The Wait For Payday Doesn’t Have To Be So Long (#GotBitcoin?)
As lawmakers push for a faster payments network, companies may look for other ways to deliver paychecks faster. The Wait For Payday Doesn’t Have To Be So Long (#GotBitcoin?)
The Blockchain could actually deliver payroll payments on a minute-by-minute basis vs these stupid pay day loan advances involving fees and charges as mentioned below:
The rhythms of payday are familiar to millions of Americans. Sometimes, it’s a fun excuse to splurge; other times, it’s a painful wait that forces hard choices.
Increasingly, however, it may not have to be anything at all, according to financial-technology firms, lawmakers and others who want to change the infrastructure underlying paychecks so that workers get paid faster.
A clutch of tech startups, with more than $300 million in venture funding, have come up with ways to front workers their wages early and collect later on, when payday arrives. To do it, they are experimenting with charging some form of fee, or selling companies’ future payroll obligations to investors. Some startup banks also advertise faster paycheck access.
Democrats including presidential hopeful Sen. Elizabeth Warren of Massachusetts, as well as Sen. Chris Van Hollen of Maryland, Rep. Ayanna Pressley of Massachusetts and Rep. Jesús García of Illinois, have taken up the issue, pushing for a faster network to carry payments to consumers.
These changes might get workers paid only a day or two faster, but even that can make a big difference, advocates say.
Aaron Klein, a fellow at the Brookings Institution who researches consumer finance, pointed to a recent program at Wells Fargo & Co. called Overdraft Rewind that waives overdraft fees for people who receive a direct deposit the day after spending more than what’s in their account. More than 2 million customers avoided overdrafts under the program in 2018, the bank said.
Mr. Klein believes slow payments cost workers billions of dollars a year in overdraft fees, loans and other fees.
Some $30 billion is lent out each year in payday loans, according to a 2017 study by Financial Health Network, a consumer-finance advocacy group.
Payday has been evolving. Functions that once took days or weeks, such as tabulating workers’ hours and withholdings, now are often automated and calculated in minutes with software and mobile apps. Paychecks that used to crawl through the mail can now arrive digitally through direct deposit.
But payday could still be faster.
A direct deposit generally takes a day or two to arrive in a bank account, depending on how and when it is sent.
Sen. Warren took aim at this delay in a recent campaign policy statement. “Ever notice that it takes days for a paycheck to clear?” she wrote.
She and other lawmakers are seeking to require that banks make certain deposited funds available immediately, rather than the next day. They want to require the Federal Reserve to build a new payment network that moves money, including paychecks, instantly.
The Federal Reserve said earlier this month that it plans to build such a network over the next several years to potentially compete with other real-time systems offered by banks and card networks. Big banks that have built their own new instant-payments system had lobbied against it.
Still, even if paychecks were to clear through the banking system instantly, there are no guarantees they would arrive into employees’ accounts more quickly or frequently.
In effect, employees give their employers an interest-free loan for the period of their pay cycle.
Today, many companies transmit payroll payments a couple of days before employees expect them, to accommodate the delay in clearing or in accordance with the rules of payroll services providers. Corporate treasurers and bankers who work with them say that with instant payments, companies might simply hold on to employees’ money a day or two longer.
The amount of money in transit is substantial—and valuable. Payroll services provider Automatic Data Processing Inc., for example, throughout the fiscal year that ended in June 2018 held an average of $24.3 billion transmitted by companies but not yet paid to employees or tax authorities. That generated $466.5 million of interest revenue for ADP.
ADP and others now are starting to work with clients that want to offer options for faster pay, and to discuss faster pay with lawmakers and regulators, said Doug Politi, ADP’s president of compliance solutions.
For example, ADP works with startup DailyPay Inc., which works with companies to offer instant pay-access to their employees as a benefit.
ADP also is piloting a program to enable workers who are viewing their pay online to explore new ways of getting access to that money.
But there are costs associated with those sorts of services. In the future, ADP might earn less interest for holding cash and more fees for faster service, but that shift is in its early days, Mr. Politi said.
Increasingly, though, some experts view such programs as only intermediate steps, with the ultimate shift being for companies to take advantage of technology to simply pay workers more frequently.
Some gig-economy contract workers, like drivers for Uber Technologies Inc., can opt to get paid up to five times a day by receiving the money on a debit card, but few other workers have that option.
About 60% of U.S. private businesses pay employees roughly every two weeks for work they might do every day, according to the Bureau of Labor Statistics. Another 5% of the businesses pay monthly.
In the early days of the modern labor market, regular pay cycles were an innovation to attract workers. Biweekly paydays became the norm over the course of the 20th century, especially for office workers. Some manual-labor industries, like construction, often pay workers weekly.
But both the frequency of paychecks, and the way they move, are hard to change.
“You’ve got an enormous embedded infrastructure of payroll tied into doing things, and the cost of replacing it is pretty significant,” said Todd Baker, a senior fellow at Columbia University’s Richman Center for Business, Law and Public Policy.
Some Companies Offer A New Benefit: Payroll Advances And Loans
Employers aim to improve productivity, lower attrition via services for cash-strapped workers.
