Will same-day pay help hourly workers and their employers?
Waiting between paychecks can be a big source of stress for people with bills to pay and no money to spare. Now a startup has launched a payment service that purports to better meet the needs of a huge number of Americans living paycheck to paycheck.
The startup, called Instant Financial, allows employees to get half of their daily wages on the same day that they earn them, according to USA Today. Users can withdraw 50 percent of their paycheck on a given day, one hour after they finish work. The service sets these limits, according to the article, in order to prevent impulse spending and promote saving. Businesses pay $1 per active user each month to use Instant Financial.
The Instant Financial FAQ indicates that unlike a payday loan — small, high-interest loans targeted at low-income earners — there is no interest charged. The Instant Financial service merely gives people money they’ve already earned, which is then taken off their next paycheck.
USA Today reports that about 150,000 workers at 50 companies, including franchisees of Dunkin’ Donuts, McDonald’s, Outback Steakhouse as well as other foodservice, hospitality and retail businesses, have used the service to date. Employers told USA Today that they have seen reduced employee turnover since implementing the service.
The service could help cash-strapped workers avoid payday loans to cover bills or food purchases between paychecks that often leads to snowballing debt.
Payday loans have a notoriously bad reputation. Most payday borrowers pay more in fees than they receive from the loan, spending an average $520 to borrow $375.
Such loans, recently described as “debt trap products” in an article on Marketplace, are now facing reform. New federal laws pertaining to payday loans have been finalized and will take effect 21 months after they appear on the federal register. The new laws prohibit automated withdrawal of money from borrowers’ accounts for debt repayment and change the type of deal structures allowed.
While Instant Financial is aimed at hourly workers, a CareerBuilder study found that 78 percent of Americans live from paycheck to paycheck, including nearly 10 percent of those making more than $100,000.
- Pay: New service allows U.S. workers to get paid daily instead of weekly – USA Today
- Most Americans live paycheck-to-paycheck – CNBC
- Frequently Asked Question – Instant Financial
- Payday loan business facing tougher rules – Marketplace
- Payday Loan Facts and the CFPB’s Impact – The Pew Charitable Trusts
Discussion Questions
DISCUSSION QUESTIONS: Would employees, particularly hourly workers, benefit from implementation of fee-free same-day pay services? How will this type of service affect employee recruitment and retention?
Poll
BrainTrust
Brandon Rael
Strategy & Operations Transformation Leader
Dan Frechtling
CEO, Boltive
This is a good idea as long as it does not include all their pay. I worry about those who would work one day and quit just to get a few bucks in their pocket. It will be a game-changer for hiring new employees and especially temp employees during the Christmas season. It will definitely impact recruitment but I do not see it doing much for retention.
This seems like a good service for those who need quick access to cash. However, it doesn’t solve two underlying problems. First, the genuine inability to make ends meet, which is an issue for so many in low-paid jobs. Second, a failure to budget properly, which is a problem for some who make a reasonable wage but spend it impulsively or unwisely.
With so many employees living from paycheck to paycheck, services like Instant Financial could prove to be valuable, provided they don’t morph into payday lending and remain fee-free. Implementing same-day pay will require retailers to make adjustments in their accounting methods, but if this assists in worker satisfaction and retention, it’s worth the money.
Most of us, at some time, have lived paycheck to paycheck. Heck, I’ve lived no-paycheck to no-paycheck. Stressful, no doubt about it.
But there is a dangerous psychology at play here. First, as you approach the end of your work shift, what will you be thinking about for the last hour or so? It’s like making every day a Friday afternoon. According to INC., “research suggests that in an eight-hour day, the average worker is only productive for two hours and 53 minutes.” This immediate gratification sure won’t help that!
More importantly, this continues to hurt people’s ability to handle time and circumstances. We’ve had many items in this space about how consumers seem unable to wait even for a few minutes for anything. Even educated senior executives have become unable to handle more that a page of reading at one time. One CFO, explaining why he hadn’t read an email, told me it was a “book.” It was actually a nine line paragraph. We’re shrinking our brains!
What does this approach teach people, especially our kids? That you don’t have to plan and manage your circumstances; that your problems can be solved by day’s end just like on TV. This isn’t solving the problem of a tight budget, it actually exacerbates it.
This could be a good idea for those who need access to liquid funds sooner than their payday. However this does not address the real issue and challenges, which are the current minimum wage structures and the cost of living considerations by market.
What may prove to be a win-win for retailers and service-oriented businesses is tying in performance-based compensation incentives into this program, so that associates remain goal-oriented and provide a superior customer experience. The company would benefit by the improved overall performance.
In the Old Testament, this was the proper and fair way to treat the poor. Hardly a new idea.
Interesting observation, HY. Would love to know the specific reference. Lot of wisdom from way back!
