The new kids on the payroll block

A lot of young companies are reimagining the payroll process and its adjacent services. We’ll take a look at some of these new initiatives and introduce you to new solutions. Because I had to draw the line somewhere, I included companies that focus on disrupting pay and received a funding round between June and September 2021.

At the end you’ll find links to earlier articles, with a selection of other companies. If you put them all together, you have a relatively complete overview of the who is who in the future of pay. But new companies pop up every day and I’ll introduce you to them as they come along. More on that next month!

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Flexible Payments

If there’s one new feature that has quickly conquered the payroll space, it’s Earned Wage Access (EWA). EWA allows employees to withdraw money as they earn it. Sometimes once or twice a month, and sometimes on a daily base. It gives employees more control over their finances, and employers who offer this feature are considered more attractive to work for. VCs invest in this category for three reasons: volumes and growth are high, it offers a large disruption opportunity, and it creates social value, which is one of the ESG objectives.

EWA is seen as a benefit, especially when the employer covers the transaction fees. Most companies will use a third party to handle the process, simply because that limits cash flow fluctuations. And that is where financial institutions come in, who “pre-finance” the payments for a fee. With interest rates being what they are, the costs are almost negligible, but it remains to be seen what happens when interest rates rise and make this more expensive.

To give you an idea how “hot” this category is, here are a few EWA companies that received an investment this summer: Branch raised $48M, Payflow raised $1M, Clair closed $15M, DailyPay raised $175M and Nano announced a $3m funding round. While most companies originate in the US, Payflow is based in Spain and Nano in Vietnam. EWA is a global phenomenon.

Financial Wellness

Even though EWA solutions are an improvement over payday loans, they don’t include tools to help people manage their expenses. As mentioned, one reason for EWA is a misalignment between the moment the bill is due and a salary arrives in the bank. Another reason is that people are financially illiterate. They live an on-demand live, have no or little savings and are unable to bring expenses in line with their income.

It would be great if young people received financial training in school, but unfortunately that is the exception rather than the rule. And with the understanding that financial wellness contributes to mental health and productivity, employers are taking an interest and make solutions available to their employees.

HoneyBee offers financial tools and education that help improve employees’ financial health. The company was created after the founder went through a period of financial setbacks due to unforeseen circumstances. It recently raised $5.7M. Origin raised $56M for a financial wellness solution that helps employees utilize total compensation packages while supporting HR and People teams. And CloudPay, a global payroll provider, introduced CloudPay NOW as a solution to empower employees to manage their finances proactively while reducing operational complexities for employers. They raised $58M.

Share your payroll data with others

Payroll has always been a black box. It requires a lot of data and spits out calculations that lead to a payslip and a payment. But that data is so much more valuable. And companies are looking to unlock that data for insights – and make it more easily accessible. That can provide a better experience for employees, but it can easily cross over into a privacy issue. For employers it is crucial to understand what data access really means, and who ultimately benefits from it.

With all its advantages for the employee, as soon as 3rd parties come into play, it’s critical to fully understand where that data goes and what it is used for: e.g. making data available to participate in an anonymous benchmark can lead to security and privacy problems down the line if that 3rd party isn’t as careful as they promised or shares it with other companies. And having the employees’ consent will not fully protect the employer from liabilities. And although sharing payroll data will become the new normal, tread carefully until you fully understand the connections and the consequences.

Wage raised $5M to let employees share financial data with other parties of their choice – such as lenders, landlords, hiring managers, and countless other fintech apps. The company integrates with a number of leading payroll providers, thereby removing friction when employees are asked for financial data. Pinwheel brands itself as a “payroll connectivity” API. It helps neobanks and other clients connect into a user’s payroll information system, offering everything from direct-deposit switching to income verification, and paycheck-linked lending. They completed a $20M funding round.

