Financial wellness is a major issue for today’s employees.  According to Gallup, financial wellness is "effectively managing your economic life." This simple concept encompasses many factors, including:  spending within one's means, being financially prepared for emergencies, having access to the information and tools necessary to make good financial decisions, and having a plan for the future. Overall, it’s all about financial security, which all employees regardless of industry, strive for.

More employees are living paycheck to paycheck and when unexpected expenses come in during the pay period, the financial burden grows.  As a result, more employees are wanting their employers to provide access to financial apps.  These apps derive from the payday loan industry, where pay advances come at a steep interest rate.  The argument for these apps is simple:  if you work every day, why can't you get your pay every day?

There are a number of apps out there, but essentially the requirements for an app user are as follows:  the worker must be 1) an hourly worker, who 2) clocks in and out using electronic time sheets, and 3) gets paid by direct deposit.  These requirements generally knock out those who have physical time sheets or get paid by check or debit card every pay period. 

These apps generally have restrictions embedded so the employee does not overextend. These apps only forward money already earned, not future earnings.  In other words, it has to be money the employee is owed for hours worked but haven't yet been paid for.  These apps also figure out taxes and withholdings so the amount advanced is not greater than what an employee would expect under normal circumstances.  Also, the apps generally limit the amount that can be paid in one day.

What are some of the issues that HR needs to be concerned with?  First, for those working in states in which the hours in a day calculate overtime (OT), not just the week, the apps may not be adjusted for that.  Further, the apps are using base rate, which may not be the same as the overtime calculated rate (assuming non-discretionary bonuses and/or opt-out payments are part of the employee’s pay). And for those with OT calculated weekly, the overtime pay must still be paid.

What are some of the pay advance apps out there?  Brigit, PockBox.com, and Earnin are three apps considered good.  Most of the apps have monthly subscription fees.  Note that the subscription fee, if paid by the company, is a taxable event and has to be accounted for overtime base pay.  Therefore, HR needs to work with the finance team to ensure all costs are budgeted correctly.

Walmart is a big user of these apps.  In December of 2017, it launched the app Even, and it is used by about 200,000 Walmart employees.  Walmart pays about 25% of the employees’ monthly subscription fees for Even. Jon Schlossberg, Even's CEO, wouldn’t say what the subscription fee is, but said it generally costs less than Netflix.   For Walmart, this is about retaining its best people.  “Retention is the last frontier of how to find more margin, because it’s such an expensive problem,” Schlossberg said.  But don’t think Walmart when thinking ‘should the organization support an app for its employees?’  It doesn’t matter the industry.   Think employees first, and whether in the long run it will be beneficial for them.”

Source:  American Banker 7/19/18, CNBC 8/3/14, Corporate Wellness Magazine