Beware of fees when offering early payroll access

Where benefits once meant healthcare insurance and a 401k, today’s most forward-thinking employers are offering something different: flexibility.

The number one most sought-after employee benefit is getting paid at any time, not just on payday, according to predictions by CNBC Make It. This is largely due to the rise of the gig economy. The idea of getting paid today for the work done today harkens back to a pre-industrialized economy, yet the positive impact on workers’ lives is closely aligned with modern day needs.

The cost of getting paid

As we look at the traditional payroll systems of our current economy, it’s clear that it was designed to ease the employer’s burden. When a single day is chosen to pay all employees, the system simplifies payroll processing. This approach, until now, was a process that remained fundamentally unchecked.

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Employers starting hearing from workers about problems that arise during the two-week lapse between the time worked and pay day. It was impacting their ability to work and increased stress levels during their shifts. These discussions launched an idea that is changing payment parameters in every industry.

The time gap between when you worked and when you were compensated caused people to be blindsided by add-on fees too often. Some people were relying on payday lenders to get enough cash to buy medicine for their children. Young adults were racking up credit card debt so they could eat between paychecks. You’ll hear stories of interest and fees that caused long-term, undue stress.

With every fee charged, people living paycheck to paycheck dig themselves a hole that is slightly deeper and harder to get out of.

Where the fees hide

We’ve all heard the term “hidden fees.” But even those that are unveiled eat away at income a bite at a time.

Bank fees are one of the biggest impediments to breaking even. The monthly fee often keeps workers from opening a bank account. Even accounts designed specifically for low-income families may have no fees but require a minimum monthly balance — often well over $1,000. This, of course, would keep many families who live paycheck-to-paycheck from opening and maintaining an account.

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The fees are even more difficult to pay when there’s a payroll gap. Should you bounce a check, or otherwise overdraw your account by just a few dollars or cents? You’ll be slapped with a $35 - $50 fee in some cases. The fee amount varies, but the impact on those struggling is enormous, regardless.

Fees often hit at the worst possible time. If you’re late paying the electricity bill, they might turn off your power. The reconnection fee can be hundreds more than what you owe. Fees such as these put people working paycheck-to-paycheck at a distinct disadvantage.

Conclusion:

Since COVID hit, 63% of Americans have been living paycheck to paycheck. In an effort to help workers face the rising cost of living, but still see stagnant wages, many employers embraced technologies that offer Earned Wage Access. We applaud this move, as it clearly empowers employees.

These programs help keep people from falling victim to payday lenders and other forms of debt. However, employers should do their research to ensure the on-demand pay program they’re interested in is fee-free; employees are more likely to engage with tools that don’t charge fees.

In a world where 40% of Americans struggle to make ends meet and are unable to cover an unexpected $400 expense, it is disingenuous for companies to charge fees for access to daily pay.

Daily pay won’t be embraced if employers and their workers are charged more to do it.