It used to be that getting paid daily was the norm. Prior to the Industrial Revolution, employers were a lot more willing to render the day’s wages at the end of a worker’s daily shift. That is not to say everybody did it, but daily pay was commonplace at the time. Now it looks like it’s reemerging as an alternative to weekly, biweekly, and semi-monthly pay.
Numerous service providers are now offering programs that allow employees to receive all or part of their pay following the end of each daily shift. These programs usually involve mobile apps and prepaid payroll cards to facilitate daily pay. Employers can take advantage of the programs either by signing up directly or working through their payroll processing providers.
BenefitMall, a payroll processing company, says that the idea of daily pay is catching on. But is paying employees every day a good thing? That depends on who you ask. There are obvious advantages and disadvantages to this pay model. Ultimately, it’s up to employers and their workers to decide if daily pay is right for them.
How Daily Pay Works
A typical daily pay program is linked to some sort of digital transaction. This usually means working through a service provider that offers electronic pay cards. These pay cards are no different in practice than prepaid credit cards. The cards are loaded with funds digitally; employees can spend the funds by either utilizing debit card transactions or withdrawing cash from a participating ATM.
An employee electing to receive daily pay will usually install a mobile app on a phone or tablet. Within a certain amount of time following the end of the worker’s shift, the app sends a push notification asking whether the person wants pay for that day. If the worker elects to receive pay, the money is digitally loaded onto the associated card.
Daily monies are paid directly without any taxes withheld. That does not mean no taxes are paid, though. Taxes are still withheld from employee wages and assessed whenever the final payment for that pay period is issued.
Daily Pay Service Fees
The daily pay concept is pretty straightforward from an administrative standpoint. Where it gets tricky is in determining the cost. Some service providers do not charge employees for the service itself. But they have to make their money, so they charge employers a set fee to participate. Those fees can be tied to payroll amounts, the number of employees participating, or just about any other factor.
Other services charge employees to participate. They may charge a fee for every day an employee chooses to receive pay. They may charge based on a percentage of daily pay, or they might even charge transaction fees for using prepaid payroll cards. Here’s the point: someone ultimately pays for the privilege of daily pay service. Whether it is the employer, the employee, or combination of both; no one is getting daily pay for free.
Concerns over Budgeting
Proponents of daily pay say that it is better for employees because they do not have to wait weeks to get paid. Critics claim that it’s not good because daily pay enables workers already living hand-to-mouth easier access to cash. As the thinking goes, daily pay will make it harder for already budget-challenged workers to control their spending.
Time will ultimately tell if the emerging daily pay trend is good or bad for U.S. workers. Either way, it is here. Daily pay represents yet another way to adapt payroll to the needs of workers. Take it for what it’s worth.