Small businesses often think of themselves as a family, but when employees get into a financial jam, they're often on their own. One way for companies to support their work families is to ensure that they don't have to stress about a cash shortfall between paychecks. Payday services with friendly smartphone apps may just do the trick.
Payday apps — some of which are gateways to employer-sponsored or approved services — allow workers to cash in on money already earned before they receive their formal paychecks. Companies can contract for these services, and some even offer them as HR benefits, to help paycheck-to-paycheck workers avoid high-interest payday lenders or overdrafts. Some apps also operate independently and employer-free.
These are not loans or charity. This is money already earned, but that can be distributed on demand.
Why are payday services needed?
Today's increasingly unstable economy is often characterized by volatile work schedules, low pay and part-time or contract employment. Workers who struggle with cash flow problems often face unpleasant and expensive choices that can plunge them deeply into debt.
According to professional services network PricewaterhouseCoopers, some 70 percent of U.S. households live paycheck to paycheck. A report from the Federal Reserve based on 2015 data, found that 46 percent of adults could not meet an emergency costing $400, and would cover it by selling belongings or borrowing money. Another 31 percent — some 76 million adults — said they were either financially stressed or just getting by. Among the one-third of adults with fluctuating monthly income or expenses, 42 percent struggle to pay their bills.
How do payday apps work?
With apps like Earnin, FlexWage, DailyPay, Instant Financial, PayActiv and others, employees can avoid the clutches of price-gauging storefront lenders charging loan shark interest rates and fees, or paying endless overdraft charges. That alone is good reason for companies to facilitate loosening the purse strings before weekly, bi-monthly or monthly payday rolls around.
Available both for iOS and Android, payday apps allow workers to tap into services that let them easily access earned money currently parked in a scheduled payroll pipeline. Increasingly, employers in retail and service, hospitals and healthcare, restaurants, manufacturing, factories, call centers, non-profits and others – especially those with a variable work force – are open to making immediate cash available to tide workers over rough spots.
How can payday apps help small businesses?
While large companies like Uber, McDonald's, Goodwill and Outback Steakhouse now offer such resources to help workers through rough patches, this kind of service is a natural fit for smaller companies. There's nothing like a little assistance with financial pressures for attracting and retaining employees. Workers who feel like their company cares enough to offer a helping hand where it counts can also be more productive, less distracted and have a better attitude on the job.
Use of payday systems is also associated with reduction in turnover and absenteeism, time saved recruiting new workers, reduction in labor costs, and employees willing to put in longer hours because they can immediately experience the benefit. Many people need motivation to keep working, so that getting paid by the day or at a needed interval is its own reward. The ability to consistently meet financial demands gives employees peace of mind so they can better concentrate on their work.
Not everyone qualifies for all apps
There are a number of payday apps available, and each has a range of stipulations and requirements. Service costs are reasonable, though not completely free. For employer-sponsored HR benefit apps, the company can opt to help even more by paying the nominal fees charged for early transfer of money as part of an employee benefits plan. Some app services have strict rules about employee payment and time tracking.
Each service operates under its own rules, so you need to research and choose one that works best for the way your company does business. Even if you don't want to offer payday apps as a specific benefit, just alerting employees to their existence can be helpful.
Here are a few reputable payday app services small businesses might consider using or recommending to employees.
FlexWage is an employer-sponsored benefits program that distributes a reloadable Visa or Mastercard payroll debit card, which workers can tap into ahead of payday. The platform is linked to employer HR and payroll systems so employees can access accrued wages within the pay period. Paycheck advances come directly from the employer account, and you determine how often employees can make early withdrawals, and the maximum amount they can request. Because funds are transferred to a pay card, the money is immediately available even for people who do not have bank accounts. A mobile or web app lets employees see how much money they are accruing every day. FlexWage charges a fee of $3 to $5 each for early transfers.
