What Is Same-Day Pay? The Pros & Cons Of Offering This Benefit
If you’re like most companies, you know how important it is to offer benefits that meet your employees’ needs to attract and retain staff today. With continued high inflation and an uncertain economic outlook, many workers are looking for support from their employers to help them better manage their money and financial stress. One increasingly popular offering is same-day pay. What do you need to know about this perk to decide if it’s right for your company? We’ll break it down for you here.
In this article, we’ll describe what same-day pay is, how it works, the benefits it offers to you and your employees, and the potential drawbacks of this approach. After reading this, you’ll be in a good position to understand whether offering same-day pay to your employees is a good option for you and your team.
What is same-day pay?
Same-day pay is a service that gives employees the option to be paid a set percentage of their daily net wages – meaning, after taxes and other deductions are taken into account – on the same day the work is performed rather than waiting until the end of their pay period. Employees can set a limit on the number of transfers allowed per pay period or the dollar amount or percentage of pay advance allowed.
The money is deposited into a bank account, mobile wallet, onto a debit card, or paycard shortly after their shift for employees to use immediately. Employees then receive the remaining percentage of their pay on their regular pay day.
How does it work?
Earned wage access is most often provided by third-party, same-day pay companies like Rapid! or ZayZoon that integrate with an employer’s existing payroll and time management systems or by your outsourced payroll provider. These companies fund the advances to employees. You either pay them upfront or, when you run payroll as you normally would, they get paid back for any early transfers made.
What are the benefits of same-day pay?
While same-day pay originally gained popularity among retail and hospitality businesses that have a lot of hourly employees, it’s increasingly being adopted by other industries as well, including those with salaried workers. That’s because it offers a range of benefits to employees and employers alike.
- Greater control: Employees have transparency into what they’re earning, which gives them the ability to access pay early when they need it or even pick up extra shifts if their earnings are falling short. This enables them to make informed budgeting and spending decisions.
- Reduce short-term borrowing: With instant access to pay to meet their short-term financial commitments, employees may be less likely to max out their credit cards or take out a high-interest payday loan.
- Lower stress: With roughly 63% of Americans living paycheck to paycheck, unexpected expenses are likely a stressful experience for most of your workforce. By allowing employees access to a portion of their pay early, they don’t have to worry about whether they’ll be able to cover a sudden need like a car repair.
- Enhanced recruitment: 83% of workers ages 18-44 believe they should have access to earned wages at the end of each workday. Offering daily pay puts employers in a better position in the labor market when trying to attract new talent.
- Decreased turnover: Employees may see same-day pay as proof that you’re invested in them and committed to making their lives easier, which can boost their loyalty. On average, a same-day pay solution decreases turnover by as much as 73%.
- Improved productivity: Since employees will have peace of mind in case of an unexpected expense, it will ease their focus on financial concerns during work hours, boosting their engagement and productivity.
Are there any drawbacks?
While there are strong reasons you may want to consider earned wage access for employees, there are also some potential downsides you’ll want to take into account, including:
- The fees can add up: In some cases, employees may have to pay a fee to transfer their pay to a bank account, debit card, or payroll card, which may be more if they want instant access. Depending on how often employees access their pay early, these fees can eat up a bigger and bigger percentage of their pay. Based on your arrangement, you may either opt to cover these fees as an added benefit for employees or may be charged directly instead of employees – expenses that you’ll need to account for.
- Alone, it doesn’t reinforce fiscal management. When employees access a large percentage of their pay early, it can make it harder for them to save enough to cover big expenses. For employees who may be living paycheck to paycheck, daily pay should not be the only solution. In these cases, other types of financial wellness offerings may be more beneficial to offer in addition to same-day pay such as training sessions on how to use the feature responsibly.
Should I offer same-day pay to my employees?
Same-day pay puts more pay control in the hands of workers and gives them a financial safety net, which can be a big draw, especially among workers who may be living paycheck to paycheck. While same-day pay can help your recruiting and retention efforts with these workers, it’s important that you consider the potential downsides of this approach as well to decide if it’s right for your company. As you evaluate the pros and cons, here are some questions to consider:
- Is your business in an industry where same-day pay is common, putting you at a competitive disadvantage if you don’t offer it?
- What are the fees your employees – or you – will need to pay?
- Are you offering other financial wellness benefits to help employees better budget and save?
- What additional administrative steps may be required for you to implement daily pay?
- If the provider requires you to set up a separate bank account for same-day pay services, are you worried about cash flow issues?
If this sounds like a fit for your organization, learn more about the benefits of modernizing your payroll process and boosting your employees’ financial wellness.