www.edgardunn.com | www.paymentscardsandmobile.com Edgar, Dunn & Company in association with Payments Cards and Mobile 1

Human Resources As A Strategic Business Innovator

Increase Employee Productivity and Engagement With Just In Time Payroll

October 2014

Introduction

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1 Financial Instability In The American Economy 3

2 Di culties Facing Financially Stressed Employees

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3 Financial Stress in the Workplace Leads To Significant Business Costs 5

4 The Ideal Solution: “Just In Time” Payments And Planning ............................................................... 6

5 The Means To Implement The Right Financial Tools .................................................................10

6 Sources Cited ...............................................................................................................................................................11

Contents

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Introduction

Financial Instability In The American EconomyHR must persuade fellow decision makers, using analytical data, that the current state of economic instability facing many working Americans demands timely implementation of the most appropriate initiative within their business. The realities are:

1. “About 10.6 million individuals were among the “working poor” in 2012.” 2 Notably, the American Payroll Association has found that “two thirds of employees live paycheck to paycheck.” 3

2. The middle class is not immune. “More than 25 million middle class Americans are living paycheck to paycheck.4 Notably, the majority of the liquid asset poor is employed (89%).” 5

3. Even employees from high-income households are unable to save. “25% of Americans do not have any emergency savings.” 6

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4. The next generation of workers is in trouble. Gen Y, at an estimated 80 million, appears poised to be the next generation of working poor. 8

much less to contribute to 401K” 9

Today’s workforce faces unprecedented levels of increased financial stress, resulting in escalating costs for the employer due to lower productivity, absenteeism, workplace injury, and attrition.

To assist HR departments in companies of all sizes, this White Paper will introduce a non-burdensome solution that is innovativ

al, workable ive burden,

and establishes HR as a forward thinking department that is a “strategic business partner, an employee advocate, and a change champion.1

Human Resources’ (“HR”) goal, as a strategic partner, is to support the organization’s growth plans through a well thought-out human capital strategy focused on attracting, growing, and retaining talent. However, day-to-day administration prevents HR from playing that role.Using innovative technology to introduce advanced payments processes that are functional and streamlined, HR can relieve its

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The evidence thus suggests the American economy continues to struggle, and no one is immune. Employees across socioeconomic classes need help to meet ordinary recurring expenses. For these individuals, living paycheck to paycheck, even the slightest

enough emergency savings for unexpected expenses.” 10 This stress, when brought to the workplace, leads to lower employee engage-ment and productivity, and the possible depletion of retirement

inability to save for the future.

ability to succeed in the workplace. However, many do not assist their workers due to the beliefs that there are too many institutional barriers and/or that employees have other viable options. Against

1. Millions of working Americans do not participate in mainstream banking. Recent estimates place 80 million Americans as underserved. 11

business are likely to be part of the underserved market, which

annually. 12

banking costs, distrust, and racial discrimination as reasons for being underserved. 13

2.services (AFS) but incur prohibitive costs. The underserved “value immediate and expedited access to loans and cash access at fringe institutions,” and are willing to pay high costs for access. 14 They use multiple services including check cashing, money orders, bill payment, and remittances. 15

underserved household spends approximately 10% of household income on fees and interest annually.

Difficulties Facing Financially Stressed Employees

3. Debt is weighing down employees. In 2013, U.S.

debt. 16 In addition, 56% of Americans have subprime credit scores. 17 Delinquent debt leads to lower credit scores, which are widely used in job, rental, mortgage, and insurance applications. 18 Employees also need opportunities to accumulate productive debt, which allows them to buy a home or invest in their future. 19

4. work. Business decision makers have admitted “institutional barriers are a common obstacle.” 20

stressed employees, HR is not in charge of company expenditures for implementing new programs, and convincing another decision maker such as the CEO or CFO is not easy as they may be uncon-

