Pay-as-you-go is becoming more popular, but often comes with strings attached

For American workers in trouble to make ends meet, waiting for a paycheck can mean giving up basic necessities like groceries or gasoline. In an effort to give employees a way to make ends meet when needed, more and more employers are now offering pay-as-you-go, though this may come with a financial hitch.

In theory, pay-as-you-go allows employees to request payment for hours they’ve already worked before the end of a pay period, with a similar degree of ease to summoning an Uber. According to Seth Ross, general manager of Dayforce Wallet and Consumer Services at on-demand payment provider Ceridian, it’s a practice that has only grown in popularity during the pandemic. “The last two years are really an inflection point where interest and demand in the market is just taking off,” he told HR Brew.

Although it seems altruistic and egalitarian for the worker, the pay-as-you-go process varies among the many products offered by providers. And for employees, it’s not as simple as pocketing the cash and going about their business.

What is Pay on Demand? As companies sharpen their bayonets in the war for talent, allowing workers to bypass any traditional waiting period for cash is an attractive battleground strategy. “I’m in a competitive war for talent, and I have to offer the most compelling benefits package to attract and retain people, or I’m going to lose them. Offering pay-as-you-go is a benefit…much appreciated that companies can offer their employees,” Ross explained.

Ross says employees don’t incur any fees for withdrawing their pay early, which makes Ceridian an exception. Eric Wade, product strategy manager at payroll provider Paychex, said the payroll industry currently operates on two basic revenue models: “Either we charge the worker each time they access their payroll, or we make the product free for the worker, but they have to use our card product.

Paychex, which partners with financial service PayActiv, is just one of many companies that provide cash in a pinch; DailyPay has a digital wallet that gives workers access to payroll and some tips, and the instant payment provider Same built an app that Walmart employees have been using since 2019 to request payment.

Losing money on the back. Many companies offering pay-as-you-go do so for the lowest-paid workers in the retail and fast-food industries, many of them periodically. rely on payday loans which consumer advocates have criticized as predator. In order to make the business profitable, pay-as-you-go providers typically subtract from the next paycheck whatever a worker claims at the start. For example, if a worker wants to withdraw $50 of their net earnings before the pay period ends, they can do so, but “when the actual payroll runs, the pay-as-you-go provider will send that $50 deduction to the payroll system,” meaning the worker’s next check is $50 less, Wade explained.

“When you receive the money, the automated payment provider uses your bank account and collects the money.”

The deduction aspect of the on-demand wage could pose problems for low-wage workers, especially if they don’t pay attention to the fine print, Nelson Lichtenstein, professor of history and director of the Center for the Study of Labor, Labor of UC Santa Barbara, and democracy, Recount Business News Daily last year.

“It just seems to me to exacerbate the endemic insecurities of the lower half of the working class…It’s a nicer version of payday lending, but it’s still payday lending.”—SB

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