Touted as a way to provide employees with additional financial security while increasing retention, new technology is enabling employers to pay workers daily.
Employees can now access their earnings as soon as a work shift ends — a perk adopted by major restaurant chains such as McDonald’s and Earls.
Vancouver-based Instant Financial’s technology, for example, allows workers to receive up to 50 per cent of their daily wages during the first hour after working a shift. All instant pay requests require manager approval and are rendered via a debit card. Money can be withdrawn at an ATM or transferred to a bank account via the card.
It puts employees in control of their pay “by allowing them to choose when they access their earned income,” said Instant Financial CEO Steve Barha.
The software operates in tandem with common payroll systems and includes measures designed to encourage financial wellness and discourage impulse spending — all while working towards reductions in absenteeism, theft and the need for payday loans, he said.
“We developed numerous controls in the program to ensure that (this) is a financial wellness solution and not something that drives compulsive behaviour.”
Daily pay apps help workers to avoid unnecessary expenses including overdraft fees, penalties or credit line interest, said Jason Lee, CEO of DailyPay, a New York-based financial technology company.
“Most people get paid once every two weeks but their financial obligations actually occur within those two weeks or throughout the month,” he said.
“Most people can’t pay their bills on time and are actually financing themselves through late fees… That was really the problem that we’re trying to eliminate: Can we use technology in some way to essentially give the employee control over when it is they actually got paid?”
Benefits for employers
Employees aren’t the only ones who benefit from a daily pay option — employers using the technology have reduced turnover by 41 per cent, said Lee, citing DailyPay statistics.
“That is an enormous amount of cost savings,” he said. “The companies that we work with are now able to take a bunch of money that they’ve now saved, redeploy that into their own business, and become more competitive on their own pricing, their own product offerings.”
“When you give the employee the control over when it is that he or she gets paid, they actually stay longer at a company,” he said.
“If you empower the employee through technology to be able to control when it is they actually do get paid, believe it or not, that means they stay longer at a company. And when they stay longer, that means that the company can realize a bottom-line benefit in the form of increased retention.”
But expecting loyalty from employees who are nearly up-to-date on payroll is tough, said Wendy Giuffre, an HR consultant at Wendy Ellen Inc. in Calgary.
“I think maybe at the beginning, it sounds cool,” she said. “It’d be one of those new, cool HR things, but I haven’t been able to figure out how that would create loyalty.”
“It would be an attraction tool at some of those kinds of places… in those industries where it’s typically either second-income earners or younger kids, where that kind of mechanism would be more appealing.”
“It’s like when (employers) went to unlimited vacation,” said Giuffre. “It has caused a number of administrative headaches and problems. I think this is another one of those interesting trends, and maybe one day that will be the status quo.”
Strapped for cash
While allowing workers to access their funds on an as-needed basis is helpful, it still doesn’t solve the ultimate problem, said Steven Van Alstine, vice-president of education at the Canadian Payroll Association (CPA) in Toronto.
“My concern would be that having more frequent access to your net pay is not going to necessarily take away the fact that people are living paycheque to paycheque,” he said. “At the end of the day, you’re going to get the same amount of net pay.”
Nearly half of Canadian workers live paycheque to paycheque, and would encounter difficulty meeting financial obligations if their pay was delayed by as little as one week, according to a 2017 CPA survey of 4,766 workers.
For millennials, that number rises to 55 per cent. Additionally, 94 per cent of respondents carry debt, including mortgages, credit cards, car loans and lines of credit.
Instead, the CPA says more awareness is needed, alongside a behaviour change, if Canadians are to adopt more appropriate saving measures and pay off debt.
“Financial planners suggest 10 per cent of earnings be allocated for longer-term savings or for retirement,” said Van Alstine.
Before a company considers adopting daily pay as an option, employee education is critical, as it would be much easier for employees to squander their wages, said Giuffre.
“There has to be huge education if a company was to implement something like this... even a pretty solid sign-off that the employees understand this concept,” she said. “It’s very easy to go through $150. Come the end of the month, where’s the money for your bills, your mortgage, (if) you’ve squandered it away on a daily basis?”
Sixty-two per cent of employers process payroll on a biweekly basis, according to the CPA. Eighteen per cent pay weekly, 13 per cent semi-monthly and six per cent monthly.
“From a business standpoint, the traditional pay system is beneficial because it maintains cash flow a little bit longer,” said Giuffre.
The future of pay?
For employers struggling to retain workers, however, daily pay has caught on with high-turnover companies such as cleaning companies or call centres, said Lee.
“This is not for everyone,” he said. “This is one of many tools in the toolkit to improve retention.”
“This is bleeding-edge technology. Early adopters in this type of product, they will absolutely be the ones who are winning.”
The idea of payroll cards was originally floated several years ago, but never really got off the ground in Canada, said Van Alstine.
“Most Canadians have bank accounts, and particularly working Canadians,” he said. “Because we have such a high penetration of electronic funds transfer, and it’s usually an employment requirement to have a bank account so that your paycheque can be deposited directly in there, there wasn’t as much of a need for the pay card or the technology of a pay card.”
But the introduction of payroll cards was only the beginning of a new movement, said Barha.
“While payment by payroll card versus paycheques was a step in the right direction, we’ve rolled out the future of how we pay employees.”
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