Author: Michael Baer

Michael Baer, with a career covering payroll issues for the past three decades, specializes in communication and compliance; he is an advocate to the payroll community for employees accessing pay when earned. Prior to DailyPay, Michael was managing editor at the Bloomberg subsidiary, Bloomberg Tax, where he was charged with overseeing BNA’s Payroll Library, developing the Payroll Decision Support Network and International Payroll Decision Support Network. All these products are now consolidated into one payroll offering on the Bloomberg Tax platform. Michael is a Certified Payroll Professional.

Measuring the Growing Demand for the Daily Pay Benefit

Posted on by Michael Baer

Results from a recent Harris Poll show that 72% of responding employees want access to their pay on-demand, while only 6% actually have this access. That 66% gap means the daily pay benefit is on a high-growth curve.

It also means many, many employees are still missing out on this key component of financial stability and wellness, and employers are scrambling to resolve this by partnering with DailyPay.

During our exclusive podcast, The Source by DailyPay, with guest Joyce Maroney, the founder and executive director of The Workforce Institute at Kronos, Inc., we delved into several key issues that the Harris Poll, which was commissioned by the institute, uncovered.

The key statistic in the “Death of the Traditional Paycheck” survey was that nearly three-quarters of the 1,180 adult employees who answered the survey desire to access pay on-demand. Breaking that down by income level, while we expected that nine out of 10 responding workers who earn less than $50,000 a year wanted to have access to their pay daily, it was a bit surprising that more than two-thirds (67%) of those responding making $50,000 or more, also want that ability.

“Although the macro-economy may be booming, plenty of Americans struggle to pay their bills,” Maroney said during the February 12th podcast.

The struggle is so real that the survey results show that 8% of respondents “would consider a $50 fee reasonable to access $50 of their earned wages early – which could signal a desperation among some for safe and reliable access to their own money as an alternative to short-term payday loans,” Maroney said.

This shows how some living pay-to-pay have been conditioned to expect such a fee for getting their own earnings! It’s good that DailyPay has a very reasonable ATM-like maximum fee of $2.99 for almost instant access to earned pay. And that’s it.

Another key statistic from the Workforce Institute data was that 51% of respondents would value having access to their pay on-demand more than additional paid time off! Accounting for more paid time off is extremely costly, but employers can pay nothing or near nothing when partnering with DailyPay to provide employees access to their earned pay.

As for financial wellness, Maroney noted that “three-quarters of employees say they would prefer to work for an employer that offers financial planning, budgeting and automated savings tools over one that does not, including 88% of 35 to 44-year-olds.”

As more employers seek to provide these benefits, one potential barrier to adoption lies in the payroll function, according to Maroney. “Those responsible for payroll operations are reluctant to mess with a solution that’s currently working for their employees,” she said. “Payroll is a delicate balance of process, technology, compliance concerns and employee expectations.” We couldn’t agree more.

Fortunately, employer partners with DailyPay’s solution do not need to adjust normal payroll runs—there is an information interface only and that is separate from the payroll processing that needs to be done. At DailyPay we work hard to ensure employers can continue to run payroll as if there is no daily pay benefit. In fact, they likely will not know an employee has made a draw prior to payday.

DailyPay provides solutions that empower employees to control the timing of their pay and ways they use their earned income, not only to pay unexpected bills, but also to save money early, or invest it, or even use features of the app to rebuild their credit score and more.

Finally, “in a supply-side labor market, employers are looking for ways to enhance the employee experience that will give them an edge,” Maroney said.

As employers embrace implementing employee experience programs to facilitate high engagement from staff, daily pay is an important component of that experience.

Employees also are embracing the ability to see what they have earned throughout the pay cycle, regardless of whether they want to take a draw prior to payday. It’s difficult to manually figure net pay on the fly, but now people can get a good idea of what they have earned simply by accessing the dailypay app, for free.

That knowledge is power.

