You may have been here before: Payday is a week away, and you have an unexpected expense that leaves you short on cash. Instead of resorting to a credit card (or, worse, payday loan), what if you could use a mobile app to access the money you’ve earned at your job, but which has not yet been paid?
Players such as HR software and services giant Automatic Data Processing (ADP) and Paylocity are betting that employees want such flexibility and are looking at this and other ways to deliver your money faster. They see such flexible benefits as a means of attracting top talent. In fact, a May 2019 report from ADP found that more than half of employees would actually pay for early access to their pay at least once per year.
Your pay, your way
“Mobile technology in general has really changed people’s concepts of money and the speed of being able to transact with money,” says Doug Politi, president of compliance solutions at ADP. Popular mobile payment services such as Venmo and Zelle have changed expectations: People want speed and convenience when it comes to transactions. “I go to Starbucks, I order it in advance. I walk in, pick it up, and leave,” he says. “I don’t stop at a cash register anymore, and I pay my tolls driving 70 miles an hour.”
Paylocity began rolling out its On Demand pay service earlier this month, and ADP offers the option to employers through a third-party provider. Since payroll is so highly regulated, it takes planning and analysis before employers can decide if this is a good option for them, however. Staying on top of absenteeism, overtime, and other fluctuations in pay is essential.
“Think about an hourly worker who doesn’t show up for a shift, then you need to make sure that that supervisor is marking them absent for the shift and that they’re not actually accruing hours that they maybe have not earned,” says Steve Beauchamp, CEO of Paylocity.
Pay flexibility challenges
Politi says companies will also need to anticipate demand during certain periods. For example, they may see a bump in pay advances around Black Friday, when many people need a little extra cash for holiday shopping. “There are going to be challenges around the cash management and then possibly around bridge loan liquidity and the ability to get access to cash to be able to pay employees,” he says.
This will be particularly true for very up-market companies that are allowing employees daily access to their earnings. “I think we’re going to see more and more of this employee-centric orientation to paying and to giving employees access to their underlying wages,” he says.
Total flexibility is somewhat hamstrung by regulation, says Adam R. Calli, principal consultant of the human resources consulting firm Arc Human Capital. Payroll is governed by a patchwork of federal, state, and local legislation. For example, in Virginia, hourly employees must be paid at least twice per month. Employees who are involuntarily terminated in Colorado are usually owed their wages immediately. And, of course, proper withholding must be calculated and remitted.
Your company’s overall cash flow and technology acumen should be considered when making changes to pay practices, he says. “The more tech-savvy your users, and the more progressive the technology, the easier it is to manage complexity,” he says.
More ways your pay may change
Politi says that employees can expect to see more methods of receiving pay in the future. Some employers may choose to pay via PayPal or other digital options in the future. ADP’s report says that employees are open to these options, as well as receiving pay in a digital wallet and even, in some cases, in cryptocurrency. ADP also offers its clients the ability to pay via a reloadable pay card, which is like a debit card but not attached to a bank account.
These options often allow employees to receive their pay quicker than waiting for a transaction to clear through a traditional ACH transfer or paper check, Politi says. Such flexibility can offer employers a way for employees to better manage cash flow and also be a useful novelty in attracting new talent.
“We’re really trying to understand what the regulators and customer advocacy groups recommend, what we think is right and fair to be able to do, while still be able to allow some flexibility for employees to be able to make these choices on their own,” Politi says.