As opposed to the rest of the ever-evolving world of HR—areas such as recruiting, learning and development (L&D), and employee engagement that are constantly being reevaluated and improved upon—compensation has largely been left alone. Innovations in compensation have been few and far between in recent decades, and neither employers nor employees have had enough issues with the way workers are paid to press for big changes to the status quo.
But the COVID-19 pandemic, which has hammered businesses and people financially over the past year and a half, has forced U.S. companies to rethink how they compensate their employees. That’s according to GetApp’s Compensation & Payroll Survey*, where 76% of compensation leaders say their organization has altered their compensation strategy due to the pandemic. Nearly a third (32%) have altered their strategy significantly.
Some of these compensation strategy changes you likely already know about, or have had to make yourself. Facing economic uncertainty at the beginning of the pandemic last year, businesses had to scale back wages and bonuses, and cut certain benefits. As the economy has bounced back in 2021, and millions of job openings remain unfilled, wages have grown at the fastest rate in 40 years.
But our research indicates that there are five other compensation trends, accelerated by the COVID-19 pandemic, that deserve more attention. These innovations could forever change how employees are paid, and if your organization doesn’t pay attention and keep up with these changes, it could lead to hiring and retention issues down the line.
Here we’ll examine each of these compensation practices in detail, and offer advice on how you, as an HR or compensation leader, can implement these compensation game-changers in your organization.
The concept of a “payday” made sense when companies needed time to amass cash, cut checks, and manually calculate taxes. But in the age of direct deposit, when funds can be dispersed at the click of a button, the gap between paydays has been putting an unnecessary strain on cash-strapped workers—61% of whom can’t afford a surprise $1,000 expense.
With the only other option for emergency funds often being predatory payday loans or cash advances with high interest rates, workers are asking for help from their employers. 74% of compensation leaders in our survey say their workforce has expressed at least some interest in receiving their pay more frequently than their organization’s current pay period allows. Among companies with mostly hourly workers, that number jumps to 78%.
To meet the need, a handful of standalone apps (e.g., Instant Pay) and payroll software systems (e.g., Gusto) have introduced a feature called on-demand pay. With on-demand pay, workers can access their wages as they earn them, instead of having to wait for a predefined payday. For example, if a worker earns $150 for a shift, they have the option to request that $150—through a web browser or mobile app—and then those funds are dispersed within the same day to the employee. It’s a way for workers to get emergency funds that aren’t a loan.
Although on-demand pay existed before the pandemic, the financial burdens brought on by COVID-19 have resulted in a surge of interest in on-demand pay from employers. According to our survey, one in three companies have implemented on-demand pay during the COVID-19 pandemic, and another 22% are considering it.
If you’re considering on-demand pay for your organization, there are a few caveats to be aware of. For one thing, there are payout limits. Workers can typically only access a maximum percentage or dollar amount on-demand every pay period with the rest being dispersed on payday as usual. Vendors also typically charge a fee—a few dollars, like an ATM fee—for every transaction. You’ll need to decide if you want to take on that extra cost yourself or pass it on to your workers. For what it’s worth, a food service management company that implemented on-demand pay found employees didn’t mind paying the fees in exchange for more financial flexibility.
Talk to your payroll vendor and ask about their plans to implement on-demand pay. If they have no plans, look for a stand-alone on-demand pay vendor that can integrate with your payroll system, or consider switching payroll systems altogether.
Since Bitcoin was created in 2009, cryptocurrencies (or “crypto”) have gone from a niche technology interest to a mainstream financial instrument. A research group at the University of Chicago found that 13% of Americans bought or traded cryptocurrency from July 2020 to July 2021.
Crypto activity is at an all-time high, and our data shows that this is prompting widespread interest from employees to be paid in these digital currencies. In our survey, 61% of compensation leaders say their workforce has expressed at least some interest in receiving their pay in the form of cryptocurrencies such as Bitcoin, Ethereum, or Dogecoin.
The draw of crypto payroll for employees is obvious: By having the option to be paid in crypto, workers can sit on the digital currency until the value appreciates, and then sell and make a profit. One worker who was paid in crypto for a project saw the value of their compensation grow 700% in less than a year. Essentially, it’s like stock options on steroids.
