The latest employee benefit? Wages on demand
Broke until payday or flush with cash once it finally comes is a typical lament of front-line workers. A benefit known as wages on demand is increasingly popular and can help to smooth finances for employees.
Betsy Mercado spent more than a year researching and piloting systems that allow employees to get instant access to their earned but unpaid wages—what some call wages on demand.
She’s vice president of human resources at Flynn Restaurant Group, with 48,000 employees, many of them part-time, across more than 1,200 Applebee’s, Arby’s, Taco Bell and Panera restaurants.
Late last year she chose DailyPay and added the benefit, to meet a simple but acute employee need. “They run into situations and need access to their pay, and there are very expensive ways for them to get access to their pay,” she said, referring to payday loans with interest rates in the double digits or bank overdraft fees that quickly add up.
“This was a cost-effective way for us to give the employee the ability to access their pay if they want it. They don’t want to wait two weeks to get their paycheck.”
Flynn Restaurant Group isn’t the first to use such a service, sometimes known as EWA or early wage access and part of the rise of so-called fintech services (marrying finance and technology) in the past few years.
Ed Shaw, executive VP, human resources and risk manager for the Caspers Company, a McDonald’s franchisee based in Tampa, was an early adopter, using a service called Instant Financial. In August 2017 he noted several benefits, including not only reduced absenteeism but also making it easier to find coverage for open shifts.
“The incentive of having daily access to these wages, at no cost, was the defining factor,” he wrote.
But “alignment” was the biggest boon. “With Instant, we have put employees in control of accessing their pay, and this falls in line with the millennial way of thinking: their desire for instant access is addressed, while the use of an app treads familiar ground. How they access their pay is now aligned with the rest of their life.”
But Flynn Restaurant Group’s massive size—it is the largest U.S. operator of franchised restaurants, with $2.3 billion in annual revenue, according to the Franchise Times Restaurant 200—ensures its move has outsized impact.
Fees and business models for the services vary. With DailyPay, “there’s no cost to the employer, and for the employee there’s a fee,” Mercado said. It’s $2.99 to access earned wages instantly and $1.99 to access wages the next day. Employees can get only 50 percent of their earned wages, and can never take out more than needed to cover tax withholding, garnishments or other such obligations.
Providers include PayActiv, which signed with Walmart in November 2018 and gave a big visibility boost to this type of service, ZayZoon, Branch and Even. Earnin, Dave and Brigit offer services directly to consumers.
Early wage access doesn’t solve all ills, as The Economist pointedly noted in an article about a UK company called Wagestream. “Of course, allowing workers to get a salary advance is not a panacea. If their wages are not high enough to cover their expenses, they will still struggle.”
And The American Banker reported a couple of early payment services are more like predatory payday lenders, so before signing up it’s imperative to examine terms of the services closely.
DailyPay’s Chief Innovation and Marketing Officer Jeanniey Mullen counts payday loan companies as the biggest competitor. “Certainly, payday loan companies absolutely hate us. We’re reducing their market share. They are competing against us with a lot of direct to consumer marketing,” she said.
Significantly with DailyPay, she said, employers do not have to front the early wage withdrawals, but rather DailyPay does that and is paid back by the employer on payday.
“So if a Taco Bell collectively accessed $50,000 in their wages in the pay period, there’s no change to the payroll process at Taco Bell. Others ask the employer to fund,” she noted, again pointing out the need to examine the fine print.
DailyPay started in 2015, but “up until probably the beginning or the middle of 2018 this was a brand new concept,” said Mullen, and so she spends a lot of time educating customers as to “why this is not a payday loan, why this is safe, why this will not leave you with a negative balance.”
There are close to half a million employees who have a DailyPay app, she said, and the firm makes revenue only on those $1.99 or $2.99 transaction fees—still small potatoes. “I would expect that over the next 18 months the numbers will increase significantly,” she said. “We kind of see it as the missing piece from the employee engagement puzzle.”
Mercado at Flynn Restaurant Group says while it’s still early days for offering the benefit, its popularity is undeniable. “I don’t think there’s a lot of employers out there that are doing it, but it’s definitely starting to get traction,” she said. “People are talking about it, certainly my peers are looking at it and evaluating it.”
She said deciding to add a benefit is not simple. “On our side there’s nothing that’s super easy. I would say we’re selective about what we try, but we’re also super interested in a lot of different things,” she said. “We have a very geographically diverse workforce; we have a large workforce across our four concepts but different demographics. Finding solutions for all of them is not an easy feat.”
But one point is driving the movement: employees love it. “There’s a significant difference in applications when you advertise you can pay daily versus not,” she said. “It’s amazing how people are drawn to that.”
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