a big need for deeper integration with financial planning and analysis (FP&A) tools, highlighting HR’s increased participation in the planning process. However, integration with modern payment apps, deeper intelligence and additional modern pay methods are also top of mind.
The missing features highlighted by HR respondents exist broadly across two categories — pay equity and analytics, and payment technologies and capabilities. These two pillars of pay equity have evolved somewhat separately from one another, being that they are in adjacent markets, but are moving more toward convergence.
Pay equity and analytics
A big part of DEI is pay equity — making sure individuals in similar roles and with similar experience are compensated equally for equal performance. In order to add visibility to pay dynamics, an emerging market of pay equity software platforms has emerged. These vendors — including the like of Syndio, Pequity, Pihr, Trusaic and Affirmity — offer tools that enable HR managers and payroll administrators to visualize the equity of their current payroll, and some can even alert hiring managers when a salary range for a posted role will introduce more inequity. Vendors like Syndio even have opportunity-equity tools, which offer similar visibility into the equity of career progression.
Broad visibility is needed, as only 30% of employees have an adequate understanding of how their organization approaches compensation, benefits and pay, according to our Employee Lifecycle & HR data. In that same survey, HR’s most in-demand missing feature from the compliance, audit and controls software they use is the ability to support diversity and inclusion audits (55%). As such, the rise of these new analytics capabilities offers a new way to engage DEI initiatives and audit for them, as well as a new way to increase visibility into pay dynamics and bring transparency to employees.
Payment technologies and capabilities
In addition to the growth of technologies that deal with analytics and insight into pay and wage trends, there are several technologies impacting the ways payments are processed and distributed that can also impact the employee experience for DEI. While some of these didn’t originate as part of a payroll or wage distribution tech stack, they all carry potential to impact it.
Earned wage access
Earned wage access (EWA), also referred to as on-demand pay, is a salary or wage advance system that allows employees on a traditional monthly or bimonthly payroll cycle to access the wages they have earned ahead of time. Faster access to earned wages serves as an alternative to payday loans, which are short-term loans that can yield high rates and fees. Instead, with EWA there is no cost to the employee to access earned wages ahead of schedule, although some programs may charge employees a fee for immediate transfer of funds and access to wages. Numerous vendors have emerged to facilitate earned wage access for employers and employees, including DailyPay, Payactiv, ZayZoon, Branch and OrbisPay, to name a few.
RTP facilitates instant bank account transfers with 24/7 real-time clearing and settlement, compared with the traditional one- to three-day settlement time offered by most banks. The US has been slower to adopt RTP compared with markets like India, Brazil and Thailand, but that is beginning to change. The Clearing House launched the first real-time payment system in the US in 2017, aptly named the RTP network, and the Federal Reserve plans to launch its own RTP infrastructure, dubbed FedNow Service, this July.
RTP has numerous implications for advancing DEI efforts. Namely, RTP offers instant access to funds, which is particularly beneficial for gig economy workers, small businesses that tend to be more dependent on cashflow, and consumers that need immediate access to funds to pay for necessities like groceries and utilities. We have found that 29% of consumers would be interested in using real-time payments to receive wages immediately after a shift or workday, rising to 38.2% of Gen Z and 43.6% of millennials, according to our Connected Customer, Digital Experiences 2023 survey.
Employers may offer their employees a prepaid debit card, also referred to as a payroll card, to receive their earned wages instead of direct deposit or checks (employers are required to offer at least one payroll alternative to direct deposit). Prepaid cards offer several benefits for employers and employees. Since prepaid cards don’t require a credit check or bank account, underbanked and unbanked employees can have easy access to their wages. Prepaid cards are a more convenient and cost-effective alternative than taking a check to a check-cashing service, and are also less of an administrative burden for employers. Prepaid cards are also more secure than cash and can be linked with EWA programs and mobile payment apps such as Apple Pay and Google Pay. Prepaid card providers for wage disbursements include GreenDot, Galileo, FlexWage, rapid! and Netspend.
Financial services apps
Financial services apps (e.g., mobile banking, investment, peer-to-peer payment, digital wallets) have become pervasive. We have found that 74% of consumers surveyed have at least one financial services app on their smartphone. COVID-19 further increased financial services app adoption as consumers turned to convenient, contactless ways to transact and manage their funds. While a smartphone or tablet is typically needed to use payment apps and digital wallets, a bank account generally is not, which makes for a convenient way for unbanked consumers to access, store and transfer funds within the app or digital wallet. Furthermore, payment apps like Venmo and Cash App now allow users to receive direct deposits, and load cash into their accounts at merchants like Walgreens and 7-Eleven. We have found that 59% of consumers surveyed have used a digital wallet at least once in the past 90 days to make a purchase online. However, digital wallets have applications beyond just the point of sale. Employers can offer employees a digital wallet to receive their earned wages and can better engage with employees by enabling convenient access to benefits information, 401(k) plans, financial guidance, and even investment and savings options. Vendors such as Velmie and HolyWally enable employers to offer their own branded digital wallets to employees. Furthermore, many digital wallet programs can integrate with employers’ existing software and accounting systems, minimizing disruption to their tech stacks
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