In addition, employers are noticing fewer missed punches on the timeclock because people want to have a good, ongoing record of what they are earning as they go, even if they do not want or need to transfer any of their earned pay early.

So, is the demise of the paycheck real and happening now? Well, the idea of a fixed payday is breaking down, but in the end, the future will not be void of paydays, but rather full of them.

Additional Resources:

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Helping Payroll to Understand On-Demand Pay

Posted on by Michael Baer

With each new survey, employee desire for access to their accrued earnings before payday grows, along with retention rates for employers that implement the #dailypaybenefit. It’s a win-win.

The pressure on payroll professionals to implement on-demand pay solutions for employees comes from HR and compensation, higher-ups in the organization and employees themselves. Because of this, those in payroll are seeing major disruption. As implementers of employer compensation plans, payroll wants to know the provider landscape, ensure their organizations stay compliant, and understand payroll’s involvement in offering daily pay. And they want to know this now!

That’s the message I heard as Lori Brown, CPP with Hanger, Inc., and Bill Dunn, CPP, APA’s Director of Government Relations discussed on-demand pay issues for payroll with me during our January The Source by DailyPay podcast.  

The Spectrum

As a payroll professional, Lori Brown said, “This is the biggest disruption I’ve seen,” in more than 25 years of practicing payroll. She wanted more clarity on the differences among the on-demand pay providers. 

I told Lori and The Source listeners that on one end of the spectrum, there are predatory payday lenders that rely on employee information to provide small loan amounts at very high interest rates. On the other end, there are in-house solutions that use pay deductions that can most complicate existing payroll processes and burden payroll professionals. A number of actors that exist in-between profess to offer the best on-demand solution. There are outsourced and in-house solutions, along with different fee models and repayment mechanisms to consider. 

Note that DailyPay is a fully-compliant outsourced solution that doesn’t interfere with an employer’s scheduled payroll process. Employers offering the DailyPay benefit only provide work information in order for DailyPay to keep track of earnings; payroll runs as usual.

But watch out! Payroll runs as usual for the outsourced model with the least payroll involvement as well: predatory payday lenders. Their model is to get evidence from the employee — not the employer — of their pay, loan them the money, and require the employee to hand over access to their personal bank account for ultra-high interest repayments by debiting the employee’s account directly. 

Requiring access to bank accounts, something that DailyPay doesn’t do, is standard for these operations. This is not a “benefit” provided through employers, but a “scary” payday loan, “which we know is costly and really not a good solution for any reason,” according to Brown. Several payday lenders have moved online and are now disguising themselves as on-demand pay providers, with the blessing even of some employers. 

Also, some models may not charge interest, per se, but retain predatory loan-type features, such as the requirement to access and debit personal bank accounts and the application of fees, even if the employee does not use the service to access their pay ahead of their scheduled payday.  

With DailyPay, there is no requirement to access employees’ bank accounts in order for them to receive an earnings transfer before payday. Those who want to draw on their earned pay simply change their direct deposit instructions. That’s it. 

Other outsourcers rely on the employer to allow specific payments, and later deduct those amounts from the employee’s pay. This can affect the employer’s payroll run, raising compliance issues and adding administrative burden. 

Of course, the most impactful for payroll would be if the employer modified its in-house payroll systems to provide on-demand pay. This most expensive alternative saddles the payroll department with keeping track of all the payments, whenever they occur, and ensuring the employer stays compliant with tax, wage and hour, and garnishment requirements.

For an employee using DailyPay, the process is straightforward. Simply accessing the application interface shows the available earnings balance. The employee then decides how much to transfer, if any.  

The employer processes payroll as they always have, and on payday, meets wage payment obligations by making the direct deposit to the employee’s DailyPay account. DailyPay deducts any amount(s) transferred prior to payday, and an ATM-like fee of either $1.99 (for next day payments) or $2.99 (for instant payments) for each completed transfer. The remainder is deposited to the employee’s personal account(s) — there is no interference with the employee’s personal bank account.