However, the appeal for employers is not yet clear, and concerns over the legality and logistics of crypto compensation have likely put a damper on demand up until now. But our data shows that companies may finally be taking the plunge into cryptocurrency payments for employees: 14% of compensation leaders in our survey say their company currently offers the option for workers to be paid in cryptocurrency, while another 33% are considering it.
Thanks to a handful of new products that can convert cash wage and salary payments to cryptocurrency (such as BitPay), the process for paying employees in crypto is more streamlined than it has been in the past. If you choose to implement cryptocurrency as a payment option, there are noted benefits:
Faster international payroll: As opposed to credit card payments or wire transfers that can take days to process, cryptocurrency payments to crypto wallets such as Exodus or Coinbase only take a few hours—expediting the speed at which employees in other countries can be paid.
Increased security: Every crypto transaction is recorded on a decentralized blockchain ledger, making it incredibly difficult to change or compromise. A hack of blockchain-based platform Poly Network in August 2021 resulting in $600 million in crypto losses showed that crypto platforms aren’t invincible, but the underlying technology makes crypto payments more secure than traditional payment methods.
Stable prices: Cryptocurrency payroll products often rely on “stablecoins”—a type of cryptocurrency whose value is pegged to a more stable asset, such as the U.S. dollar or gold. Stablecoins reduce crypto volatility and ensure that crypto value won’t change from one extreme to the next in a given pay period.
There are also drawbacks. One is that the legality of paying employees in cryptocurrency is still unclear. The Fair Labor Standards Act (FLSA) requires employers to pay employees “in cash or its equivalent,” and similar laws at the state level require employers to pay workers in U.S. currency. An unfavorable court decision in the future could make the entire process illegal. The latest infrastructure bill that is likely to pass soon also includes new, controversial cryptocurrency tax requirements.
With over 5,000 officially listed cryptocurrencies, there’s also the issue of meeting employee needs. If your employees want to be paid in one currency, but your payroll provider doesn’t offer it as an option, it loses its value.
To reduce risk, consider rolling out cryptocurrency payments to contractors first. These spot payments have more wiggle room legally than ongoing wage payments, and you can work out which payroll provider and crypto wallet works best for your needs. You should also make clear to employees that this is optional, and that you are not responsible for crypto valuations. If your payroll provider doesn’t do so already, make sure to record the dollar-to-crypto conversion rate at the time of each transaction for safekeeping.
It’s no secret that the COVID-19 pandemic has taken a toll on many businesses financially. Workers have also struggled to make ends meet: Pew Research Center found that one in three U.S. adults have used money from savings or retirement to pay bills during the pandemic, and one in four have had trouble making bill payments on time.
Unable to ask for more money from their employer in many cases, employees are instead asking for help with managing the money they have. Nearly four in five (79%) compensation leaders from our survey say their workforce has expressed at least some interest in receiving help with managing their finances.
Historically, employers have been comfortable letting banks and financial advisors do the bulk of the work in assisting employees with managing their money. Outside of help with 401(k) retirement management, they have had no reason to get involved. But as financial stress has bled into the workplace, affecting both performance and engagement, employers are finally taking control. In a 2020 study by Bank of America, 62% of employers said they feel "extremely" responsible for their employees' financial wellness, up from just 13% in 2013.
Now, more and more employers are implementing financial wellness solutions such as Savology and FinFit to help their workforce. Using these apps, employees can create personal budgets, track their spending habits, analyze their credit score, manage their debt, and talk to financial coaches that can help them every step of the way. Some even offer access to loans and on-demand pay.
The popularity of these digital financial assistants has skyrocketed in the pandemic. One in three compensation leaders in our survey say they have implemented a financial wellness app during the COVID-19 pandemic, and another 23% are considering it.
Before implementing a financial wellness system, talk to your employees. Some may be less stressed about money than others, and many may be wary of using a company platform to manage personal finances. This will also help you decide which areas of finance to focus on (e.g., if many of your employees are struggling with student loans, you can focus on a system that specializes in it).
Head to our employee wellness software directory to compare all types of wellness systems, read reviews, and find the right system for your needs.
