In a recent HR on the Offensive podcast we spoke to Ian Wheeler from Income Group about this emerging technology, the impact it is having on the payroll landscape and what the future might hold.  

Payroll: real-time payments vs faster payments – what are they?

Clearing banks introduced the term ‘faster payments’ in mid-2008 to describe the reduction in transaction time from one bank to another – it now takes only a matter of seconds. Recently, these terms have muddled and are often used interchangeably. However, ‘real-time payments’ have evolved to offer greater flexibility and control over how money moves between accounts. As the name suggests, the transaction initiates, clears and settles in a few seconds.  

From a payroll perspective it gives employees their money quicker and with them having more control. Historically, a Payroll team followed a standard industry approach with a ‘cut off period’ by which it had to process payroll. Typically, this period lasts three days, during which the team prepares payroll for processing before the payment enters the employee’s bank account.

What other benefits are there of real-time payments?

The most obvious is agility. If you run a weekly payroll, for example, you typically have a deadline for employees submitting their information (timesheets, expenses, etc.) and again there is a ‘cut off’ in order to process the payment. Real-time payments reduce the processing time, allowing you to pay employees more accurately for what they have earned, almost right up until the moment the money is moved into their bank account.

We have also seen some organisations consider this as a benefit that can be offered for their employees. If you can draw down your wages at the end of a day as opposed to once a month, is that a more attractive option  than an organisation that does not offer that facility? 

Is every business embracing real time payments?

Post pandemic what we are seeing is more ‘when are we going to use real time payments?’ rather than ‘is this an approach we should adopt?’. This is a relatively newly emerging technology, but one of the most frequent reasons as to why this is not viable for organisations is when looked through the lens of the potential cost-per-transaction basis. If a bank charges an organisation every time a payment is withdrawn, allowing employees to draw down from their salary more than once through a traditional monthly payment could become prohibitive, especially if the organisation has thousands of employees making monthly withdrawals.  

The global pandemic shifted the mindset of many employers we talk to as employers started to look at ways in which they can support their employees beyond just providing their wages once a month when people had so many different challenges happening in their personal lives. That shift from ‘what is this going to cost us?’ to ‘how can we support our people?’ during the pandemic was a key moment for the adoption of real time payments. Information from UK Payment authority – PayUK – in September real time payments was growing 16% year-on-year (£230billion for the month), whereas BACS (traditional payment for salaries) was in decline.  

What questions should you be asking yourself if you are looking at implementing real time payments for your business?

The first question is to assess is your own cash flow cycles. We’ve already outlined the benefits to employees and employers, such as demonstrating flexibility to your people and potentially using it as a talent attraction/retention tool. However, with transactions occurring throughout the month, the system must work for your business and how it is set up.

Secondly is ensuring accuracy of payments. It is an age-old adage that employees and organisations have few issues with payroll until there is a discrepancy. Your Payroll team needs to ensure they accurately process when an employee receives pay or a bonus, making sure the employee gets exactly what they should be receiving.

Real time payments provides the opportunity for the Payroll Team to be positioned as more strategically aligned to the business. If you can align your Payroll function to the cash flow cycles within a business, it enables smoother running of a business – regardless of size or industry sector. 

What is the future for real time payments?

Real time payments has found a way to increase disposable net income. This has an impact for employees, of course, but also for people as consumers and that can have a knock on effect for businesses who those consumers purchase from, which is good for our wider economy as well. In addition to that, I hope businesses will widely adopt real-time payments as a tool that strengthens the trust between employee and employer.  

If you are interested in talking to us about real time payments, or how you can ensure your Payroll function is more closely aligned to the strategic direction of your business, you can reach out to a member of our dedicated payroll consultancy through the form below. We’d be happy to chat. 

You may also be interested in these further resources:

What are the emerging trends in payroll?
Investment in your payroll function: All or nothing?
Navigating the changing face of Payroll in a post pandemic world
What does the future hold for the Payroll function?