One of my favorite stories to tell about my childhood is when my parents broke my pinky finger! Pretty dramatic, I know, but as a 12-year-old boy it felt like the end of the world. I was playing football at school one day when I caught the ball a little bit wonky and injured my finger. When I got home, my mom thought it was just a jam and began to pull on my finger hoping it would get better. It didn’t. At all. So the next logical thing to do would be to have my dad do the same. You guessed it, still didn’t work. The next day we went to get an X-ray and it turned out that my pinky finger was fully broken and even to this day, it is crooked!
I tell you that story because good intentions do not always lead to good outcomes. Neither of my parents thought my finger was actually broken. Prior to this incident, I’d had multiple jammed fingers and, in their minds, this was just another one of those. Maybe not to this extreme, but on some level, any parent can relate to the feeling of thinking you are helping but it turns out, that isn’t the case.
With daily pay, good intentions don’t always lead to results
And that brings us to the subject of daily pay (also referred to as Earned Wage Access) – an area where employers may think they are helping their team, but it is possible that they are hurting. Daily pay is a feature offered by some employers that allows their employees to receive a portion of their check every day instead of waiting until the normally scheduled pay date. For example, instead of receiving $700 every Friday, an employee can receive $100 every day.
Daily pay has exploded in popularity among many employers over the past few years. The idea seems to be that it allows employees to access their wages in real-time, which means they have greater control over their finances. While great in theory, there are some downsides of daily pay that you may want to take into consideration before rolling out a similar program.
Daily pay exaggerates poor money management
In many ways, offering daily pay is like putting a band-aid on a wound that requires stitches. You think you’re fixing the problem, but you aren’t treating the actual issue. Many of the daily pay providers are attractive to employers that offer low-wage positions, as they market themselves as the hero that is now giving employees control of their finances. But getting access to funds more frequently doesn’t solve personal finance problems. It’s great to have the cash to pay my bills when I need it, but if I’m always living on more than I make and cannot stick to a budget, getting cash earlier can mean that I’m going to spend it earlier as well. What if employers offered financial wellness training to all employees to fix the underlying problem instead of putting the daily pay band-aid on their employees?
Earned Wage Access can be expensive for employees
Many daily pay providers tout “No Fees,” but be careful of the fine print! While it may be free to sign up for daily pay, it isn’t free to use. Many providers charge a fixed fee every time an employee accesses their funds and offer as many as five transfers every week. This may sound like a benefit, but if you do the math on these fees, they can be equivalent to a payday lender. While many companies would never advocate for a 30% interest rate, that is exactly what is happening with daily pay.
At Whirks, we believe that employers have a responsibility to treat their employees with respect and dignity. Sometimes, offering a program like daily pay can violate that principle. For some, however, providing daily pay options can build trust and retention with employees. Check out our other article on The Pros of Daily Pay to help you decide which option is right for your business. Still want more info? We’re happy to provide it. Let’s find which option is right for your business together.