A growing number of companies are helping workers gain access to payroll advances and loans, reflecting concern over the impact money problems are having on productivity levels and worker retention.
Employers including Walmart Inc. and Pima County, Ariz., have recently added these services. The aim is to help cash-strapped employees, many with damaged credit, cover unexpected expenses without resorting to high-cost debt.
“Employers have woken up to the fact that a majority of workers are having a lot of trouble simply getting by, never mind getting ahead,” said Sophie Raseman, head of financial solutions at Brightside, a company Comcast Corp. co-founded that provides financial guidance to workers and is testing payroll loans with some corporate clients.
Workers typically access the services online. The payroll-advance programs generally give employees the option to accelerate a portion of their next paycheck for a fee that often amounts to a few dollars. The loans are typically a couple thousand dollars, and are repaid through automatic payroll deductions over a few months to a year or longer. Approval and interest rates, generally 6% to 36%, often depend on factors including a borrower’s credit score.
Because the services deduct repayments from workers’ paychecks before the money goes to their bank accounts, default rates tend to be low.
According to an Employee Benefit Research Institute survey of 250 employers last year, 12% offer accelerated pay. The same percentage offer short-term loans repaid through payroll deductions. Another 4% and 6% plan to add the services, respectively.
Lauren Saunders, associate director of the National Consumer Law Center, said payroll-advance services may create “a cycle of chronic early spending.”
Companies, meanwhile, are responding to data that indicate American workers are financially stressed. While incomes have been stagnant for many, expenses for items including health care and education have risen.
Employers are concerned about the impact on productivity and turnover. Research by Todd Baker, a senior fellow at Columbia University’s Richman Center for Business, Law and Public Policy, looked at 16 companies in the U.K. that offered payroll loans and found that borrowers had, on average, an annualized attrition rate 28% lower than the rate for all employees.
Mary Haynes, chief executive of Nazareth Home, which runs long-term-care facilities in Louisville, Ky., said the company began offering accelerated paychecks through PayActiv Inc. two years ago after realizing many of its staff were incurring late fees and using payday loans. PayActiv works with 500 employers, including Walmart.
Of Nazareth’s 400 employees, 338 are enrolled in PayActiv and 280 use it regularly, Ms. Haynes said.
The benefit attracts workers and saves Nazareth money, Ms. Haynes said, by “practically eliminating” its use of a staffing agency some workers preferred because the agency provided access to paycheck advances.
Typically, payday loans charge $15 for every $100 borrowed. Bank overdraft fees often cost about $35. In contrast, PayActiv charges $5 per pay period when an employee uses the service, which also includes financial counseling and online bill payments.
Some point out that a $5 fee can equate to a high annualized percentage rate on a small short-term loan.
State officials also have concerns. Regulators in 10 states, including New York, are investigating whether the payroll-advance services are violating state banking laws. The companies that provide this service maintain that they give employees access to money they have already earned and aren’t lenders.
Robyn McGuffin, a medication technician at Nazareth Home, says PayActiv has helped her avoid late and overdraft fees of as much as $80 a month.
Ms. McGuffin, 36 years old, says she typically uses PayActiv once or twice per pay period, generally for bills due before her next paycheck arrives. The Louisville resident also used it to buy a new car battery and cover her fiancé’s share of the household expenses when he was temporarily out of work due to a medical emergency.
By avoiding late fees, Ms. McGuffin, who earns about $16 an hour, said she has been able to splurge on the occasional restaurant meal or toy for her daughter. “I don’t freak out as much about bills, because I know I have the option to access money if I need to.”
Some employers pair loans or accelerated paychecks with online tools to help workers budget, reduce debt and amass emergency savings.
Walmart introduced salary advances in late 2017. It has seen employees rely less on payday loans and bank overdrafts, said David Hoke, who oversees health and well-being.
Employees pay $6 a month to use PayActiv. It is embedded in an app called Even, which also includes a budgeting service that nudges users to save surpluses. Walmart covers the cost for one month per quarter and caps the amount workers can accelerate at 50% of pay. Of the company’s 1.4 million workers, 380,000 are frequent app users, Mr. Hoke said.
For those in need of larger sums, some employers offer loan services that typically advance as much as $5,000, with repayments deducted from workers’ paychecks over four months to a couple years.
Lender Kashable approves “more than 60%” of applicants, said co-CEO Einat Steklov. It considers factors including job tenure and credit scores.
The average user has a subprime credit score and pays an annual interest rate of about 20%, Ms. Steklov said. Kashable’s default rate is 5%. Borrowers who leave their jobs before repaying in full generally switch to automated bank transfers.
Pima County, Ariz., has offered its 7,000 employees Kashable loans since 2016. Nearly 500 workers, many with credit scores below 650, have borrowed an average of $2,000 each, said county supervisor Richard Elías.
Mr. Elías said nearly half reported using the loan to pay off higher-cost debt, and many purchased or repaired cars.
“Anything we can do to make the economic lives of our workers more stable benefits us” in the form of higher productivity, said Mr. Elías.
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