It’s understandable that payroll professionals are wary of on-demand pay solutions because many do not have the best interests of employees in mind, and/or they can cause compliance and additional administrative burdens for employers. Our employer partners know that using DailyPay has no impact on their regularly scheduled payrolls and does not add any oversight to their compliance equation.

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Payday Lenders Resist!

Posted on by Michael Baer

Buggy whips. That’s what I think of as I follow the drama that surrounds payday lending. 

First, allow me to discuss payday lending’s impact on workers and the future of this practice. Then, I will relate this to buggy whips, as I feel that only a percentage of the oldest two generations even have a clue how buggy whips play into all this. (Although some are looking it up right at this very moment!)

Payday lenders exist to provide small money loans at an extremely high cost to people who need access to funds before payday. This is not a new practice, and it has been a very profitable one for years.  

My understanding is that payday lending came about as a sanctioned outgrowth from the days of loan sharks, when organized crime syndicates would provide loans to workers and small businesses in their “territory” and collect astronomical amounts in paybacks, leveraging threats to property and bodily harm for failing to pay up, and keeping those with loans trapped and in debt forever to the loan shark.

Unlike loan sharks, payday lenders don’t break fingers or legs when someone cannot make a payment, they just try to keep people who still owe in a pattern of always owing because it is incredibly profitable … for now. 

And who are these people who are payday lender clients? Those who do not qualify for traditional loans, or who have a lot of debt already and few-to-no assets and who had, until recently, no recourse but to beg for a loan from a payday lender. That lender only requires that the worker has a job, some verification of the money they are making, and the ability to get some payback on payday.

For example, a recent payday loan for a Kansas woman of $750 turned into more than $3,000 in return for the payday lender, due to the exorbitant interest placed on the initial loan. And that’s with the loan finally paid off! So it is easy to see why payday lending is a profitable business.  

Now, using technology, some of these modern-day loan sharks are turning themselves into “neo-payday lenders,” migrating to online apps to make these unsecured loans even more efficiently than the cash-are-us storefronts lining many urban streets. 

But change is coming and change is here, on two levels.

First, the DailyPay app has arrived, and it is changing the game for payday lenders. DailyPay allows employees access to the money they’ve earned before payday. There is no interest, because the money is already earned, and there only is a marginal ATM-like fee for accessing the pay before payday. In some cases, the employers will pay that fee.

Employers are partnering with DailyPay in droves to ensure that their workers do not have to beg for a loan from a payday lender and can get the money they’ve earned, if they need it, before payday.

The availability of pay on a daily basis can reduce much of the need for payday loans and is a major piece of the puzzle to eliminating predatory payday lending operations. Hence, for many, no more cycle of debt. 

Couple this with legal and regulatory requirements that are limiting the payday lending industry’s growth, and we can see that the payday loan era is fast coming to a crashing halt. 

Yet those running payday loan operations are resisting this inevitability. Because of the inherent high loan default rate, ultra-high interest rates are necessary to stay in business, advocates for payday loan operators say. 

They are lobbying the White House, trying to get measures placed on state ballots, and are claiming that their role in the economy to provide these small, short-term loans is important in areas that are economically depressed. Some payday lenders have gone so far as to influence religious leaders in these communities to support their efforts, in one case sending them on trips to lobby a state legislature. 

Limiting the interest rate to 36% (it is now exponentially higher at 300-400%), as federal lawmakers are proposing, would reduce the profit margins of these businesses to the point where they will no longer be in a position to offer these loans.  

Couple that with what technology is enabling, and “payday lenders, in particular, are going to find themselves very much far behind,” according to noted author Ron Shevlin, who spoke during DailyPay’s The Source podcast for December 2019. 

The arguments and actions of the payday lending community remind me of similar efforts to thwart the rise of the automobile in the early 20th century. Transportation was still dominated by the horse and buggy, yet, as the demise of that industry could be foreseen, there remained those who continued to invest in the old methods. 

