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In 2020, “stimulus check ” and “second stimulus check” were among the top 15 Google searches in the United States.
That same year, an Ernst and Young report estimated that across Organisation for Economic Co-operation and Development (OECD) countries, approximately $1 trillion of workers’ wages were sitting in employer coffers on any given day.
“That’s essentially been an interest free loan from an employee to an employer,” said Aaron Fuchs, vice president of commercial for Ceridian, a Bloomington-based human capital management firm. For lay people, that means “it’s a software company and the software that it’s providing is human resource centric in nature,” said Fuchs.
The stimulus checks were a way to get by. Ceridian is part of a growing industry disrupting “payday.”
In his role, Fuchs oversees Dayforce Wallet, one of several mobile applications on the market offering same-day pay. Also known as earned wage access, on-demand pay or real-time pay, per its name, the service allows employees to access their wages from their personal devices right after their shift.
Employee expectations have shifted: 83% of U.S. workers between the ages of 18-44 believe they should have access to earned wages at the end of each workday, according to a 2021 survey by The Harris Poll.
“Technology has caught up and redefined so many other places in (people’s) lives,” said Fuchs, “They recognize that payroll is an area that really hasn’t changed since the 1980s.”
The firm launched Dayforce Wallet in May 2020, expanding to Canada last year. Fuchs said they closed 2021 with nearly 1,000 customers, including major companies such as Danone and local ones such as Lunds & Byerlys.
Since Ceridian rolled out its program during COVID among a client base most in need of enticing new workers: retail, healthcare, manufacturing and hospitality.
Competing in the labor market
Amid unemployment levels and a pandemic where many public-facing workers quit en masse, employers needed creative solutions to retain and recruit employees.
“We really wanted to tap into (same-day pay), and offer that to our staff as a means of continuing to differentiate us in the labor market,” said Casey Enevoldsen, vice president of employee experience at Lunds & Byerlys. “We’re seeing the labor force continue to shrink in its growth. It just means that there’s going to be less and less people available to do the work that employers are really looking to have done, and so we’ve been really focusing on retention as well as trying to attract new talent.”
Many employees say having access to pay sooner is a key aspect to their financial wellness. Part of their strategy has been looking at a wide spectrum of attractive measures to retain and attract new talent, including adding telehealth to the various for the range of part-time and full-time roles across retail, manufacturing and support positions.
Enevoldsen said adding same-day pay was an easy transition, as Ceridian already manages its payroll and offered the benefit at no fee for the grocer and its workers. Under this system, individuals direct deposit paychecks into Dayforce Wallet from which they can elect to have their funds deposited onto a mobile wallet or physical debit card.
Launched in 2016, DailyPay is partnered with a number of fast food restaurant franchises, as well as companies such as the Mall of America and Target. (The New York headquartered firm opened its only other U.S. office in Minneapolis for operations and customer service in 2019.)
DailyPay Chief Marketing Officer Jeanniey Walden said payment frequency was delayed by the introduction of payroll tax in 1943. With companies traditionally running their own payroll systems, it became time-consuming and more costly to run calculations for the numbers behind an employee’s paycheck. She said there are three information systems behind them: time and attendance, pay rate and benefits like healthcare, dental care, 401k, and wage garnishments. Financial services companies like DailyPay pull that information from employers and automate all these processes so workers can see in real time how much they are making and in turn access that pay.
A third-party audit of DailyPay data found employee turnover reduced by 42% with DailyPay.
With the financial stress caused by the past few years, same-day pay has been critical for competing with the gig economy — and supporting workers on tight budgets .
“Most times when (people with multiple jobs are) asked, ‘why do you work for me here and do DoorDash?’ It’s not because they’re not making enough money here. It’s that ‘well, I need 50 bucks this week because I have to put the down payment on my daughter’s braces’ or whatever it is,” Walden said.
Most nonfarm workers in the U.S. are paid biweekly (every two weeks), according to a February 2020 snapshot of the Current Employment Statistics survey by the U.S. Bureau of Labor Statistics. About a quarter are paid monthly or semimonthly.
Bridging financial precarity
Keziah Vulu works part-time at Lunds & Byerlys. She accessed her pay on the same day only once. Intrigued by the novelty, she ordered food.
“I like that it’s there, but I don’t like when my (biweekly) checks are short,” said Vulu.
She expressed relief instead for the company’s switch in January to weekly pay. Employees can pull their day’s pay from the app, with the pay deducted from their weekly check.
“(With the switch to weekly pay) I’ve been able to budget and get what I want. It seemed harder to save when I was paid every two weeks, and easier to overspend,” said Vulu.
Several employees noted similar — either never having used same-day pay or using it infrequently.
“If we had stayed on a biweekly (schedule), I would have been more apt to jump on that train personally. But with the weekly, that works. That’s good enough for me,” said operations supervisor Nina Urman.
Sara Cramer trains employee support teams at DailyPay, and also access same-day pay on occasion. Being paid biweekly, she said easy access to wages offers a peace of mind around payday.
“That date (of need) is not your whole life,” said Cramer, who said the service was more helpful in helping her understand her daily gross earnings.
The data backs that up. More recently, academic research has been exploring how payment frequency impacts worker behavior. A 2019 paper cited by the Bureau of Labor Statistics found a causal relationship between frequent payments and household expenditure to be smoothing in helping to navigate personal finances. Earlier this April, the Journal of Consumer Research published an article by business professors Wendy de la Rosa and Stephanie M. Tully and noted, “higher payment frequencies reduce consumers’ uncertainty in predicting whether they will have enough resources throughout a period.”
But more than easing potential concerns, financial services companies say same-day pay eliminates the need for payday loans, credit cards and other traps people are falling into when they are short on money.
“DailyPay is being used to supplement and bridge in really unique and different ways,” said Walden.
One example she noted: “As gas prices went through the roof, a lot of people who, again, normally had enough money, were running out of gas to physically get to work …They didn’t have any way to get to work if they didn’t use DailyPay to get gas for their car for the next two days to bridge them through until payday until their paycheck came in.”
According to the Consumer Financial Protection Bureau, “Prior to the COVID-19 pandemic, consumers had steadily been paying more in credit card late fees each year — peaking at more than $14 billion in 2019. Late fees assessed by issuers declined to about $12 billion in 2020 given record-high payment rates and public and private relief efforts. Even during the pandemic, late fees accounted for over one-tenth of the $120 billion consumers pay in credit card interest and fees annually. In 2021, late fees were on the rise again.”
In March, a coalition of 19 attorneys urged the Consumer Financial Protection Bureau to ensure that buy-now-pay-later lenders are not engaging in practices that trap consumers in a cycle of deb In a letter, they noted concern that the industry has experienced, “rapid and exponential growth” during the COVID-19 pandemic.
DailyPay claims 88% of users credit the app for reducing or eliminating their use of payday loans, and an average of $292 is saved annually among people who incur overdraft fees, per one partnered report.
Urman said the benefit of same-day pay offers peace of mind and a good safety net.
“I know if your car breaks down or an unexpected bill comes up, or even holidays, that kind of thing, it’s really nice for people to be able to get something done immediately without add credit card debt or borrow money in ways like payday loans where they get hit with a lot of interest,” said Urman. “That can be huge. So while it might for me not be an every week or month need, it’s nice to know that if something did happen, you got kind of a backup system where you’re not having to put yourself into a further bad position.”