21 Cost is another barrier, and many employers “want customized, proven programs that can be delivered at no additional cost.” 22 Some employers are concerned that an

that employee privacy and the possibility of “making value judgments about employee spending preferences” is a hindrance. 23 Finally, others are wary of legal liabilities. 24

5. Employees may be embarrassed to discuss their

wellness programs, “employees may be reluctant to discuss personal

unless “it becomes more of an ingrained part of the workplace culture.” 25

6. nets. Many employees are tapping into their individual retirement savings. “44% who borrow from their retirement plans lived to regret their decision and among those who have taken a loan, 43% have taken two or more loans.” 26 The two main “reasons for borrowing

an emergency (35%).” 27 In addition, employees are also depleting their 401K accounts. In 2011, the Internal Revenue Service collected $5.7 billion in penalties from Americans who withdrew about $57 billion from retirement accounts. 28

Each of the obstacles enumerated above are valid but not fatal to any businesses’ desire to assist a struggling workforce. This white paper

many, if not all, of an employer’s concerns. With the right business model, employers can cater directly to a pressing need while boost-ing the morale of their most valuable asset – human capital.

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Financial Stress in the Workplace Leads To Significant Business Costs

Amer icans spend more hours work ing than any other act iv i ty . 29 Research shows money i s the top source of s t ress for the nat ion (71%) . 30 We categor ize the bus iness costs of financia l s t ress as fo l lows :

1.

2.

3.

Rising cost of health insurance premiums due to the overall decline in employees’ health

changes 31

Debt also leads to “headaches, severe depression, anxiety, and digestive tract problems” 32

Depressed individuals spend an average of $4,000 per year on medical expenses compared to $1,000 by non-depressed individuals 33

Lost Productivity Due To Absenteeism

0% 10% 20% 40% 50%30% 60% 70% 80%

On the job accidents caused by stress

Absenteeism resulting from stress

Identify money as a source of stress

Lost Productivity Due To Presenteeism•

34 35

ost

productivity.” 36

37

38 39

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20%

24%

60%

70%

71%

The Ideal Solution: Just In Time Payments And Planning

s, but also because

of the symbiotic relationship that between employer and employee. If the appropriate business solution, with the components outlined below,

searchers to

encourage banks to cater to the needs of the underserved are equally applicable to employers. Commentators have noted that providing 46

44 In another survey,

53% of HR professionals polled agreed that an employee approached a company representative for a pay advance in the last year, and 47% 45

o date

lution should

be able to withstand scrutiny and overcome barriers when compared with existing solutions in the market.

5. Increased Workers’ Compensation Claims

Research has shown that “60% to 80% of on-the-job accidents are stress related.” 41 “Stressed employees can physically injure

themselves and co-workers”, and many claims were found to be “tied directly to employee inattentiveness or distractions caused by 42 “In 2001, it cost employers $29,000 per work place accident in lost productivity, uninsured costs, accident

investigation, production slowdowns, and new employee training.” 43

Field employee complaints about pay

Process payday loans, pay advances, 401K advances, and wage garnishments

HR knows the impact of s t ress on profitabi l i ty . As a resu l t , most bus inesses invest t ime and money , pr imar i ly through HR , to do the fo l lowing :

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4. High Costs of Turnover

0

annually, and you assume the cost of turnover is 150% of salary, the cost of turnover is $75,000 per employee who leaves. For a midsized

company of 1000 employees that has a 10% annual rate of turnover, the annual cost of turnover is $7.5 million. 40

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de a smooth user experience while the backend experiences seamless integration. At a macro level, employers should seek an innovative solution that allows employees to:

Spend, save, and plan for the future

Overcome barriers present in mainstream banking

gender, or race

At a micro level, we present the following checklist, which lists essential elements in an ideal solution:

User Benefits

1. Unmet Need

2. Speed

The user should be able to access money when they need it most

3. Cost

The products and services should not charge onerous fees and interest rates

4. Inclusivity

account or social security number

Qualifying information for users should be gender and race neutral

Any qualifying need for participation should not lead to adverse employment decisions and should be open to the entire workforce

