With each new survey, employee desire for access to their accrued earnings before payday grows, along with retention rates for employers that implement the #dailypaybenefit. It’s a win-win.
The pressure on payroll professionals to implement on-demand pay solutions for employees comes from HR and compensation, higher-ups in the organization and employees themselves. Because of this, those in payroll are seeing major disruption. As implementers of employer compensation plans, payroll wants to know the provider landscape, ensure their organizations stay compliant, and understand payroll’s involvement in offering daily pay. And they want to know this now!
That’s the message I heard as Lori Brown, CPP with Hanger, Inc., and Bill Dunn, CPP, APA’s Director of Government Relations discussed on-demand pay issues for payroll with me during our January The Source by DailyPay podcast.
As a payroll professional, Lori Brown said, “This is the biggest disruption I’ve seen,” in more than 25 years of practicing payroll. She wanted more clarity on the differences among the on-demand pay providers.
I told Lori and The Source listeners that on one end of the spectrum, there are predatory payday lenders that rely on employee information to provide small loan amounts at very high interest rates. On the other end, there are in-house solutions that use pay deductions that can most complicate existing payroll processes and burden payroll professionals. A number of actors that exist in-between profess to offer the best on-demand solution. There are outsourced and in-house solutions, along with different fee models and repayment mechanisms to consider.
Note that DailyPay is a fully-compliant outsourced solution that doesn’t interfere with an employer’s scheduled payroll process. Employers offering the DailyPay benefit only provide work information in order for DailyPay to keep track of earnings; payroll runs as usual.
But watch out! Payroll runs as usual for the outsourced model with the least payroll involvement as well: predatory payday lenders. Their model is to get evidence from the employee -- not the employer -- of their pay, loan them the money, and require the employee to hand over access to their personal bank account for ultra-high interest repayments by debiting the employee’s account directly.
Requiring access to bank accounts, something that DailyPay doesn't do, is standard for these operations. This is not a “benefit” provided through employers, but a “scary” payday loan, “which we know is costly and really not a good solution for any reason,” according to Brown. Several payday lenders have moved online and are now disguising themselves as on-demand pay providers, with the blessing even of some employers.
Also, some models may not charge interest, per se, but retain predatory loan-type features, such as the requirement to access and debit personal bank accounts and the application of fees, even if the employee does not use the service to access their pay ahead of their scheduled payday.
With DailyPay, there is no requirement to access employees’ bank accounts in order for them to receive an earnings transfer before payday. Those who want to draw on their earned pay simply change their direct deposit instructions. That’s it.
Other outsourcers rely on the employer to allow specific payments, and later deduct those amounts from the employee’s pay. This can affect the employer’s payroll run, raising compliance issues and adding administrative burden.
Of course, the most impactful for payroll would be if the employer modified its in-house payroll systems to provide on-demand pay. This most expensive alternative saddles the payroll department with keeping track of all the payments, whenever they occur, and ensuring the employer stays compliant with tax, wage and hour, and garnishment requirements.
For an employee using DailyPay, the process is straightforward. Simply accessing the application interface shows the available earnings balance. The employee then decides how much to transfer, if any.
The employer processes payroll as they always have, and on payday, meets wage payment obligations by making the direct deposit to the employee’s DailyPay account. DailyPay deducts any amount(s) transferred prior to payday, and an ATM-like fee of either $1.99 (for next day payments) or $2.99 (for instant payments) for each completed transfer. The remainder is deposited to the employee’s personal account(s) -- there is no interference with the employee’s personal bank account.
It’s understandable that payroll professionals are wary of on-demand pay solutions because many do not have the best interests of employees in mind, and/or they can cause compliance and additional administrative burdens for employers. Our employer partners know that using DailyPay has no impact on their regularly scheduled payrolls and does not add any oversight to their compliance equation.