Whether companies like it or not, the pandemic has opened peoples’ eyes to the freedom of not being tied down to an office, and now there’s no going back. A new demand for location flexibility has led to explosive growth in remote work opportunities: Between March 2020 and July 2021, one study found that the number of high-paying remote jobs grew more than 1000%. As our own Zach Capers put it last year: remote work is the new normal.
But remote work has a compensation problem. Should a fully remote coder with a San Francisco salary make the same amount if they move to Tulsa, Oklahoma—a more affordable city that is actively incentivizing remote employees to move there? Before the pandemic, most companies would have said “sure.” According to Gartner, just 21% of organizations adjusted compensation for geographic cost of living differentials for remote workers before COVID-19 (full research available to Gartner clients).
Cut to today and companies are changing their tune. Of the nearly two-thirds of compensation leaders in our survey that have remote workers, 45% say they have already adjusted remote worker compensation to account for local cost of living, while another 29% are planning on it.
If you’re worried your remote workers will balk at having their salary reduced, a recent survey found that not only would most U.S. workers take a pay cut to stay remote full-time, but many would give up benefits and paid time off (PTO). For many, the flexibility is worth the cost.
If you have a lot of remote workers spread around the country, consider investing in compensation management software. These systems can take your compensation budget and recommend salary and bonus allotments for employees based on a variety of factors and metrics (skills, experience, location, competition, etc.).
Find the right compensation management software for your needs and budget, based on real reviews.
When the unemployment rate in the U.S. approached 15% at the start of the pandemic, companies held all of the hiring power. But with one million more job openings in the U.S. right now than people willing to fill them, job seekers have taken back control. Wages have skyrocketed as a result, but there’s another change happening that job seekers have wanted for decades: Companies are finally being more transparent about compensation in job openings.
48% of compensation leaders in our survey say their company gives full pay transparency on their job listings, meaning they list an exact salary figure or wage rate. Another 40% give partial transparency, meaning they list a salary or wage range.
A new law deserves some credit: Colorado passed the most progressive compensation law in the country this summer, requiring employers to post wage and benefit information on all their job listings. But mostly this is a result of companies needing to show more of their hand to entice talented job seekers, who have access to more compensation data than ever thanks to tools such as Glassdoor and LinkedIn Salary. In fact, it was LinkedIn in 2018 that found that job seekers overwhelmingly cited wage and salary information in job listings as the thing that would most likely convince them to apply.
Though you may lose some ground in salary negotiations, the benefits of pay transparency outweigh the cons. Instead of taking the time to interview and evaluate a candidate over weeks and months, only for them to walk away in the end because of pay, you can give job seekers that information up front and save valuable time. You will also learn quickly if your wages are too low.
The COVID-19 pandemic has forever altered what jobs people want, where they want to work, and yes, how they want to be paid. The emergence of on-demand pay and cryptocurrency payroll systems highlight the demand to drop archaic pay practices and give workers more flexible pay options. Financial wellness apps are critical to giving workers financial peace of mind. And trends such as remote pay localization and pay transparency in job openings give insight into the new realities of the job market.
Pay increases may not always be in your back pocket to attract and retain key employees, but if you jump on these trends early, you can give them more options, more transparency, and more financial freedom.
*The GetApp Compensation & Payroll Survey was conducted in July 2021. We collected 300 responses from U.S. workers in HR, accounting, or executive leadership who have thorough knowledge about their employer’s compensation strategy and payroll systems. The goal of this survey was to learn what changes that companies have made to employee compensation in response to the COVID-19 pandemic.
Note: The applications selected in this article are examples to show a feature in context and are not intended as endorsements or recommendations. They have been obtained from sources believed to be reliable at the time of publication.
Hey there, I’m Brian. I’m a Principal Analyst at GetApp. I bring you insights about HR and recruiting software. I studied at Trinity University and have been covering technology and talent management since 2014. Austin, TX is my home base. I love to travel and hate how much I’m glued to my phone. The tech trend I think you should keep an eye on: Virtual reality! No longer just a niche product for gamers, VR has real HR potential in everything from onboarding to learning & development.Visit Author's Page