Same day pay, also known as real-time pay or on-demand pay, is a relatively new payment option provided by employers that eliminates the traditional waiting period of a weekly, biweekly, or monthly paycheck. This payment option benefits workers by easing financial stress and helps employers lure new applicants to fill job openings. That’s why more businesses are exploring how same day pay works and why it’s an important benefit to attract and retain talent.
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According to a survey conducted in August 2021, 83% of American workers believe they should have access to their earned wages at the end of each shift. In particular, younger generations of workers want payday to be more flexible to meet short-term financial commitments as well as saving and investing goals.
Millions of Americans lost work during the pandemic and couldn’t meet household expenses on time every month. Consumer advocates worried this would cause workers to turn to high-interest short-term loans including payday loans to fill the gap between paychecks. These types of loans often carry an annual interest rate as high as 400%–hurting the financial wellbeing of people who are already financially vulnerable.
For workers struggling to pay bills on time, same day pay can be a lifeline. For employers, offering this payment option can help differentiate them from competitors as well as entice applicants who already have a lot on their plates to reenter the workforce and access much-needed funds quickly.
How does same day pay work?
For employers, same day pay is not a loan; it is a credit asset. Using a same day pay platform in conjunction with the company’s time and payroll systems, employers can pay employees for time worked on demand. The pay is issued as a credit before the traditional payday, and the platform provider is repaid by the employer upfront or on the actual payday.
Some companies don’t want employees to overuse the option and therefore set a predetermined percentage of daily net wages that can be accessed on the same day work is performed. For example, some companies only allow access to 50% of pay each day. Deductions are held back until the scheduled payday.
The platform also allows employees to track how much money they’ve earned and decide when and how much they want to access early. However, there may be a fee involved for early access to wages. For example, DailyPay charges employees $2.99 for same-day access and $1.99 for next-day access. However, some employers choose to cover the cost of these fees as an added benefit for employees.
What impacts does same day pay have on cash flow and taxes?
There are several providers offering same day pay services and employers should be aware of some important issues before signing up. Some companies require the employer to set up a separate bank account upfront for same day pay services which could negatively impact your cash flow. There could also be tax implications depending on how the pay is funded. Be sure to closely evaluate the terms and consult with your financial adviser and legal counsel.
When offering same day pay, employers should also be aware of and plan for cash flow issues. Cash will need to be available immediately, thus increasing the amount of cash a company needs to keep on hand versus the traditional model where companies have time to accrue cash for payment.
Is same day pay best for hourly or salaried workers?
Both hourly and salaried workers can benefit from same day pay. Using same day pay services, hourly employees can better track how much they’re earning and may be incentivized to pick up more shifts at work in order to pay their bills. In fact, according to a recent survey by DailyPay, 56% of users said their platform motivates them to work more hours. Salaried employees can also benefit from early access to pay. When unexpected expenses happen, these employees can choose to get paid faster to ease financial stress or burdens.
Why should employers consider offering same day pay?
Many companies are beginning to offer same day pay benefits to attract and retain a younger generation of workers. If your business can’t afford to increase pay, you may need to consider same day pay services to remain competitive for talent. In fact, according to a recent poll, 80% of workers would prefer to have their pay automatically streamed into their bank accounts as they earn it. Additionally,
More than three-quarters of respondents said free access to on-demand pay would increase their loyalty to an employer and make them feel more valued as an employee.
Eight in 10 respondents would take a job with an employer that provides same-day pay access at no cost to them over an employer that does not.
There are other benefits to consider as well. Workers report significant reductions in stress due to the ability to access funds as soon as they’ve been earned. This impacts productivity in a positive way. Employers benefit from more accurate payroll and elimination of the time and expense of cutting paper checks.
Track and measure employee engagement with same day pay
It’s essential to track employee usage of same day pay services and measure its value in terms of worker happiness and its success as a recruitment and retention tool. With the ability to access just about anything on-demand these days, the traditional bi-weekly paycheck seems out of touch with the way people live and can actually hurt your recruitment efforts. If carefully planned and executed, same day pay offers many benefits to both employers and employees. Before proceeding, employers should check state and local laws to ensure compliance and avoid any pitfalls including under withholding or negative impacts on long-term employee financial wellness.
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ees, contact us.