In the digital age, the way salaries are paid is also becoming increasingly digital. The shift from traditional cash-based and bank transfers to digital payroll is underway. Since the legal ban on digital payroll will be lifted on April 1, 2023, many companies are considering the introduction of digital payroll. On the other hand, however, there are disadvantages as well as advantages. This article details the advantages, disadvantages, and reasons for introducing digital salaries.
What is a digital salary?
Digital payroll is where employees have their salaries deposited into a cashless payment account managed by a non-bank fund transfer provider. Typical examples are PayPay, LINE Pay, Rakuten Pay, and other smartphone payment apps that allow employees to have the amount of their paychecks transferred to them. The main difference is how it is regulated under the Banking Law, which is not so relevant to consumers.
Unlike traditional salaries, they are not handed over as cash or bank accounts, but are paid in the form of digital payments. This digitalization of payroll is expected to improve the company's image and reduce payment fees, due to the widespread use of cashless payments and the impact of the spread of the new coronavirus infection. There is also a possible demand from the vendors. It is not fair to allow payroll transfers to a bank and not to the other, even though they are also entrusted with the same funds transfer. The company may be willing to implement this system if the requirements are met, as it will be beneficial to employees without bank accounts and will reduce transfer fees.
Reasons for introducing digital salary legislation
There are several reasons for the development of digital payroll legislation. The first is the growing popularity of cashless payments and the diversification of remittance services. This development is not a mandatory system, but a system that allows people to choose. This is a legal development to change what was previously a situation where people wanted to make a choice but were unable to do so. Second, cashless payment settlements have low fees, and there is a certain level of demand to use fund transfers to accounts of fund transfer companies to receive paychecks. This also reduces costs for companies, as they can reduce the costs associated with paying their employees.
Considering the movement of sole proprietorships and other businesses, it is expected to improve employee satisfaction by enabling speedy and accurate payments, even through bank transfers.
What are the advantages and disadvantages of a digital salary?
Check out the benefits of a digital salary.
- Payroll can be paid to employees who do not have bank accounts
- Transfers to a fund transfer company account are less expensive than regular bank transfers.
- Digital paychecks are easy to transfer to family members abroad and convenient for foreign workers
- Reduced fees that also benefit employers
- Meeting the Diverse Needs of Employees
- Possibility to receive salary in installments.
The introduction of digital payroll also offers benefits for employees who do not have bank accounts. If an employee does not have a bank account, paying salaries can be inconvenient, but digital payroll solves this problem. At the same time, employees can use their paychecks as electronic money without having to transfer funds. For foreign workers, the introduction of digital payroll also reduces the financial burden by eliminating fees for remittances to their home countries. Companies can also increase productivity by improving convenience for their employees. As a result, employees who do not have bank accounts can also benefit from the many advantages of digital payroll.
What about the disadvantages?
- Security Issues
- Money Laundering Issues
- Possibility of sending money to a person (foreigner) who cannot open an account
- More work for the employer due to the number of separate responses
- More hassle to check account balances at checkout (balance certificates are charged)(PayPay example))
- Time-consuming integration with payroll system
Which funds transfer agency will handle this?
Announcements will be made after April 1, 2023, including PayPay, auPay, etc. We will add the information as soon as it is updated or announced.
Are many companies planning to introduce the system?
Asahi Shimbun conducted the following survey on Nov. 2022, which shows that 41 TP3T are under consideration.
The Asahi Shimbun surveyed 100 major Japanese companies last November (2022), and 4 companies responded that they were considering introducing the system.Digital Payroll "Considering" 4 Major 100 Companies Surveyed (January 12, 2023 5:00 PM) The author added "(2022)".
It is too early to judge less by looking at 4% because other accounting and tax related companies in Japan are slow to respond. For example, if there is no transfer fee, why not offer two monthly transfers to part-time employees when they receive their digital paychecks? Some people would be pleased. As well as the trends of other companies, you should also consider whether it fits your company's needs.
Why can transfer fees be reduced?
The introduction of digital payroll has the advantage of reducing transfer fees for payroll payments. With traditional bank transfers, a fee is charged for each transfer, so the number of employees is required to bear the fee burden. With digital payroll, however, this burden can be reduced because transfer fees are either eliminated or are less expensive than bank transfers.