Buggy whips were a critical implement that drivers of horse-drawn carriages used to keep horses on task. Investing in companies that made buggy whips during this period, when that mode of transportation was fast being supplanted by cars, became synonymous with not only denying that major change was underway, but also with making poor choices in an effort to maintain the status quo.

Payday lending is the 21st century’s buggy whip.

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Employees Beware: The Dangers of Allowing Debiting

Posted on by Michael Baer

Many who want access to their pay before payday are told by providers that they need to allow access to the bank account where their payroll direct deposits are made.

It may seem innocuous, and it is a legal and somewhat normal way of doing business nowadays, but there are pitfalls, and such a requirement should not be necessary to access your pay before payday.

We are sharing our financial information all the time. Often we don’t understand just how much access into our personal finances we are allowing entities to have. On-demand pay providers that require the debiting of bank accounts to take back the money provided before payday can create problems for their clients on two main levels.

First, “people don’t realize they may be enabling some third parties to view ALL their financial data when they agree to authorize them, say, as a requirement to get an advance in pay,” according to DailyPay Vice President of Payments, Gary Pearcy. (Note: DailyPay does not require such authorization for employees to begin receiving pay in advance of payday.)

Speaking during the Dec. 11 The Source by DailyPay podcast, Pearcy said not only can these unregulated entities “see everything that person has in that online banking world, but they have the ability to move money, which is really dangerous.”

Unregulated? Banks themselves are not a problem here because they are “heavily regulated,” and part of their job is to “protect their customers’ information,” Pearcy said.

The problem is many people are allowing broad account access to nonregulated entities. “This is common,” he said, and while most of these entities are prudent in their access there is no formal oversight into their behavior. “This is frightening,” he said.

But that’s not all. There is another way that those with access to user bank accounts can “harm their customer,” Pearcy said.

Complaints have been reported regarding the premature debiting of bank accounts to recover on-demand pay amounts before payday occurs. This can put an account holder into a negative balance which then “certainly results in overdraft fees,” Pearcy said. These businesses “may not have their customers financial well-being at heart.”

It is “not our practice at DailyPay to debit accounts,” Pearcy said. The employee clients of DailyPay simply redirect their direct deposit so that on payday, DailyPay can receive it, remove any amounts paid prior to payday plus an ATM-like fee, and instantly send the remainder to the employee’s bank account of choice.

DailyPay’s on-demand pay process does not demand employees authorize bank account access, which should not be necessary in order for employees to get access to earned pay before payday.

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Payroll’s Third Wave

Posted on by Michael Baer

Back in 1980, author Alvin Toffler in his book, The Third Wave, divided civilization’s progress into three waves. The agricultural age was the first wave, followed by the industrial age, and the third is the information age, which is what we are moving into now as vestiges of the industrial age are gradually being replaced.

In payroll, I’ve similarly observed waves of change and transformation, and the third wave of change is happening now. Like the information age on overall society, this third wave will impact payroll much more than the other two. We need to be ready for that third wave.

Payroll’s First Wave: Automated Timekeeping

It seems like ancient history, but working as a payroll clerk in the early 1980s, while in college, I witnessed the first wave of payroll transformation: the use of electronic time clocks to record time.

The old process involved department managers, on the last day of each weekly pay cycle, adding up  employee hours from time card punch-ins/punch-outs, writing each day’s total time worked and paid time off on large timesheets (that looked a lot like Excel spreadsheets, except they were paper), and totaling the amount at the end of each row. 

Managers would then wrap all the time cards for their teams in their timesheet, put a rubber band around it, and drop it off at the payroll clerk’s space (I didn’t have an office, and hardly a desk). 

I then had to double-check the accuracy of the time recorded on the sheet against each time card. Often there were addition and rounding issues that I had to resolve, and only then could we submit the time to a central facility that processed the payroll.

