Beware Wolves in Sheep’s Clothing

For the last 50 years, payroll has been a business-as-usual, set-in-stone, mechanical process that takes place on a predictable weekly, biweekly, semimonthly or monthly schedule. Workers, without any savings, who had an emergency or a bill due outside of the normal pay cycle have been forced to endure late and overdraft fees or, even worse, resort to predatory pay loans to handle these circumstances.

Until now …

Over the past several years, a new industry has emerged that allows workers to access their earned wages before payday. Called “on-demand pay,” “payroll-advance apps,” “earned pay access,” a “daily pay benefit” or myriad other names, the basic premise is the same — third-party providers give employees access to the pay they have earned in the current pay period, when they need or want it — before their next payday. But providers of this benefit follow two very distinct models and, in fact, they are operating in two entirely different industries.

The legitimate daily pay benefit provider allows access to earned wages and enables employees to control the timing of when they get paid. But there are others in this space who purport to be acting in the employee’s best interest, when clearly they are not. Rather, they are neo-payday lenders who are making loans that are repaid through the debiting of a consumer’s bank account.

Proverbial wolves in sheep’s clothing.

Characteristics of Legitimate On-Demand Pay Providers

Characteristics of clean and compliant on-demand pay providers:

  • They market exclusively to employers and payroll companies
  • Their software connects and unifies an employer’s existing payroll system, time management application and HR database
  • There is no “application for credit” process and, therefore, no mechanism to approve or deny an employee’s request for any portion of their earned wages
  • They don’t collect any of the following:
    • Employee Social Security Number
    • Employee date of birth
    • Employee bank account access via login credentials or other permissioning
    • Employee credit check
    • Employee GPS or social media tracking
  • There is a flat fee charge for a transfer when an employee requests one, with none of the following:
    • Tips
    • Monthly subscription fees
    • Hidden fees
    • “Built-in” incentives to use the product more
  • There is no debiting of the employee’s bank account for repayment of an advance
  • There are no wage deductions or wage discounting used in connection with repayment of an advance

Characteristics of Neo-Payday Lenders

Neo-payday lenders share characteristics that are similar to traditional payday lenders, minus the storefront and blinking signage. These characteristics separate them from legitimate daily pay benefit providers:

  • They market directly to individuals, instead of working with employers
  • They collect employee personal data, including bank information, which is used to debit an employee’s account for repayment of any early wage transfers, and location-based data
  • They employ a variable fee structure, which could include:
    • Tips
    • Monthly subscription fees
    • Hidden fees (i.e., inactivity fees)
  • Payment can only be made to specific cards or there is a requirement to pick up wage advances in a specific location
  • There are limitations on the amount of earned wages that an employee can access and a lack of visibility into accrued earned wages

What to Look for in a Daily Pay Benefit

Lest you be taken in by these wolves in sheep’s clothing, here are some characteristics of legitimate providers that you’d be wise to keep in mind if you’re considering offering a daily pay benefit to your employees:

  • The provider offers continuous access

What if you’re in the midst of paying bills in the evening or over the weekend and you realize that you’re about to overdraw your bank account? Will you have 24/7/365 funds availability through your daily pay benefit provider so you can access your earned wages and avoid that charge?

Or … what if you have an emergency, like a  middle-of-the-night hospital emergency room visit? Will you have access to your earned wages to pay a copayment if needed?

If you truly want to help the nearly 80% of American workers who live paycheck-to- paycheck, employees need a benefit that’s available whenever they need it.

  • There is full visibility into an employee’s earnings

For employees to have transparency into their real-time accrued earnings, they need to be able to see 100% of their earned net wages. This helps them with budgeting for upcoming expenses and with budgeting decisions such as, “Can I afford to go to the movies tonight or out to dinner with friends and still meet my financial obligations next week?”

  • Employees have “universal access” to the daily pay benefit

Look for a daily pay benefit provider that can provide universal access to employees along with the ability to:

    • Transfer earnings to any bank account or paycard for maximum flexibility and ease of use
    • Access the provider’s platform using any device — computer, tablet or smartphone — to view their accumulated earnings in the current pay period and request a transfer of funds, if needed
  • The daily pay benefit is simple to use

An on-demand wage access solution should be simple for employees to use, both in terms of fee structure and the user interface. The fee schedule associated with initiating a transfer of funds needs to be fully transparent and established, like an ATM fee. It shouldn’t be variable, and no subscription fee should be required. Employees should be able to use this benefit to check their Pay Balance, without making a transfer and without paying any fee.

The Benefit of Offering On-Demand Pay

It’s true that the fastest-growing payroll and HR trend in some of the world’s largest companies is a daily pay benefit. Why? Because a daily pay benefit empowers employees to achieve financial security by giving them control over the timing of their pay. This allows employees to pay bills on time, avoid late and overdraft fees, and replaces the need for predatory payday loans. The result? Positive impact on recruitment, engagement and retention efforts — issues that many companies are grappling with given that unemployment is at its lowest in 50 years.

By offering access to earned wages, companies have seen:

  • 41% decrease in turnover
  • Almost twice as many applicants for job openings that offer a daily pay benefit
  • More engaged employees, with reduced absenteeism and an increased willingness to pick up additional shifts

It’s no longer a question of if, but when your company will offer this benefit. Just be sure you’re choosing a legitimate provider and not one of the wolves wearing sheep’s clothing. Your business reputation and your employees can’t afford that kind of risk.