The 1920s marked the creation of even more taxation, specifically sales taxes were enacted first in West Virginia in 1921.
President Franklin Roosevelt signed the Social Security Act in 1935, and Social Security taxes were first collected in January 1937, although no benefits were paid until January 1940.
The 30s also marked the time when payroll taxes began. Before to the Great Depression, there were no federally mandated insurance or retirement plans. The first set of payroll taxes were used to fund programs like social security, and unemployment insurance.
Up until this point, no progress toward payroll automation had occurred. It was still standard practice to tally employee hours in ledgers and hand write checks with numbers and bank codes. In 1947, General Motors was the first to establish an “automation department” that automated payroll.
In 1957, ADP became one of the first companies to begin the shift from manual to automated payment processing. Additionally, IBM’s first computer was released in 1953, setting the foundation for fundamental changes to automation.
MIT designed the first personal computer, which would make computing more accessible to the masses and in 1962, computer science became an area of study in the U.S., and eventually, an official requirement for businesses looking to stay competitive and automate manual processes.
In the 1960s, Medicare was introduced to rectify the issue of healthcare for the elderly. The FICA tax was increased to pay for this expense.
The alternative minimum tax (AMT), a type of federal income tax, was enacted in 1978 which meant a separate set of rules to calculate taxable income after allowed deductions.
Automation became even more accessible in the 1980s thanks to the arrival of desktop computers. As a result, dozens of payroll companies began to emerge.
Payroll innovators made it simpler and more affordable for companies of all sizes to conduct payroll. In 1982, the American Payroll Association was founded.
The internet was created, and ADP - now one of the largest payroll processors in the U.S. - officially launched their first website.]
Additionally, the 90s marked the introduction of Social Security payroll deductions (1992), which called for an automated, electronic system to manage money behind the scenes for employers.
Instant payments and pay cards. Let’s explore the differences between the two.
A paycard is a prepaid card that employers can use to pay their employees. Each payday, the card is loaded with the employee's earned wages for that pay period. Employees can use the paycard like a debit card to make in-store purchases, or they can use the paycard to withdraw wages through an ATM, bank cashier, or purchase where they receive cash back.
An instant payment uses an automated clearing house to immediately initiate a transfer request and move funds from an accrued earned wage balance to a desired destination, which could be a paycard but also could be a bank account or cash card. An instant payment is more flexible and provides employees with more options for how they receive their funds transfers. Instant payments are more flexible, in that an employee can get paid through any vertical -- their designated bank account, a cash card, or a paycard.
If you currently have a paycard program today, you already know the paycard adoption rate within your company. Typically, that adoption rate is between 10-40%. That means the other 60-90% of your employees receive their pay into their traditional bank account or separate prepaid cash card.
Providing your employees the flexibility to choose their method to receive pay anywhere with instant payments vs a paycard will go a long way. As an employer, being transparent and upfront about any fees the employee may incur, is vital to maintaining trust in your workforce. Paycards typically have cash withdrawal ATM fees for 90% of ATMs.
With both instant payments and paycard, the payroll team benefits by seeing a reduction in paper checks. This means less time and money spent which is better for your organization’s bottom line. That being said, paycard companies often directly charge the employer a fee to use the card.
The other consideration is when a company already has a paycard program in place. You need to evaluate the cost of removing that existing paycard program and replacing it with a new one, or simply deploying a more universal instant payment solution that reaches all bank accounts, all paycards, and all cash cards.
*Based on publicly available information. Daily-Pay-Benefits.org is not responsible for any inaccuracy of information in this chart.