This process completely changed when the company became one of the first major clients of a new startup company that had developed automated time collection. Managers no longer calculated hours worked. The time clocks automatically calculated punches and hours worked, and stored that data as well.  

There were a lot of issues with these early systems that had to be addressed — there was no employee self-service, for example — but in the end, these programs produced more accurate time submissions and produced great data for human capital management. 

Fast forward to today, and according to a recent survey of payroll professionals by Bloomberg Tax & Accounting, more than 60% of respondents said they received all time submissions electronically, and more than 27% had a great majority of their time submissions received electronically.

That timekeeping company has now transformed itself into a big player in the HCM space.

Payroll’s Second Wave: Direct Deposit

The history of post-1900 wage payments starts with cash. Employers used to have payday wagons and armored cars, some with clerks bearing firearms, to distribute each employee’s wages in cash as they lined up on payday. Then, as the paper check became more accepted, employers moved away from cash envelopes to adopt this cleaner, less risky way of paying employees. 

But printing all those checks on special stock was expensive, and paper checks could be faked, lost, stolen, and could otherwise burden employers in clearing accounts. As the banking system started automating payment transactions, payroll began adopting new applications to pay workers electronically directly into their bank accounts. 

By the late 1980s, the process called direct deposit was proven to be faster, much cheaper, and less likely to be tampered with than any cash or paper check method of payment. Employers scrambled to adopt direct deposit and encourage all workers to use it, beginning the movement to an all-electronic payroll.

The advantages to employees were simple: no more paper check to run to the bank and deposit, and earned pay was guaranteed to be in the account on payday. 

More than 99% of respondents to that recent survey of payroll professionals conducted by Bloomberg Tax & Accounting said they now offer direct deposit to their employees.

Payroll’s Third Wave: Daily Pay

If the first wave dramatically transformed time collection, and the second wave almost completely changed how people got paid, the third wave is revolutionizing when people get paid. 

According to the recent survey, nearly two-thirds of respondents said they paid some workers biweekly, and more than 16% said they paid monthly. Recognizing that employers may have different pay cycles for different sets of workers, the survey data showed more than 24% have weekly pay cycles and/or semimonthly pay cycles. 

Employees wait an average of four days after the pay cycle ends to be paid. That means someone paid biweekly does not have access to wages they earned for services performed at the start of the pay cycle for 17 or 18 days.

Contrast that with workers in the so-called gig industry, such as those in the ride-sharing business. These workers can get paid almost immediately after they provide their services. 

While there is a debate about classification for gig workers, it is clear that those on an employer’s payroll, classified as employees, must wait until payday to cash in on their earned pay. More people are saying this is unfair, especially when solutions exist to give employees their wages on demand.

This discrepancy is being addressed, and the remedy is turning what we know as payday upside down. This is payroll’s third wave.

Employees can now get access to wages earned during the pay cycle, through a simple system when they want, and not as a loan through some web-based payday lender. Employees can benefit because they can leverage their earned income instead of putting more dollars on an interest-bearing credit card.

Earned pay access, done right, is helping employers retain workers in an economy of nearly full employment. Employers offering this benefit stand out to prospective employees as employers of choice.

But beware. Some providers claim to have a solution, but they are merely neo-payday lenders. Here are the characteristics of a legitimate daily pay benefit provider:

  • Any fees associated with accessing funds are fully transparent and established, like ATM fees. Some employers cover these ATM-like charges, which stay the same for each transaction regardless of the amount accessed. 
  • There is no interest or debiting of end-user bank accounts.
  • Access to wages is not subject to a set, specific calendar day, but can be available as long as wages have been earned.  
  • Employees can use this benefit to check their available balance, without making a transfer and without paying any fee. 
  • No changes to payroll processes are needed, including the timing of funds and withholding of taxes.

Access to earned wages, on-demand, is here, and the benefits are clear. Payroll’s third wave has arrived.