The Gig Economy Drives The Next Major Payroll Disruption

The payroll has not seen much disruption since the introduction of direct deposit to accelerate workers’ access to earned wages. But a new generation of workers is now driving monumental changes in the way businesses employ and pay talent, with their participation in the gig economy a key driver of those shifts.

With data automation and faster payments, technology is now at a point where professionals no longer have to wait for a paycheck once or twice a month. On-demand access to wages is quickly penetrating the payroll space, and Paylocity CEO Steve Beauchamp says employers are only just beginning to get used to an idea that young millennial and Gen Z workers today consider the norm.

“We are definitely seeing an increased demand for faster payment cycles,” he told PYMNTS, noting that this younger generation of a workforce came into adolescence and adulthood within the proliferation of the gig economy.

“To someone who is just graduating from college, gets a job and is told that they will be paid twice a month, that worker may think to themselves, ‘That’s not necessarily the way I live, that’s not the way my expenses come in,’” Beauchamp said. “That doesn’t make much sense to them. They might have experience in college or high school working in those gigs with faster payment cycles.”

Paylocity recently announced the rollout of its On Demand Payment service, enabling workers to access earned wages — typically a portion of what would be an entire paycheck — on-demand. The company is the latest payroll solution provider to introduce such a feature as demand for faster access to earned wages heats up.

Employers Test the Waters

With more professionals taking up side jobs and gig work, their experience with companies like Uber in being able to receive payouts daily, or even multiple times a day, is one they’re now beginning to demand from their employers.

Yet those employers won’t necessarily immediately warm up to this capability, according to Beauchamp.

“As we rolled out On Demand Payment, we saw customers not necessarily ready to turn that on,” he said. “They themselves are trying to understand what the implications of that are.”

Employers of hourly workers, for example, need to be sure that workers accessing a portion of their wages have actually worked the hours for which they are being compensated, and need to validate that through supervisor and manager approvals.

Today, Beauchamp said, it’s typical for employees to take out only a small portion of their paychecks on demand. But as the on-demand wage access model becomes normalized, businesses will have to get used to their workers accessing larger portions of their paychecks when they need it, a shift he said will have implications for employer compliance with the Internal Revenue Service (IRS) as well as in cash flow management.

“If you take this to the nth degree, where everything is happening on a daily, or multiple times a day, basis, then this absolutely does have a cash flow impact,” he noted. “The way this is being used, for now, is for smaller withdrawals, but if you think about this changing over time, the cash flow impact will be more of a factor.”

Readying For More Disruption

As employers ease into the potential new reality of real-time wages, Beauchamp said there is even more disruption ahead for the way professionals want to be paid.

Though direct deposit remains the standard for many professionals in how they wish to receive funds, younger workers who prefer digital wallets and apps like Venmo could yield a growing preference for virtual payroll cards to facilitate those payouts.

He also highlighted the broader shifting characteristics of young millennial and Gen Z workers, describing them as a generation that prefers to work in a diversified skill set and learn through digital channels like YouTube. As such, there are even broader implications for the human capital management space overall, with employers having an opportunity to better serve their youngest employees with consumer-like communication and learning management technologies within the workplace.

That drive for diversified skills is one factor behind younger generations’ embrace of the gig economy, which enables them to deploy an array of talents and skillsets. Moving forward, Beauchamp said he sees this demand having even greater disruption on the payroll arena.

“A Gen Z or younger millennial is looking for a level of variety in skill sets tied to an organization that goes beyond what we have historically seen,” he said. “That means if I’m doing two, three or four different things for an employer to buld my skillset, this may mean two, three or four different rates of pay associated with it.

“It provides that gig-like economy within an actual single employer,” he said.

For the employer, that adds a new level of complexity with regards to how wages are ultimately calculated. In this scenario, multiple managers across different departments will have to keep track of hours worked by a single employee in multiple skillsets, then have to consolidate that information and collaborate to ensure accuracy. Businesses will have to reassess how they introduce new “gigs,” as well as how they identify the value of those jobs, too.

“It’s very early,” said Beauchamp. “We haven’t seen a lot of this yet — but as Gen Zs become a larger part of the workforce, this conversation will grow.”