News

On-Demand Pay Apps Are Catching On

Instant access to earned pay is a popular perk, but set guidelines when offering it

December 11, 2018 | Joanne Sammer

A woman using a smartphone with money coming out of it.

Technology makes it easier for people to get what they want and need as quickly as possible―including pay for the work they do. As they say, there is an app for that.

New advance-payday or pay-on-demand apps have entered the marketplace. When integrated with an employer's payroll system, this technology lets employees request and receive all or part of their accumulated pay as soon as the day after they perform the work.

Use of these apps is gaining crucial support from payroll processing companies, some of which offer them as add-ons to their payroll services.

While this type of immediate access can be helpful and motivating to employees, some experts advise caution before broadly adopting this approach to pay delivery.

"You want to consider the message this sends to the workforce," said Jennifer Loftus, national director of HR consulting firm Astron Solutions in New York City. A "quick cash" approach to pay may create a transient feeling toward work. "This may be appropriate in situations where, for example, this is a second job for many employees, but I would not use it automatically everywhere," she said.

On-Demand Pay in Action

Even, PayActiv, Instant Financial, Earnin and FlexWage are some of the on-demand pay apps available.

Los Angeles-based Sprinkles Cupcakes is cautiously rolling out in stages an advance-payday app to its workers. The company is doing so through its payroll service, ADP, which in turn is partnering with the app DailyPay. Here is how it works:

When Sprinkles' employees complete a shift, they gain access to their pay as early as 3 a.m. the next day.

Using the app, employees can see the amount of pay in their account and transfer those funds at any time to a bank account, debit card or other account.

They still receive the usual payroll stub on payday that shows the amount of their pay, hours worked, withholding and other relevant information.

Sprinkles' management sees early access to pay as a key motivator for its workforce. "We know a lot of employees are living paycheck to paycheck, so we wanted to provide an option that minimizes the waiting time to get paid," said Marisa Eddy, the company's head of HR.

An employee who had car trouble that limited her ability to get to work was able to transfer money to pay for the repair before payday, she added.

However, recognizing the potential management and administrative challenges involved in this type of change, the company involved front-line management when deciding where to deploy the app. In this case, the company leaves it up to the general manager of each retail location to choose whether to offer access to DailyPay.

There are a few reasons for this, Eddy explained. Front-line managers have the best insight into their workforce and whether employees are likely to respond well if given nearly instant access to their pay. They can also evaluate how on-demand pay could affect day-to-day management of the workforce. For payroll processing that allows for pay on demand, managers are responsible for entering each employee's hours into the payroll system at the end of each workday, which could add to their administrative responsibilities.

Overall, Sprinkles Cupcakes, which has 800 employees, expects to make the app available to employees in about half of its locations. About 20 percent of the employees who currently have access to the app have used it to withdraw pay before the end of the traditional pay period.

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Managing Concerns

To address cash-flow challenges that may arise when employees are given access to their pay before payday, some payroll providers advance the money for these transfers on the employer's behalf until they receive the employer's funds to cover payroll on the usual schedule.

Cost is another issue. App vendors can deduct fees from employees' pay. These fees vary, so employers should make sure they understand what employees are being charged before contracting with an app provider or making an app available through a payroll processing service. Employers should ensure that employees understand these fees, as well.

App provider DailyPay charges a transaction fee for every transfer an employee makes. A company spokesperson likened this cost to the fees charged for withdrawals from ATMs. In this case, the fee, which varies based on the size of the employer, can be paid either by the employer or by the employee.

As with any modification to compensation practices, employers should check with legal counsel to make sure any changes required in order to offer employees early access to pay comply with all federal, state and local employment laws.

Monitoring Results

Once on-demand pay is in place, employers should monitor the effects on employee retention, motivation and attitudes. While making pay available immediately could be a key selling point for some employees and applicants, "it can change the nature of the employer/employee relationship into more of a contractor relationship, where someone comes in to do work for immediate pay," said Steven Lindner, a partner with The Workplace Group, a talent acquisition and development firm based in Florham Park, N.J.

Despite these concerns, Millennials' and Generation Z's expectation of seamless and immediate financial transactions may cause more employers to consider making every day a payday.

Walmart’s Workers Embrace On-Demand Pay

Instead of waiting two weeks between paychecks, more than 250,000 Walmart employees—just under 20 percent of its workforce—are using the retailer's advance-payday partnership with financial app Even, said Scott Pullen, Walmart's senior benefits manager.

Walmart added the benefit last December, Pullen said at the 2018 EBN Benefits Forum & Expo, to help workers avoid expensive payday loans and late fees. He noted, "Income and expenses don't always add up," resulting in penalties when bills are due before paychecks are received.

The popularity of this perk during its initial year has been "beyond expectations," Pullen said, and he anticipates that rapid growth in its use will continue.

Walmart covers the cost of using the app for both hourly and salaried workers. Employees can access wages early, up to eight times per year for free. After that, they pay $3 per pay period to cover transaction fees and for features that help to set savings goals and create a budget.

To avoid employees' overspending, Walmart installed limits so the app is used in moderation, Pullen said. Users can access wages early only one time per pay period, and they can access only up to 50 percent of the net wages that they've earned "so they can never have a zero-dollar paycheck at the end of the cycle."

Joanne Sammer is a New Jersey-based business and finance writer. Stephen Miller, CEBS, contributed to this article.

Related SHRM Articles:

Changing Business Needs Place New Demands on Aging Payroll Systems, SHRM Online, November 2018

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