Paying Employees: Could Your Company Benefit from New Pay Day Options?

A new trend in employee compensation has appeared: Paying employees immediately after a day's work instead of waiting for pay day.
July 29, 2016

As an employer, having a productive workforce is important. But for some employees, a personal financial shortage can cause a lack of focus on the job. Whether it’s temporary or chronic, the fact is that some employees live paycheck to paycheck. The stress that can come from this financial reality can negatively affect their work performance, leading some business to rethink how they go about paying employees.

It used to be that only a handful of options existed for financially-strapped employees to access ready cash in between paychecks. These included expensive payday loans or other emergency lending services. Recently, a variety of options for paying employees right after a day’s work have sprung up. Small-business owners can now arrange it so that they pay employees via payroll cards, ATMs and other methods. Companies that have recently added such instant payment options include Lyft and Uber.

“In the staffing industry, we often advise employers to differentiate themselves as great places to work,” says Nicole Smartt, vice president of Star Staffing. “These employers are spending a good amount of money on retention techniques and marketing their company cultures to attract employees. Now that the option is available, our company is adding instant payment for a day’s work to the list of options we suggest as ways to attract and retain employees.”

Benefits of Paying Employees Immediately

“As perks go, giving employees quicker access to their pay is a lot less expensive than raising salaries or increasing benefits,” says Smartt. “The trend of instant pay for a day’s work empowers employees in a way that doesn’t cost the employer much in the way of fees or manpower. Overall, it’s a real perk for everyone.”

If you roll out an immediate payday option plan, once employees have had a chance to review the written details you’ve provided, consider having a company meeting to answer specific questions.

Employees who have the option of being paid quickly may also be more prone to working overtime when they know that there’s an immediate payoff in the end, believes Smartt. “More than that, instant payment for a day’s work puts employees in the driver’s seat of their own finances and may alleviate some of the financial stresses that they’re under—including the rising cost of housing.”

Downsides of Paying Employees on Demand

The drawbacks of being paid following a day’s work include a need for increased payroll management for the small-business owner. For employees, there are fees associated with the service, generally ranging from 50 cents to $3 a transaction, although those costs can pale in comparison to the percentage extracted by the typical payday loan service or the cost of bank overdraft fees.

“It’s also possible that employees could become dependent upon the easy money to the point that there’s not enough left in their ‘regular’ paychecks to cover the essentials,” adds Smartt. Michael Houlihan and Bonnie Harvey, founders of Barefoot Wine, agree.  "Daily compensation does not enforce savings and the assignment to larger bills and expenses that occur on a monthly basis. It assumes that folks on this system will save up for those expenses on their own." 

While the state of your employees’ personal finances isn’t your domain as an employer, their potentially poor work performance because of financial strain can ultimately affect your bottom line. With that in mind, if you're thinking of paying employees quickly, it’s advisable to ensure that employees understand how such on-demand payment plans work, so that they can use them effectively.

If you roll out an immediate payday option plan, once employees have had a chance to review the written details you’ve provided, consider having a company meeting to answer specific questions. You may also want to include the on-demand pay guidelines in your employee manual.

Read more articles on hiring & HR.

Photo: iStock

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