The Problem with Two Week Pay PeriodsFor most people, payday comes around just twice a month. Getting paid on the 1st and the 15th (or every other Friday) has become so ingrained in our culture that you probably haven’t thought much about why this tradition exists in the first place.
When you look at it, though, this delay in payment is really an just interest-free loan from you to your employer.
Think about this: You've put in the hours. You've earned the wage. But, your employer owns your money until payday. Even worse, some companies use this delay to make short-term, low-interest investments, effectively earning them profits with your missing wages.
The system can be especially cruel if you’re living paycheck to paycheck. Any unexpected expense like a car repair or medical bill leaves you with little options. You can either put off the expense or take out a payday loan at ridiculous (sometimes up to 700% APR) interest rates. You're stuck while your employer reaps the benefits of an outdated tradition.
All of this begs the question, “How did two-week paydays come about, and why do they still exist today?”
From Once a Season to Every Two WeeksEmployees weren’t always paid on a bi-weekly schedule. In the 19th century, seasonal workers in agriculture and shipping oftentimes only received payment as a lump sum at the end of their work season. Although business owners provided food and board through the employment, they’d withhold paying workers until the season was over and the work completed.
On the other hand, factory workers received pay once a week - usually on Saturdays. However, employers would consistently dock pay and charge employees for menial discrepancies, creating the employer-employee tension that's still prevalent today.
The two-week system started becoming popular in the 1930s as a way to more easily track wages for tax purposes. The manual task of calculating taxes became much easier when accountants batched paychecks over an extended period of time rather than calculating it every day, or even every week. Two weeks became the sweet spot. Stuck in the Middle with You(r Money)With the advance of computers, tax accounting has become much less labor intensive. On top of that, the technology behind the banking infrastructure is powerful enough to provide instantaneous payments from employer to employee.
So why do paychecks still only come every two weeks? Today, middlemen are the roadblocks. Banks and credit card companies are slow to process transactions causing delays in every step of the cash flow from customers through businesses to employees.
Delays in payment processing payment processing when a customer spends money at a business impact when an employee can get paid down the road. Oftentimes, it takes days for a business to receive payment from a credit card purchase, causing cash flow issues. If a business has limited cash on hand, this, in turn, leads to delayed payment for employees.
Unfortunately, the switch from physical checks to direct deposit payments has done little to speed up the payday process. Direct deposits use the Automated Clearing House (ACH) system - a payment network between banks. Started in 1974, the ACH system still includes transaction deadlines that have become out-of-date. Missing a deadline could mean that your transaction is delayed up to a day or two, and although this doesn’t seem like much, delays at each step of the process quickly add up.Source: https://wallethub.com/edu/credit-card-transaction/25511/
These deadlines are part of the reason so many financial apps have a 3-5 business day delay to withdraw your funds. And, banks have little motivation to speed up this process as they collect interest on the money that passes through them.[b]Putting Payroll on the Blockchain[/b]Some companies have begun giving their employees the option to receive their wages in cryptocurrencies like Bitcoin and Ethereum instead of the usual means. With the advent of smart contracts, you can even perform complex payments like overtime and maternity leave instantly, automatically, and with a fraction of the manpower traditionally used.
With cryptocurrency “paychecks”, you no longer need to wait two weeks to receive payment for the work you’ve already completed. Instead, specially-written smart contracts can execute at the end of the workday to transfer the appropriate funds from the company to your wallet. And, as blockchain technology improves, it’s not infeasible to imagine payments becoming an hourly or even every minute occurrence.Addressing Some ConcernsThere are a few common criticisms of switching to cryptocurrency-based wages. Some people argue that cryptocurrency is too volatile to base wages on. This is a valid argument for now; however, as digital assets enter the mainstream, prices will begin to level out. In the meantime, it’s simple to automatically cash-out your cryptocurrency earnings directly to fiat avoiding the price swings.
[p]Another common complaint is that the [b]auditing and tax implications[/b] for businesses to switch over is too complex.
Request Network is a cryptocurrency powered payments platform the facilitates invoicing, e-commerce, and peer-to-peer payments. It includes accounting functionality as well to help businesses who are interested in making the switch. Because the blockchain is a public, immutable ledger, auditing for tax purposes is straightforward and guaranteed to be accurate.
On top of that, Request includes “extensions” that enable you to customize a payday strategy that works best with your personal goals. You can set up daily paychecks, percentage donations to charity, automatic deposits into savings, etc…
Lastly, opponents argue that getting paid in cryptocurrency is pointless because you can’t spend it anywhere.
Crypto cards like TenX and Monaco are addressing this by enabling you to spend cryptocurrency at any store - whether they accept it or not. The technology behind the cards performs the conversion from crypto to fiat at the time of sale. You spend your coins. The store receives its fiat. Everyone wins.
On the other side of the equation, projects like OmiseGo are working to get payments from customers into the hands of the businesses they shop at as quickly as possible. This improves the currently inefficient payment process and reduces the cash flow problems stated earlier.Final ThoughtsThe two-week pay period is out-of-date and out of touch with the current working environment. Blockchain-backed paychecks not only improve employee working conditions, they accelerate the day-to-day use of cryptocurrency as a whole.
With the numerous projects working to fix the broken payday system, it wouldn’t be surprising to see bi-weekly paychecks quickly fade into non-existence. In a world of economic freedom, we’ll hopefully look back on the days of delayed wages and third-party control with the same scrutiny as the payment conditions of the 19th century.