Participation requirements, if any, should not result in disparate treatment and should be based on reasonable business need

5. Financially Proactive

The service should allow users to build good credit through timely repayment of accessed funds

The business model should not encourage sustained use leading to further debt

Business Benefits

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1. Unmet Need

The products and services must meet a critical and increasing need in workforce

2. Speed – Just In Time

The products and services must allow users to access funds immediately

3. Cost of Implementation

4. Seamless Implementation

The business model should be simple and quick to implement

The business model should complement existing IT, payroll, and human resources departments

The IT components should integrate easily with popular third-party and cloud applications

Any embedded tools should deliver appropriate contextual information

5.

6. Ease of Use

and

meet their needs in a timely manner

Increased on the job focus

Increased worker engagement

Decrease in on the job errors and accidents

The business model should indemnify employers against potential losses

The business model should give employers an opportunity to tout empathy

Allocation of additional funding for the business model should be unnecessary

The employer should not be charged any fees or costs

The products and services should not add administrative burdens and costs to overseeing departments, such as HR, Payroll, or IT

ude an

appropriate third party vendor to undertake this role

The employee should be able to maintain a high level of independence in using the products and services once the program is in place

The products and services should give users anonymity so that decision makers are not pressured to intentionally or inadvertently

Technology Benefits

1. Innovative

The business model should bridge employee payroll and payments

The products and services should be customizable to every user

The services and products should be accessible from multiple platforms including a kiosk, online or through mobile services

3. Secure

The infrastructure should include built in multi layer security, encryption, and privacy

2. Array of Services

The business model should include a technologically advanced suite of products and services

Using a bus iness model that meets and exceeds these s tandards wi l l a l low employers to incur greater profitabi l i ty , and curb lost product iv i ty due to absentee ism and/or presen -tee ism. Employers can a l so curb h igh costs of turnover , generate goodwi l l by address -ing financia l d i s t ress because the i ssue t ranscends age and gender , and l i ke ly exper i -ence greater retent ion and loya l ty .

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The Means To Implement The Right Financial Tools

ucts and services

meet the requirements set forth above, but may not know where or how to access funds to meet their goals. The key is to look within.

U.S., our analysis

approximates at least $136 billion in transit every week as earned but unpaid wages until paid by the employer on payday. This estimate, when

annualized, is about $7 trillion. Products and services altering the timing of distribution of wages would help employees smooth their consump-

ers who make 47

In payroll history, the arrival of Social Security, mass payroll tax, Treasury acceptance of checks and employer direction over work hours were

among the various events that led to the two-week pay period. 48

have bank accounts, unsecured credit, and productive debt, waiting is tolerable. However, most others, including the two thirds of employees

who live paycheck to paycheck, are forced to wait while struggling to make ends meet. In addition, many consumers are not struggling, but face

CFPB have

nal factors. 49

Enabling access to earned pay makes sense, especially for those employees who make less, do not have access to credit, or rely on AFS. By using

repercussions, while protecting them from paying high costs to access cash. In fact, “researchers have suggested that deliveri

50

Employees, who are not at work worrying about money, or how to balance their expenses, are likely to be more focused and productive. If an

to their most

valuable asset: human capital.

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Sources Cited

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1

2 Who are the Working Poor?, Jessica Nelson, (2014)3 Two-Thirds of Americans Are Living Paycheck to Paycheck, A 1% Drop From Last Year, Scott Gamm, (2014)4 The New American Dream: Middle Class & Living Paycheck To Paycheck, Tami Luhby, (2014)5 CFED: Assets & Opportunity Scorecard: Treading Water In The Deep End, Jennifer Brooks, Kasey Wiedrich, Lebaron Sims Jr., and Jennifer Medina, (2014)6 Financial Security Index: Saving for a Rainy Day, Allison Ross, (2014)7 Id.8 America’s New Working Poor: Its former Middle Class, (2014)9 Id.10 PricewaterhouseCoopers, LLC, Employee Financial Wellness Survey, (2014)11 Reaching America's Financially Underserved: Opportunity Outweighs The Risk, Charles Keenan, Ngenuity Journal, Payments Industry Insights, published by TSYS, Charles Keenan, n.d.,12 2012 Financially Underserved Market Size Study, Center for Financial Services Innovation and Core Innovation Capital, (2013)13

