Getting paid every other week was once as cemented into workplace culture as the office breakroom or the reserved parking spot for the employee of the month. But these days, payroll cycles are shrinking thanks to the rise in gig work, the app economy, and demands from employees living paycheck to paycheck to get paid more often.
Hotels, restaurants, retailers, and other companies with a lot of hourly or part-time workers have started giving people the option of cashing out some of their pay in advance of payday. At Walmart, more than 300,000 employees use the retailer’s Even early-pay app. Burger King, KFC Corporation, and Taco Bell are among other companies that also offer early-pay options.
And low-paid workers aren’t the only ones interested in advances. At companies that give employees early access to their paychecks through an app from startup DailyPay, 12 percent of those workers earn more than $100,000 per year, according to Jeanniey Mullen, Chief Marketing Officer at DailyPay.
“It’s really an exploding market,” Mullen said. “Companies are seeing efficiencies and employees are happy to be getting access to their money when they need it.”
If you own a business or manage payroll for one, then here’s a quick rundown on how early-pay apps work, how they integrate with existing payroll services, and what to consider before bringing one to your own workforce.
Ride-hailing pioneers Lyft and Uber were at the forefront of the early-pay trend. In late 2015, Lyft introduced a function called Express Pay that drivers could use to access weekly earnings before they were deposited into their bank account. Uber started testing its own early-pay service the next year. By 2017, Uber drivers cashed out $1.3 billionthrough the company’s Instant Pay app, which they can use up to five times per day.
Lane Jensen is an Uber driver in Portland, Oregon, who drives about six hours per day. He likes Instant Pay because it gives him faster access to his money. “I don’t like to wait, especially if I’ve had a good day driving, he said. “I’m able to pay bills easier or get maintenance done sooner.”
Uber charges drivers $.50 per transaction, but waives the fee for drivers like Jensen who use an Uber debit card. Lyft drivers can use ExpressPay to transfer their money to a debit card any time after they have earned $5 in ride earnings and referrals, with a $.50 transfer fee.
Ride-hailing companies’ success with early-pay apps gave rise to a slew of startups that sell the service to businesses of all sizes. App makers, such as Branch, DailyPay, and PayActiv, work directly with employers, which give employees access to money they have already earned.
For the most part, these apps integrate into a company’s human resources (HR) software, such as BambooHR, or a payroll provider, either through pre-integration or custom development done through application programming interfaces (APIs). Most of the apps work on mobile devices or were designed to be mobile-first.
And you don’t necessarily have to implement a separate app to give your employees access to early-pay capabilities. Some payroll providers, like Gusto ($25 Per Month at Gusto) , have added early pay or flexible pay options to their base offerings. In Gusto’s case, this offering is called Flexible Pay and it lets employees design their own pay schedules.
Many of these providers charge a fee for cash-outs, though employers may absorb a portion of the fee. Some vendors offer an early-pay feature as part of a suite of financial wellness tools. The early-pay app from Branch, for example, is part of financial wellness suite that employees can also use to create budgets and pick up extra shifts.
DailyPay has several hundred corporate customers that employ an aggregate of more than 500,000 people; customers decide which employees get access to the app. Those employees average close to three transfers per month, according to Mullen. Two-thirds of them withdraw up to $200 per transfer. Mullen said the top four things that people take money out to pay for are essentials that they might fall short paying for before their next paycheck, including food, housing or rent, transportation or gas, and utilities.
By using the app, people avoid about $1,000 per year in late fees and overdraft fees that they would be charged if they didn’t have early access to wages, Mullen said.
With undeniable benefit to employees, the early or flexible pay trend will crop up on your HR radar at some point soon. The success of startups like DailyPay, and the fact that established players like Gusto have also implemented this technology, has prompted more long-time payroll processors and HR software companies to include some version of it as well. In 2018, Ceridian added a service called On Demand Pay to its cloud-based Dayforce HCM platform. Late last year, Automatic Data Processing (aka, ADP) added DailyPay to its ADP Marketplace platform for HR tech partners that are pre-integrated into the payroll processor’s service.
Some early-pay vendors provide cash directly to workers as a loan against future pay. However, the latter group has attracted the attention of regulators in 11 states that are looking into whether these firms violate payday-lending laws, so investigate this option thoroughly before committing.
And finally, if you’re still on the fence about its legitimacy, then know that, in the 21st Annual Edition of the Sierra-Cedar HR Systems Survey, 28 percent of organizations said they “are either evaluating their options or planning to replace their current Payroll application.” For larger organizations, the number was even higher, namely, 40 percent. So, if the tight job market holds, then expect employers to continue to offer perks to be more attractive to current and potential employees, including updated payroll services with some kind of early-pay option.