Why companies give employees early access to their paychecks


By Kathryn Vasel, CNN Business

Ethel Lawrence normally has no trouble covering her expenses. But when her husband was prescribed a new drug that cost almost $ 400 a month, she was in shock.

“I was slapped in the face and ran out of money. It wasn’t payday yet, ”said the 72-year-old Oklahoma resident. “It’s not like it’s optional. It is not a luxury item that you can choose to buy or not. You have to buy it. “

To cover unforeseen expenses, Lawrence was able to request part of his salary earlier, which saved him from taking out a loan.

For many workers, two weeks is a long wait for a paycheck. And unforeseen events, whether it’s an unforeseen medical expense or an auto repair, can be financially devastating.

But a growing number of companies have started offering employees early access to their earned wages.

Pay-on-demand services offer workers the ability to access a portion of their paycheck if they need it before their regular payday, but sometimes at a cost. Some apps and services charge a fee per use, while others are subscription-based. Typically, money can be loaded onto a debit card or into a bank account.

“The pandemic has accelerated many existing economic trends and employee demand for these financial tools is certainly one of them,” said Luke Pardue, economist at Gusto payroll and benefits company.

The company, which primarily works with small businesses, launched its Cashout on-demand payment tool at the end of 2019. The feature gives workers early access to their salary based on the accumulated net salary. From March to May 2021, Pardue said the company saw a “significant increase” in the number of small businesses offering withdrawals to workers.

Just over 40% of small and medium businesses using Gusto offer Cashout, the company said. And the number of businesses with employees enrolled in the program has more than doubled since January. In March 2020, as lockdowns swept across the country, the average withdrawal was $ 410. The number fell to $ 332 in the last quarter, Gusto said.

Paychex payroll and human resources company has also seen an increase in use of its paid-on-demand service among its users. It began offering the option in late 2019. During the pandemic, the average number of prepayment transactions per worker more than doubled from pre-pandemic standards, according to the company, peaking in August 2020. .

“Pay on demand became an opportunity for people who were working more sporadic shifts who needed access to their money and couldn’t afford to wait until the end of the standard pay cycle,” said Tom Hammond, vice president of corporate strategy and product management at Paychex. He added that usage has recently increased in the retail, restaurant and home health care industries.

As more companies offer pay-on-demand options, the idea is not new. Walmart was one of the early players, providing its employees with instant access to wages in 2017.

“It set the tone for the American workforce… which legitimized it,” Hammond said.

Two weeks is a long time

Many workers live from paycheck to paycheck. So when an unforeseen expense arises before payday, they may be forced to take out expensive loans or resort to credit cards that can put them in debt.

“As the pandemic has increased awareness of household financial fragility, workers are returning to the workforce with this increased demand for tools to help them meet their needs,” Pardue said. “Whereas previously we might have been able to operate with this biweekly or monthly paycheck system, it is now recognized that emergency spending does not work on this same system.”

PayPal began offering its U.S. employees early access to wages last fall through the on-demand pay app Even, a company it also invests in. According to Paypal, the app’s use of on-demand pay and budgeting tools is higher among its workers than salaried workers.

“When we surveyed our employee population, we found that some of our employees also struggled to make ends meet from one paycheck to another,” said Lisa Beyer, director of compensation at PayPal.

Younger workers could also play a role in increasing pay-on-demand offerings, according to Michael Haske, president and chief operating officer of human resources and payroll provider Paylocity, which has started offering compensation services. at the request of its customers. in 2019.

“Millennials and Gen Z have different expectations, they want an experience similar to what they’re used to in their personal and consumer lives,” Haske said. “The idea that they’re making money and wanting to be able to gradually reduce it over a pay period – we think that’s the future.”

Attract and retain workers

Providing pay on demand has also become a way to attract more applicants and retain workers in today’s tight labor market.

“[Companies] must be competitive and deliver a leading benefit and value proposition to the employees they recruit, ”said Seth Ross, Managing Director of Dayforce Wallet, a program from human capital management software company Ceridian that provides early access to compensation.

He added that many companies list pay-on-demand on their job postings.

“It’s really gone from” it’s something from an altruistic point of view that we have to do “to” it’s actually a strategic imperative where we have to offer these kinds of benefits or we won’t be able to attract. the talents we need, ”he said.

For small business owner Daniel Barbee, giving workers access to their pay as they earn it is one of the perks he offers in trying to attract and retain workers. He is the franchise owner of the home care company Always Best Care in Sacramento, California. He said he had to turn away clients because he didn’t have enough workers.

“For us, it’s all about hiring and retention – that’s the number one challenge. It’s not about getting customers. It currently has around 117 workers, but said it could easily hire 20 more to meet demand.

Its employees can access their salaries in advance by using the PayActiv on-demand payment service offered by Paychex. “You don’t have to ask us, you can do it yourself. It preserves a little dignity and it also makes us seem more humanistic, ”he said.

While these services can be convenient, workers should take into account any costs associated with early access to wages.

“You owe it to yourself to do the math, figure out the fees and see how it compares to other options,” said Bruce McClary, spokesperson for the National Foundation for Credit Counseling. “In some cases, a loan may be the most affordable option.

All pay-on-demand services are at no cost to the employee. And many departments have limits on how much a worker can withdraw from their wages early. For example, with Gusto’s Cashout, employees can only take 40% of their estimated salary, with a maximum of $ 500.

But if an employee consistently gets their pay early, that’s not a long-term solution, McClary said. “It might save them time to deal with a critical expense… but they should take the appropriate steps to address the issues that create this lack of savings or the ability to pay. “

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