On-Demand Pay Broadens Workers' Financial Well-Being

​In a world where 4 in 10 Americans can't cover an unexpected expense of $400 and workers are quitting their jobs at higher rates than at any other time on record, HR managers are searching for tools that both encourage worker retention and improve employees' ability to better control their finances.

Several firms are adopting services that support on-demand pay for earned wages, a type of payment system that promises to disrupt traditional weekly, biweekly and monthly payment schedules.

Mainly targeted to part-time workers or low-income employees, pay on demand—or what advisory firm Gartner has dubbed flexible earned wage access (FEWA)—is projected to grow quickly. Gartner's data shows that less than 5 percent of large U.S. companies with a majority hourly paid workforce are currently using a FEWA solution. This is expected to increase to 20 percent by 2023.

There are several reasons FEWA is a growing phenomenon, said Ron Hanscome, a Gartner analyst. Allowing people to access wages as they are earned can improve a worker's financial position, especially when considering that this form of payment offers people a way to pay for unexpected expenses without resorting to payday loans and credit cards that come with high interest rates.

HR executives can attach on-demand pay initiatives to a broader financial well-being strategy that involves combining pay-as-you-earn programs with budgeting, financial planning and savings programs that help employees make better decisions, Hanscome said.

"The idea of providing early wage access to meet emergencies is giving someone a fish," he explained. "The other financial well-being aspects around how to save, how to plan and how to set aside money for the future would be teaching them to fish so that over time they would need that emergency access much less often."

[SHRM members-only HR Q&A: What issues should we be concerned about before we decide to make the payday switch?]

When Checkers & Rally's Restaurants Inc. began a pilot two years ago to use an earned wage solution in 22 of its Tampa, Fla., restaurants, the company had several concerns it wanted to address.

First, company executives were eager to do something about the employee feedback they had received saying workers needed access to funds for life emergencies. Second, Checkers & Rally's sought to reduce its high employee turnover numbers. Third, the company wanted to raise employee engagement.

The company implemented a flexible earned wage solution from Instant Financial, which allowed employees to access a portion of their wages before their biweekly payday.

"We had high turnover [and] needed to ensure that we had the right people in the right roles and that we were meeting the needs of our workforce," said David Bode, Checkers & Rally's senior director of people support. "At the 22 restaurants in Tampa that were involved in the pilot program, there was approximately a 20 percent reduction in employee turnover rates for those restaurants. Based on the success of the pilot, the company rolled out the platform to all of our 250 company stores."

Currently, 4,500 cooks, servers and other workers at Checkers & Rally's use the earned wage platform.

The way the tool works is this, Bode said: If employees work on Monday, they'll get a notification on Tuesday from Instant Financial via a mobile app saying they are eligible to collect pay for 50 percent of the hours they worked on the previous day. Employees who want to collect the wages will check "yes." Those who don't can ignore the notification.

"We believe many Checkers & Rally's employees don't have a bank account, which makes it even more attractive to receive wages on prepaid Visa debit cards as part of the Instant Financial solution," Bode added.

These cards can be used where Visa or Mastercard are accepted as well as at ATMs.

Bode added that once workers realized that if they worked one day, they would get 50 percent of their pay the next day, with the balance of their wages processed on their regular payroll cycle, engagement improved and employees wanted to work more hours.

"The tool helped the company's recruiting and retention efforts. We were finding that employees were asking, 'Do you have any shifts that I can pick up?' " Bode said. "They were staying engaged because it benefited them from the perspective of instant access to their funds. It also benefited the company because the retention and the likelihood to want to work some additional shifts increased as well."

Vendors like Instant Financial, DailyPay, PayActiv and FlexWage are using cloud computing platforms, mobile apps that connect to bank accounts, and technology that supports the transfer of money to personal accounts or credit cards to pay employees part of their earned wages in real time.

Steve Barha, CEO at Instant Financial, said his company has integrated its cloud-based platform with customers' time and attendance systems, payroll systems, and employee management or human capital management systems. The data from these systems support the disbursement of funds to pay for tips, bonuses, commissions and partial pay of earned wages.

"Our ideal model is where an employee finishes a shift and gets their instant pay offer instantly. We have some customers that have a different schedule for the offer delivery, based on how we are integrated into them," Barha said.

He added that some customers' employees get their funds instantaneously, some have an hour delay, others have a four-hour delay and for some employees the offer comes the next day.

Gartner's Hanscome said paying workers immediately after they earn their wages makes them less likely to jump to a competitor that can offer a 25-cent raise in hourly wages but no chance to access part of their wages before payday.

"Flexible earned wage access can have a positive effect on employee perception," he said. "Workers may feel the company is trying to look out for them and help them manage their work and life; therefore, they'll stay within that work environment versus going somewhere else that does not have this benefit."

Hanscome warned, however, that there are several barriers to adoption. These include the challenges of integrating payroll systems, verifying that an employee actually did work the hours he or she recorded, and possibly needing to hire more payroll staff to help with the added administrative burden that results from the complexity of manual intervention in pay reconciliation.

Since the July rollout of the technology across Checkers & Rally's restaurants, Bode said workers are taking full advantage of the service.

"We have had great feedback from our employees about the pay service being the difference between having food on the table or not, or having money for gas for the car or the bus to get to work," he said. "Employees really see it as a commitment from the employer to making life easier for them."

Nicole Lewis is a freelance journalist based in Miami. She covers business, technology and public policy.

Related SHRM Articles:

On-Demand Pay Apps Are Catching On, SHRM Online, December 2018

New Instant Pay Mobile Apps Remake Payday, SHRM Online, January 2018