(This column originally appeared in The Inquirer)
Over the last few years, employers have begun offering “earned wage access” or “on demand pay” to get money to their employees as quickly as possible.
To attract and retain good employees in this tight labor market, many employers are not only offering benefits such as health insurance, retirement plans, and more flexible schedules but are also increasing compensation. Payroll company ADP reports that the average salary increase so far this year is about 6%. Average hourly wages have increased about 17% since the beginning of the pandemic to as much as $34 per hour, according to the Bureau of Labor Statistics.
But for many employees, it’s still not enough during these inflationary times. People are running out of money faster. Which is why more employers are discovering that although the amount of compensation paid to their employees is important, there’s something that’s quickly becoming just as important to many of them: when they’re paid.
According to a recent study from financing firm LendingClub, 76% of consumers earning less than $50,000 a year and 62% of those earning between $50,000 and $100,000 were living paycheck to paycheck as recently as this past July, a figure little changed from a year ago.
“The data underscores the pervasive nature of the financial challenges affecting a majority of consumers,” said a LendingClub spokesperson. “The problem is that there is more month at the end of the money.”
To get cash quicker, many employees find themselves going to payday loan services. But these services charge a high amount of interest and transaction fees and can potentially lead to more debt.
Over the past few years a growing number of employers realized that getting money into the hands of their workers as soon as possible is becoming increasingly important to them and have begun offering “earned wage access” or “on-demand pay.” And some smart employers are also discovering that providing this option can be a significant recruiting benefit.
Honeygrow uses an earned wages access service called DailyPay at its 29 locations and headquarters for its 500 employees. By doing this the company can offer their workers access to the money they’ve earned as quickly as 24 hours after their work is performed. An earned wage access company like DailyPay integrates with most payroll systems, and the company takes care of all payroll-related calculations, like tax withholdings and other employee contributions.
Stacy Greiner, DailyPay’s chief operating officer said that with an on-demand pay benefit, employers can provide greater financial wellness support for employees, which can lead to a happier and more productive workforce.
“Our studies have found that companies that offer earned wage access have seen their employee time on the job increase by 27% on average, or 39 additional days,” she said. “We’ve also shown that 67% of employees who have access to earned wages services say it has helped them reduce financial stress.”
A ‘fairly simple process’ benefiting everyone
In most cases, there’s no cost to either the employer or employee to provide this benefit. A service like DailyPay offers a no-fee transfer option to any account within 1-3 business days of work being performed or a no-fee service that transfers their pay to a debit card usually within the next day (the company earns its revenues by sharing merchant fees when the debit card is used). For those that require funds sooner, the company can make instant transfers to an employee’s bank account, but this additional service costs $3.49.
“Most of our employees get their money transferred to a debit card,” says Fifis. “This way they can use the money they’ve earned immediately for purchases like groceries.”
For many small businesses who are used to paying their employees weekly or biweekly, implementing an earned wage system like DailyPay will have no impact on their cash flow. That’s because the company will continue to fund its payroll based on the regular pay period. Setting up the system is straightforward, as DailyPay integrates with most payroll providers and takes care of the complicated calculations behind figuring out the daily amounts required for tax withholdings and other benefit contributions.
Fifis said that setting up the system was a “fairly simple process” and that many of her employees now participate, including some salaried workers.
“We talk about it a lot during the recruiting process as a way to help a potential employee’s financial wellness and that there’s no stigma for an employee to get compensated as quickly as possible,” she said. “We’ve found this benefit to be extremely popular.”
Greiner also points out that earned wage platforms not only provide immediate funds to workers, but can also save them money too.
“Our studies have found that workers who use earned wage access save more than $1,000 per year in fees associated with overdrafts, late payments, and payday loans,” she said. “At the end of the day, we are providing transparency, choice, and control over people’s earned pay.”