On Demand Pay Apps – A New Tool to Help with Employee Retention - American Society of Employers - Kristen Cifolelli

On Demand Pay Apps – A New Tool to Help with Employee Retention

With unemployment hitting record lows and the war for talent only getting more intense, employers are constantly on the hunt for ways to increase employee attraction and retention.  As a way for organizations to set themselves apart from other competitors, some employers have rolled out a new benefit called an “on-demand” pay app.  It allows employees to access a portion of the wages they have already earned without having to wait for payday.  Employers that have implemented this benefit have found that it can greatly reduce employee stress when it comes to personal financial concerns and access to money.pay app


According to a CareerBuilder survey conducted in the spring of 2017, more than three-quarters of workers (78%) indicated that they are living paycheck-to-paycheck to make ends meet — up from 75% the prior year. A quarter of workers (25%) have not been able to make ends meet every month in the last year, and 20% have missed payments on some smaller bills. Less than a third of workers (32%) stick to a clearly defined budget and a slight majority (56%) save $100 or less a month.  According to Rosemary Haefner, chief human resources officer for CareerBuilder, "As an employer, your employees' financial problems become your financial problems.  If workers are constantly thinking about their financial struggles, their quality of work can decrease, and it can take a hit on their morale and productivity.”


Most employer payrolls are processed every two weeks or semi-monthly, often leaving employees in a difficult situation when unexpected financial emergencies arise, when timing of bill payments don’t align well with paydays, or when employee living expenses exceed their income.   In times of financial crises, employees often turn to payday loan services.  These services involve a lender providing a short-term loan (sometimes called a payday advance) to be repaid at the borrower’s next payday. Individuals that use these services are charged hefty fees and high interest rates.  This leaves the individual beginning their next payday already in a financial hole and often starts a constant cycle of borrowing that is hard to stop.


In contrast, an on-demand pay app allow employees to gain access to the wages they have already earned in their current pay cycle without having to take a loan and pay high fees.  The app will tie into the employer’s payroll system and allows employees to see the net balance of earnings accrued to date.  The employee can then opt to have a desired amount of money deposited into their bank account or to a payroll debit card.  Taxes will be deducted when the employee receives their next regular weekly/biweekly paycheck.


Some benefit design decisions that employers need to determine include:


  • How often can employees make withdrawals?  Some employers allow daily withdrawals; other employers only allow a certain amount of transactions per pay cycle (such as only one withdrawal).


  • How will fees be covered?   Typically there is a small fee associated with each withdrawal ranging often from $1-$5.  Many employers opt to cover the fees or these fees can be charged to the employee.  Some employers cover a designated number of transactions per year (such as ten) and any withdrawals after that, the employee will be charged the deduction fee.  Separate from a fee system, some employers opt for arrangements with vendors whereby they pay a certain amount per active user per month (for example $1 per active user/month).

  • What is the maximum amount that can be withdrawn?  Limits on deductions should be set up to prevent employees from deducting too much from their account or to get into the habit of “impulse deductions.” Many setups include only allowing up to 50% of what is earned at the time of the deduction.  Some employers set a maximum amount, such as $500, of the earned but unpaid wages.


  • When is the money is available?  Transferred money is made available instantaneously or next day at the latest.  Some programs charge a higher fee for money made available same day (such as $2.50 fee) and a lower fee for a transfer made available the following day (such as $1).


In December 2017, Walmart implemented a pay-advance app called Even to its employees.  As of this summer, 200,000 out of their 1.5 million employees are using it. Walmart opted to cover the entire cost of the automated financial management tool for both their exempt and non-exempt workforce.  In the Walmart program, employees can access wages early up to eight times per year for free and after that, employees pay $3 per transaction.  Employees can only access up to 50% of the net wages earned so that they always have money on payday.  The app also helps workers manage their finances by pinpointing exactly how much they can safely spend before their next paycheck.


According to Daniel Eckert, senior vice president, Walmart Services and Digital Acceleration, “We are very pleased with the early results of our program with Even and continue to see an overwhelming response to it from our associates.  By working together, we are able to offer every Walmart associate more control and a better understanding of how to make the most of their hard-earned money.”


Pay advance apps can provide more control to employees around when and how they receive their pay. They reduce stress and the productivity impact it has.  For employers, the app is a benefit that can boost employee satisfaction and increase retention rates.


Sources: Employee Benefit News 9/29/2018, American Banker 7/19/2018

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