New Instant Pay Mobile Apps Remake Payday

​A growing number of companies are using instant pay apps, which allow workers to draw from their earnings daily rather than waiting for a bi-weekly paycheck.

Employees can use these apps to access half the pay they earn in a day as a way to cover unexpected expenses and avoid expensive payday loans. Pay is typically downloaded to debit cards, with taxes deducted when employees receive a final bi-weekly or weekly paycheck. Employers see the app as a way to attract and keep employees in high-turnover positions.

Instant Financial, a provider of instant pay apps, charges organizations $1 per employee per month to use its service. Other vendors have a model that charges workers to use the pay option.

'Most employees aren't drawing on their pay every day but rather only taking small amounts of earned income for unseen expenses.'

Average Withdrawal Just $27

"We're seeing a lot of traction for instant pay apps in companies with large hourly workforces where employees live paycheck to paycheck and unexpected expenses can cause big disruptions to their lives," said Ron Hanscome, a research vice president at Gartner in Minneapolis who specializes in HR technologies. "It can be a differentiator in markets where turnover is high and organizations are looking to create a more stable workforce." The ability to draw pay right away can keep some hourly workers from jumping ship to competitors for a 25-cent or 50-cent per-hour pay increase, Hanscome said.

Organizations including Outback Steakhouse, McDonalds, Dial America and Maids International are using some version of the pay option, with some saying it has contributed to a reduction in turnover among hourly workers. Walmart has announced it will begin allowing its workers to use an app called Even to access a portion of their wages before standard paydays.

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Steve Barha, CEO of Instant Financial in Vancouver, said 200,000 employees in the hotel, restaurant, retail and other industries are using the company's instant pay service. It launched in January 2017.

"Hourly workers often have very little slack in their financial lives, and any minor emergency can put them in a distressed situation," Barha said. "A new battery for a car, a small medical expense or failing to pay certain bills on time can place them in harm's way. This provides an option other than payday loans or predatory lending for meeting those expenses."

Barha said claims that instant pay promotes irresponsible spending are unfounded. He said employees use Instant's pay service two to three times on average per pay period, with the average amount taken being $27.

"Most employees aren't drawing on their pay every day but rather only taking small amounts of earned income for unseen expenses," Barha said. Millennial and Generation Z workers appreciate having more control over how they are paid, he added.

Hanscome said there's little evidence that the instant pay option leads to more impulse spending. "Everyone needs to be responsible in how they use their money," he said. "Employees receiving a paycheck every two weeks may still use their wages at a casino. It's really no different with instant pay apps; you're just getting your pay in smaller pieces."

In addition to paying per-employee fees for use of the apps, organizations do take on some additional overhead with the service, Hanscome said, since instant pay platforms need to be integrated with existing payroll technologies.

A Different Model

Another type of instant pay model charges employees rather than employers. One such provider is Daily Pay, which charges employees $1.25 per transaction if they want their pay the next business day and $2.99 if they want pay instantly after being earned, said Jason Lee, founder and CEO of New York City-based Daily Pay. Organizations with employees using the service include Maids International, Dial America and Stellar Senior Living.

Rather than only giving employees access to half of the pay they earned in a previous day, Daily Pay allows workers to transfer 100 percent of accrued wages. On average those using the service access 44 percent of their overall pay using the daily option, receiving the remaining 56 percent of pay on their regular bi-weekly payday, Lee said.

"The benefits of the instant pay option are twofold," Lee said. "The employee has more control over when and how they receive their pay, allowing them to meet any pressing financial obligations. For employers, when employees receive this benefit the data shows they tend to stay with the organization longer. Employers increasingly see this as a way to differentiate themselves in tight labor markets where there is flat wage growth."

Given growing demand for the instant pay option, Hanscome said it's likely major payroll providers will begin offering the service within two to three years. "They will build an instant pay solution into their product portfolios and may be able to charge less than some point solution providers do now," Hanscome said. "It has the potential to become a part of mainstream payroll products."

Dave Zielinski is a freelance business writer in Minneapolis. 

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