Interesting concept. Unlike payday loans where the fee is charged to the borrower the employer pays the small service fee. As others have noted this doesn’t increase the employees’ income or teach them how they might better manage the income they are receiving.
The article didn’t answer questions regarding the actual funds transfer process from employer to employee and the cost of doing so. That being said, if it can prove its ability to decrease turnover then it is something that retailers should at least investigate. It may not work for all but it does it appears to be a very low-cost retention method.
An interesting idea that has merits for those that have cashflow issues, but I’m skeptical about long-term benefits for employers.
I believe that those that are in need of a daily dose of cash are also people positioned to jump ship to another employer that pays better. If their spending habits necessitate daily pay, the long-term fix for them is earning more money — and the amount more may need not be too much more. So it’s just one more variable with positives and negatives, but not a solution to low-paying retail/service jobs and the lack of career opportunities those jobs present.
By the way — “The service sets these limits, according to the article, in order to prevent impulse spending and promote saving.” Yeah right. Most certainly Instant Financial makes money on the portion they don’t disburse.
A good and practical idea which will help many to slowly get out from under the pressures of having bills outstanding that they can’t pay in time, and winding up damaging credit and paying late fees.
First, kudos to Ian Percy for reminding us to remember when some of us were poor. I don’t know if any esteemed RetailWire readers ever worked on manpower manual labor jobs, but as a former struggling student let me say this strikes me as a terrible idea. I’ve seen lots of people work like dogs, get a check that same day and be right back in line the following day just as broke and in debt as they were before. If your need for cash is that immediate and you have cash in hand, it will likely be gone that day, resulting in the poorest hourly workers living from half a paycheck to half a paycheck.
You can say all you want about the need for people to practice good personal economic discipline, but the truth is hourly workers — or at least those on the lowest end of the earning spectrum — just aren’t in position to approach money the way the more fortunate are. Their needs are immediate and the have little to no savings or economic buffer. Programs like this, in the end, make them more vulnerable to economic predators like payday loan companies, not less. This kind of scheme isn’t going to make poor paying jobs more attractive, it’s just going to make the poorest amongst us even poorer.
The only real answer to worker poverty is to pay people a living wage so they aren’t living from paycheck to paycheck in the first place.
More liquidity for hourly workers through same-day pay can mean avoiding a bounced check or a late bill or credit card payment, both of which can be costly. Furthermore, a cash crunch can drive the underbanked to a worse alternative: payday loans or loan sharks.
Payday loans, even when legal (and many violate federal laws), are problematic. Sometimes they are never actually paid back … just rolled over again and again. Loan sharks deserve their reputation: the bottom feeders of last resort.
I wonder if $1 per active user per month plus any float earned is enough to cover Instant Financial’s portfolio losses (such as employees who leave either voluntarily or involuntarily before their next paycheck). The downside of low fees is that less creditworthy hourly workers may be excluded.
PS. I too am curious about HY’s Old Testament reference.
Seems like getting half of your earnings for a minimum wage job at the end of a day hardly seems worth it for the employee or the company. However, if it working successfully for the companies trying, then I say this is a great thing to do. It is certainly better than the high interest at the places that give you an advance on your paycheck.
This is a good, progressive move. It again shows how fast things can change in this technological revolution we are living in. I like the idea. But I am in favor of not allowing the full amount to be withdrawn; and a limit on how many times the service can be used during a pay period. This can be a recruiting asset. The main concern I see is the cash flow position of the companies participating; especially the small to mid size companies.
At first blush, this seems like a valuable benefit to workers. However, this does nothing to teach people how to manage their money. “Give a man a fish, he eats for a day. Teach a man to fish, he eats for life.”
“78 percent of Americans live from paycheck to paycheck, including nearly 10 percent of those making more than $100,000.”
Really?! That’s (more than) a little hard to believe. But let’s not get bogged down in the specific numbers, and acknowledge there are at least some people who might need or at least want this. It sounds great in theory, but as someone responsible for administering P/R at my own company, I know there is a cost to doing so, and am dubious it can really be done on a daily basis in a cost effective way (certainly not for $1 month). So that brings up the question: who really pays for this, and if it ultimately ends up being the employees (implicitly thru lower wages) do they really benefit?
I really like the idea of Instant Financial partnering with the employer to help aid their workers. As Matthew mentioned, many of these employees don’t have any alternatives for cash other then these debt trap products.
Regarding some of the comments around lost productivity of a workforce on a Friday, if they’re struggling to feed their family or pay their auto loan their work is going to struggle regardless.
Added services like these aren’t necessarily the end solution, but are a step in the right direction for sure.
I lived paycheck to paycheck as all of us have for the start of my career, and somehow had the common sense to put away my paycheck for a rainy day. Something is missing in the fee structure, and I could be wrong, but more details would be needed to see how this really works, as more charges are probably added somewhere for this upstart to survive.