PayActiv, a service offered as a company benefit, bills itself as a "financial wellness" app. PayActiv has no setup or operating costs and hooks into company time and attendance records. Employees who download the app can withdraw up to $500 early during each pay period via an electronic transfer or withdrawal from a PayActiv ATM (located at some employers' offices). The early payment comes from PayActiv, but it isn't a loan because employers automatically send the company an equivalent amount from the employee's next paycheck. There is $5 fee per pay period when employees use the service, although employers can opt to cover a portion of the fee. Employees also get free access to bill payment services and savings and budgeting tools.
Instant FinancialCredit: Instant.co
This employer-driven account and app, which replaces paychecks and direct deposits, gives employees daily access to earned pay without fees, putting them in charge of their own finances. Employers add funds into employee accounts via payroll, tips or other transfers. The Instant app manages employee finances, offers daily payout, and calculates the balance owed on the actual payday. It works with a prepaid Mastercard and the employee's account, letting them make online and in-store purchases or withdraw cash from ATMs. Employees can request up to 50 percent of earned pay for the shift just completed.
Earnin (formerly called Activepay) helps employees through unexpected emergencies between paychecks by letting workers access up to $100 per day and $500 per pay period of money already earned. The money is available without fees or interest, though the company will accept a "tip" of whatever the user thinks is fair. Employees must have a bank account to take advantage of this service. While Earnin does not require employer participation, your employees must be paid via direct deposit to one of Earnin's recognized banks, such as Wells Fargo, Bank of America or Capital One, and the service will verify employee payment schedules. The app estimates average take-home hourly rate after taxes and deductions. For companies that use timesheets, the app also works with Brink, Tsheets, Nimble Schedule, When I Work, Deputy and WebPunchClock.
Dave is a consumer app that uses artificial intelligence to analyze spending habits, predict when a user is at risk for overdrafts, and warn them to trim spending or tap into a loan. The app specifically calculates the lowest point that the user's bank balance could drop in the next seven days.
It also has a feature that lets employees borrow against an upcoming paycheck. For $0.99 per month (first month is free), users can log into the app with their checking account while Dave's payday loan feature lets them borrow up to $250 ahead of their next payment with no interest, with payback due on the user's actual payday. The app's friendly cartoon bear character can lend up to $75 during the current overdraft cycle. Dave operates on the "tip" model, wherein users can leave an optional payment for the service, part of which is donated to plant trees in Sub-Saharan Africa. If Dave can verify your next payday, you get immediate approval.
Even uses artificial intelligence to assist users with keeping on top of their finances. The app allowing employees to plan ahead by alerting them of how much to set aside for upcoming bills. Even's Instapay lets workers access their money between paychecks, but that feature is available only to employees of selected companies. For those employees, Instapay protects against unexpected expenses or declining income, averting the need for payday loans.
As a personal finance management tool, Even can detect when people are facing a shortfall and try to rectify it before it gets out of hand. Workers not employed by one of Even's partners can pay a subscription fee to continue using the financial product after a 60-day free trial.
DailyPay, a company benefit, caters to a variety of workers employed by cleaning services, logistics, delivery, call centers, theme parks and more. The service integrates into a company's direct deposit payroll and time-tracking systems: Instead of paychecks going directly to employee bank accounts, companies set deposits to go through DailyPay. Employees can use text-based emojis to request access to earned, but not yet received wages throughout the pay period. Employees can get their money every day if they want to by direct deposit into their bank account or via prepaid card or payroll card. DailyPay charges a transfer fee depending on when workers need to collect. Next day delivery of funds costs $1.25; instant access costs $2.99.
Payday apps and the services associated with them are a bright spot for both employers and employees. These "financial wellness" systems help workers achieve liquidity and control over cash flow without the penalties of bank overdrafts and short-term lending fees. By preventing debt, you can help workers build a more secure financial future, while at the same time mitigating financial stress and boosting productivity and on-the-job engagement.