Barry A. Liebling
Suppose you are a worker making a modest hourly wage. How often do you want to get paid? Of course, it depends on circumstances and on how well you budget your money. Some workers are highly adept at managing their finances. They are typically paid every two weeks, but if they were to receive a check only once a month it would be fine with them. They know what their income is, how much they can spend each week, and they are careful.
But other workers really want to get paid more frequently. They may have unexpected expenses that have to be taken care of immediately, and waiting for the paycheck can be a burden. When employees are in a financial bind they might borrow money from relatives or friends. Alternatively, they may incur extra expenses by going to high-interest-rate payday lenders or overuse their credit cards. Either way getting money sooner can be financially expensive and emotionally difficult.
There is good news for employees who are in a hurry to get paid – new services that can make their lives easier. A growing number of businesses are now using apps that allow workers to obtain all or some of their wages on a daily basis. At the end of each day the app can immediately transfer money they made to their personal debit card. Note that with these apps the worker is not borrowing money. He or she is simply getting what was already earned. There are several competing companies that offer the service, and the number of providers in the field is likely to increase. https://www.wsj.com/articles/apps-let-workers-make-every-day-a-payday-1511528400?mod=djem_jiewr_MK_domainid
It is interesting to note that besides being a convenience to workers, these apps have the potential to help the profitability of the business. Workers and employers report that once a company makes the app available absenteeism and turnover rates decrease. Employees frequently report that they feel more motivated to do a good job since they do not have to wait to receive the money they earned.
Of course, there are always downsides that need to be considered. Some of the apps charge workers as much as $3 for each use. Over the course of a year the fees can be sizable. Note, however, there are apps that are paid for by the employer and do not take anything from the worker. You can expect that as this type of business service becomes more popular charging employees will be less common.
Another potential liability of fast pay is that it might make it more difficult for employees to budget their money wisely. There are reports of workers who say they used the app too often and were surprised when their conventional paycheck was lower than what they were used to. However, these employees were not disadvantaged for long. They either learned to use the fast pay app more prudently or decided to avoid it all together.
So the bottom line for employees is that the fast pay apps can be useful.
Let’s consider the employer’s perspective. If you own a business with a lot of hourly workers what are the pluses and minuses of paying them quickly?
A big advantage is that employees are likely to be more productive and have longer tenures at your company. Several large concerns are already using fast pay apps. Businesses report that on balance the apps help the bottom line, and employees appreciate the benefit. A key question for each company is whether the extra expense of making the app available is worth it.
Notice that there are two expenses that the employer has to consider – the fee for the service and the payroll itself. The app fee has to come from somewhere, and if the employee does not pay the business will (one way or another). However, because an increasing number of companies are entering the fast pay app arena you can expect that the price of the service will go down.
The more significant expense is having enough money on hand to pay employees every day. A lot of businesses have cash flow difficulties and may not have the funds to disburse wages after every shift. So this suggests that the app is not appropriate for all firms. It should only be used by concerns that have adequate balances in their checking accounts.
And this observation suggests a lucrative opportunity for banks. Financial institutions that provide services to small businesses might decide to offer fast pay apps free-of-charge to their clients. When a business does not have sufficient funds for the daily payroll the bank can automatically initiate a short term loan. In this scenario the employee is paid quickly, the business is able to take advantage of the useful app that helps productivity, and the bank collects interest. Note that this is most likely to occur as the cost of providing the app comes down and more businesses recognize it is good policy to pay their workers rapidly.
According to some critics there is another downside to fast pay apps. A few have argued that the apps discourage employees from saving and budgeting their money prudently. Busy-bodies anticipate that a lot of low wage workers will be irresponsible and spend their earned money foolishly if they are able to obtain it on a daily basis. But this viewpoint is highly condescending to workers. It is appropriate for workers to be responsible for managing their own lives, and the fast pay app gives them additional options. When people are earning money they have a right to spend it as they wish – and an obligation to live with the consequences of their decisions.
Advances in technology has made it feasible to pay employees rapidly, and that is good for the world of business.
*** See other entries at AlertMindPublishing.com in “Monthly Columns.” ***