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Gig Economy Drives The Next Payroll Disruption

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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.”

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Featured PYMNTS Study: 

With eyes on lowering costs to improving cash flow, 85 percent of U.S. firms plan to make real-time payments integral to their operations within three years. However, some firms still feel technical barriers stand in the way. In the January 2020 Making Real-Time Payments A Reality Study, PYMNTS surveyed more than 500 financial executives to examine what it will take to channel RTP interest into real-world adoption. Here’s what we learned.



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As Congress scrutinizes gig worker rules, small-business owners need to know the basics – The Philadelphia Inquirer

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Uber’s UK ruling could have implications for gig economy startups

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Former Uber drivers Yaseen Aslam and James Farrar first brought their case against Uber in 2016
(Carl Court/Getty Images)

The UK’s Supreme Court has rejected Uber‘s appeal against an earlier ruling that said its drivers must be classified as workers, a result that may have a significant impact on other gig economy companies.

The decision—which cannot be appealed—means thousands of UK Uber drivers cannot qualify as being self-employed, entitling them to both minimum wage and holiday pay. The ridehailing company could now face paying substantial compensation to its drivers.

The ruling, which criticized Uber for sidestepping UK labor laws to withhold benefits, could influence other battles between gig workers and the companies that hire them. Earlier this month, the Independent Workers’ Union of Great Britain appealed against a court decision preventing riders for food delivery startup Deliveroo from engaging in collective bargaining due to their self-employed status. Deliveroo, which is backed by investors including Durable Capital Partners and Amazon, is looking to go public this year.

“Employees should benefit from improved rights; however, employers are likely to face increased costs of labor and disruption to their business models, which have proven to achieve rapid scale with gig workers,” said PitchBook analyst Nalin Patel. “The ruling may also now set a precedent in the UK and force other gig economy startups that utilize the self-employed contractor model to rethink how they operate in the region moving forward.”

Former Uber drivers James Farrar and Yaseen Aslam originally won their tribunal against Uber in 2016. Uber appealed the decision, but it was upheld in 2017, and again in 2018 by the High Court.

“This ruling will fundamentally re-order the gig economy and bring an end to rife exploitation of workers by means of algorithmic and contract trickery,” said Farrar, who is also a general secretary with the App Drivers and Couriers Union. “Uber drivers are cruelly sold a false dream of endless flexibility and entrepreneurial freedom.”

In a statement, Uber’s regional general manager for Northern and Eastern Europe, Jamie Heywood,  said the court decision was focused on a “small number of drivers” who used the app in 2016. Since then, he said the company had made changes to its business,  providing free insurance in case of sickness or injury. He added: “We are committed to doing more and will now consult with every active driver across the UK to understand the changes they want to see.”

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The future is now for gig-based entrepreneurship – San Gabriel Valley Tribune

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With Californian Kamala Harris as vice president, it’s clear the new Biden administration is taking its cues from the once-Golden State on labor policy.

In one of its first acts in office, the Biden Administration placed a regulatory freeze on a Department of Labor regulation enacted in the waning days of the prior administration relating to independent contractors.  The rule, according to labor and employment law firm Fisher Phillips, “aims to make it easier for businesses to classify workers as independent contractors.”

It’s unlikely this rule to give more workers freedom to be their own boss and set their own schedules will survive in a Biden administration that was heavily reliant upon labor unions for money and manpower to win the 2020 campaign.

Meanwhile, House Democrats recently re-introduced the controversial PRO Act in Congress, which “seeks to reduce the use of the independent contractor classification by companies such as Uber,” according to CNBC.

Both of these efforts followed the lead of California’s liberal legislative majority, which two years ago enacted the controversial Assembly Bill 5 to severely restrict the ability of Californians to work as independent contractors.  Their goal is to increase union membership and dues and force people to work in traditional, 9-to-5, union jobs that are relics of the past.

Doubling down on AB 5-type restrictions at the national level – which may be the Biden administration’s goal with the nomination of Julie Su, California’s chief AB 5 enforcer, as deputy Secretary of Labor – would be a tremendous mistake.  It would threaten innovation and hurt the ability of Americans who have lost their jobs to put food on the table during a global pandemic.

As documented in the new Pacific Research Institute study, “The Small Business Gig,” Americans are increasingly working in the gig economy.  They don’t want government – whether in Sacramento or Washington, DC – dictating how they can earn a living.

A 2018 Gallup survey found that 36 percent of U.S. workers have some sort of a gig worker arrangement.  Whether renting out an extra room to earn cash to pay the mortgage or using an app to earn a living on an alternate schedule, the gig economy is increasing opportunities for Americans to become entrepreneurs, while providing customers with lower cost services.

Many in California state government see the gig economy as exploitative and disruptive.  But data from the ADP Research Institute shows that 70 percent of gig workers are independent workers by choice.  Gig Economy Data Hub research found that more than two-thirds of gig economy workers are satisfied with their current work arrangement.

Government shouldn’t pick winners and losers in the economy.  New restrictions on the gig economy, like those proposed in Congress, will limit people’s freedom to become entrepreneurs while institutionalizing the old way of doing work.

Instead of adopting regulations at the federal level that 58 percent of Californians – Democrats, Republicans, and independents alike – rejected when they passed Proposition 22 in November, the Biden administration and Congress should take the opposite approach and enact market-based policies to encourage entrepreneurship and innovation.

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