For example, PayPay, as of writing (2023/03/30), has no basic fee and no transfer fee. As a contrast, Mizuho Bank's fee for a paycheck addressed to the bank is 110 yen, and 330 yen if addressed to another bank. It may be significant to think that this will be eliminated.
And it's not just the fees, but the hassle as well. Some sole proprietors may want to send it quickly and finish with a smartphone, so that's a good match.
What are the problems with digital salaries?
Some issues exist with the implementation of digital payroll. These are often concerns raised by employees. One example is concerns about security assurances in the event of a failure of the funds transfer provider and the handling of personal information. In addition, for employees accustomed to traditional payroll, there may be burdens and procedures involved in adapting to the new system. Companies also need to be careful in implementing the system, as there may be costs involved in building and operating the system and in training employees.
However, there are some areas that have already been addressed.Answer by Ministry of Health, Labor and WelfareThe following is a short summary of the
- Q: Is digital payment of wages compulsory? Can I continue to receive them through my bank account, etc.?
Digital payment of wages is an option, and if the worker does not wish to receive it, he/she can continue to receive it in a bank account, etc. It is not mandatory.
- If we choose to pay wages digitally, is it possible that wages could be paid in points or virtual currency?
Payment of wages in non-cashable points or virtual currency is not allowed.
- When can I start paying wages digitally?
From April 1, 2023, fund transfer agents can apply for designation. After examination, if a labor-management agreement is concluded at the workplace and the workers submit a written agreement, digital payment of wages will be possible.
- What procedures are required at the workplace when digitally paying wages?
A labor-management agreement must be concluded, and workers who wish to receive digital payment of wages must receive an explanation of the matters to be noted and submit a consent form with the necessary information.
- Which fund transfer agent can I choose?
You can choose from among fund transfer agencies designated by the Minister of Health, Labor and Welfare.
- Are there any points to keep in mind?
Workers should understand that money transfer agency accounts are used for payments and remittances and should receive the appropriate amount. Employers should also offer the option of a bank account or a general securities account and explain the considerations.
- If the money transfer company goes bankrupt, won't the account balance disappear?
Even in the event of bankruptcy of the designated fund transfer agent, the balance in the account used to receive wages will be repaid promptly by the guaranteeing institution. The specific repayment method differs for each Funds Transfer Service Provider, so please confirm this when selecting the digital payment of wages.
As mentioned above, there are already measures in place, such as guarantees in the event of bankruptcy of a fund transfer company.
What is the model for a labor-management agreement/agreement?
The Ministry of Health, Labor and Welfare (MHLW) has prepared guidelines for a model labor-management agreement. A model agreement prepared in accordance with these guidelines can be downloaded from the link below. The labor-management agreement must clearly state "the scope of employees eligible for direct deposit, etc., the scope of wages eligible for direct deposit, etc., and the amount thereof, the scope of financial institutions, securities companies, and designated money transfer agents handling such wages, and the start date of implementation of direct deposit, etc." (November 28, 2022 Kiho 1128 No. 4). This should include the following items to be explained to the employee (regarding the payment of wages to the account of the fund transfer agent)
Guidelines for Funds Transfer Service Providers, p. 21), plus the following
- Funds in Funds Transfer Service Provider Account
- Guarantee in the event of the failure of a money transfer agent
- Compensation for unauthorized withdrawal, etc. of funds in a fund transfer company account
- Claims for not using funds in a fund transfer agency account for a certain period of time
- Convertibility of funds in fund transfer agency accounts
In addition, a model of the consent form is similarly available from the Ministry of Health, Labor and Welfare.
What are the necessary actions to implement a digital payroll?
Implementing a digital payroll requires several actions on the part of the company. First, before introducing digital payroll, it is necessary to thoroughly explain the system to employees and encourage their understanding. It is also important to thoroughly examine the operational methods and systems before introducing the system and educating employees. Furthermore, it is necessary to thoroughly understand the risks associated with payroll and money management, and to take security measures to ensure safety.
At the same time, it is important to develop appropriate handling policies to protect employee privacy and personal information. When implementing a digital payroll system, it is essential for companies to take utmost care and build a trusting relationship with their employees.