There is room for one more payroll

At least, that’s what Zeal claims. They raised $13M for a modular Gross-to-Net API-first payroll engine, marketed as a “build-your-own-payroll” that incorporates modern features like being able to pay workers every day. The solution allows third party platforms to embed individualized payroll products. It’s currently focused on US payroll only.

Enterprises that pay a large volume of workers could use Zeal to build a custom payroll product that automates high volumes of payment processing and keep payment data on their own native system. It can also be used by vendors that build business support systems, and don’t want to build and maintain a custom payroll. I think that the second category is a more promising customer base than enterprises: what enterprise wants to do all that work these days?

What if employees run payroll themselves?

It’s an interesting idea from Paycom. The company claims that with Beti, employees run their own payroll. Beti identifies errors and the App helps employees to resolve them before the final run. Once they’ve completed these tasks, they receive full insight into their paycheck before the final payroll is calculated, including an overview of deductions, expenses, allocations and the date the net balance will be deposited into their account.

Of course, a payroll administrator is still needed to ensure payroll rules, tax schemes and deductions etc are handled correctly, and the processing is completed on schedule. Yet, when employees have a better understanding of what’s going on with their salary payment and can correct mistakes when they spot them, that will alleviate some of the burden on the payroll department, including less need to rerun calculations due to errors with all the pain associated with that.

It will also provide employees with a greater sense of control over their payment data. But they are not (yet) running their own payroll, and I expect they won’t be for a while. It’s just too complex.

How about a mobile-first payroll?

In New Zealand, PaySauce offers business owners a single solution from onboarding all the way through to the final pay slip as a completely mobile solution. The App enables employees to self-onboard by entering their own details. Once they’re up and running, they can make leave requests and submit time sheets from their smartphones. Plus, they can see when they’ve been scheduled to work, all via the employee mobile app. 

When the employer needs to run a payment, they facilitate payments with direct connections to employee bank accounts. Payment time ranges from instant to within the hour. They also offer employees the option to access their earned wages at any time, without needing to integrate with outside solutions.

PayNow, the earned wage access feature, facilitates a financial link between the bank and the employee, independent of the employer. PaySauce takes care of the employee accessing the earned wage component they need prior to payday and facilitates the transfer of the amount back to the bank on payday. Who needs a browser anymore?

Equitable Compensation

It’s not only payroll itself that is the focus of disruption. Startups also focus on the processes that lead to determining an employee’s pay or total compensation package, and especially on its fairness. In 2020, business leaders were forced to pay more attention to transparency and pay equality. Very often, claims of unfair treatment initiated a new, data-driven approach. A number of new solutions look to address this topic and VCs are all in.

Recruiters often lack the data and tools to figure out how much to pay people and communicate that effectively. With Compa, that raised $3.9M, talent acquisition teams can input pay expectations and compare recent offers and collaborate with other team members and hiring managers to reach pay consensus quicker.

Pave operates in the same area and is focused on unlocking insights to help companies make informed and equitable decisions about their compensation packages. They allow companies to benchmark compensation in real-time and make total rewards more transparent and fair. They received $46M in funding.

Pequity offers a platform that allows companies to create fair and competitive compensation programs and closed a $19m Series A funding. This solution compares pay to peers & ranges, notifies decision makers with approval chains, and tracks historical pay decisions to ensure equitable pay.

Payscale acquired Curo to extend pay equity and compensation even further. Curo provides compensation professionals with the much-needed flexibility to perform complex statistical analysis, model out remediation scenarios and put pay equity at the forefront of hiring and promotion decision making.

Syndio‘s PayEQ product is used by over 100 companies to analyze and resolve pay disparities based on gender, race, or ethnicity across 2.3 million employees. The company raised $17.1M to enhance the product with opportunity equity, benchmarking, and workforce analytics.

More insights

If you need more payroll inspiration, take a look at these recent articles:

API’s for HCM and payroll: 7 startups to explore

Who dares to disrupt payroll?

These cool startups just raised millions to disrupt the future of payroll

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