BusinessTech Trend

Is Daily Pay the Right Choice for Your Organization?


The unemployment rate in the U.S. is near an all-time low. As a result, companies are fighting for talent. If an hourly retail worker is earning $10 an hour but can go to another company and make $10.50 an hour, that employee may well leave — quickly. In this labor market, companies need to get creative in the ways that they attract and retain workers.

Within the past few months, one idea that I’ve been hearing over and over again is the concept of daily pay. Most companies pay on either a weekly or a biweekly basis. However, daily pay is just that: payment on a daily basis.

Advantages of Daily Pay

Why would a company consider daily pay? The advantages for workers are pretty clear. Hourly employees work a shift, and immediately afterward they get a large portion of their daily pay. (I’ll explain below why it’s not 100 percent.) Typically this isn’t going to be cash or a check; often it’s through a cash card, like a Visa or a MasterCard. Employees can deposit funds from the cash card into a bank account if they want to, or use it just like a debit card, right away.

When you think about someone who is struggling financially and needs to pay an overdue bill, buy medicine for a child or buy groceries for the week, having the money from the shift they worked the same day can be invaluable.

Not everyone has a checking account, or maybe they don’t have easy access to a bank. If they’re given a check, the employees may face a fee to cash it. However, the card-based system means there are no fees, so the service is free to employees.

Factors Fueling This Trend

Everyone loves instant gratification, and getting paid is no exception. Think about smartphones and all the technology that has been unleashed to let you perform functions instantly from that one device. None of us want to go wait in line at a bank. Also, notice how people prefer texting to sending emails. It feels faster and more immediate. In some parts of the country, Amazon can deliver your order in one day. We microwave food, instead of cooking it in the oven.

When some people need money “fast, quick and in a hurry,” they turn to “payday loans.” With daily pay, employees might not have to get a payday loan (and pay the high interest rates associated with it). They’ll just get paid whatever their negotiated pay is. It could be 50 percent of their daily pay, but whatever the amount, they will have access to it right away.

Daily pay could lead to major improvements in retention. When leaders listen to what their employees need, and roll out initiatives like daily pay, they create an environment where people feel like they’re being taken care of — and they’ll want to stay.

The benefits of daily pay could even outweigh a higher salary. If a worker has immediate pay at a company paying $10 an hour and is offered $10.50 an hour with a company that doesn’t have daily pay, what do you think they would do? Even though the second company pays more, the employee would have to wait two weeks to receive their money. There’s a good chance they might decide to stay with the first company. Even though it’s less money, they’re getting it quicker.

Concerns for Employers

While employees are certainly interested, daily pay hasn’t been embraced yet by most employers. But, some startup companies that are starting to do daily pay and flex wages. In fact, some of them have actually built this into their payroll platform.

Uber and Lyft are two companies that offer daily pay, and I recently saw that a McDonald’s franchise was offering this perk.

The concern that many companies will have is the administrative burden. For example, how will you manage withholding taxes from daily pay? It’s my understanding that’s why employers don’t pay 100 percent in daily pay — they hold back a portion so that when they do process an employee through payroll, they’ll be able to pay taxes.

Big payroll providers like ADP and Ceridian offer daily pay, but what happens if you use a payroll provider that doesn’t offer this service? Many companies would be concerned about how much it would cost to bring on another provider, and whether moving to daily pay would increase administrative and vendor costs. Another concern is what happens if you’ve paid an employee but you haven’t processed them, and then the employee is terminated.

The ultimate question is whether the pros of daily pay outweigh the cons. Are you thinking of adding this feature to your company’s payroll process? Why or why not?

Source: Is Daily Pay the Right Choice for Your Organization?

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