14 The Technology to Advance Equal Financial Opportunity, Louise H. Young, Shomon Shamsuddin, J. Philip Thompson, Massachusetts Institute of Technology Community Strategies Lab, (2014); The Cost of Cash In The United States, Bhaskar Chakravorti & Benjamin D. Mazzotta, (2013)15 Alternative Financial Services: A Primer FDIC Quarterly 2009 Volume 3, No. 1 16 Chalekian, Peifang Guo, and Christopher Trepel Consumer Credit Research Institute, Encore Capital Group, (2014)17 CFED: Assets & Opportunity Scorecard: Treading Water In The Deep End, Jennifer Brooks, Kasey Wiedrich, Lebaron Sims Jr., and Jennifer Medina, (2014) 18 Chalekian, Peifang Guo, and Christopher Trepel Consumer Credit Research Institute, Encore Capital Group, (2014)19 Id.20 Financial Wellness At Work, A review of promising practices and policies, Consumer Finance Protection Board, (2104)21 Id.22 Id.23 Id. 24 Financial Wellness At Work, A review of promising practices and policies, Consumer Finance Protection Board, (2104) 25 Id.26 Americans Tap Retirement Savings And Regret It, Cyril Tuohy, (2014)27 Id.28 Americans’ New Piggy Bank: The 401(k), Richard Rubin and Margaret Collins, (2014)29 Time Use on an Average Work Day for Employed, Bureau Of Labor Statistics American Time Use Survey, (n.d.) 30 Financial Wellness At Work, A review of promising practices and policies, Consumer Finance Protection Board, (2014)31 AICPA Survey: Money Stress Taking Toll On Well-Being, American Institute of CPAs, (2013)32 Financial Wellness At Work, A review of promising practices and policies, Consumer Finance Protection Board, (2014) 33 Passing the stress test: Stress can take a toll on workers – and increase health care costs, David A. Mann, (2014)34 Relationship Between Financial Stress and Workplace Absenteeism of Credit Counseling Clients, Jinhee Kim, Benoit Sorhaindo, E. Thomas Garman (2006) 35 Financial Wellness At Work, A review of promising practices and policies, Consumer Finance Protection Board, (2014) 36 The Toll of Financial Stress in the Workplace, Ruisha Qian, (2013) 37 Financial Wellness At Work, A review of promising practices and policies, Consumer Finance Protection Board, (2014) 38 Id.39 Employees Really Do Waste Time At Work, Part II, Cheryl Conner, (2012)40 Cost of Employee Turnover, William G. Bliss, (2014) 41 Employee Financial Stress is Costing Your Company a Bundle-- And How You Can Stop It Now!, (2012) 42 Id.43 Id.44 Financial Wellness At Work, A review of promising practices and policies, Consumer Finance Protection Board, (2014)45

46 The Andera Blog: 15 Points About The Underbanked, Melanie Friedrichs, (2013) 47 The Timing of Pay Parsons, Christopher Parsons and Edward D. Van Wesep, (2013)48 The Nation: The Breakdown: Why Are We Paid Every Two Weeks?, The Nation, Chris Hayes, (2011) 49 Financial Wellness At Work, A review of promising practices and policies, Consumer Finance Protection Board, (2014) 50 Id.

PayActiv12Proprietary research for reference only. Do not duplicate or distribute without written permission from PayActiv, Inc.4300 Stevens Creek Blvd., Suite 185, San Jose, CA 95129 | info@payactiv.com