Lehi
09 Aug, Sunday
90° F

  

TOP
Image Alt

Utah Business

New technologies are making it possible to pay employees daily. But should they be?

Should your employees be paid daily?

When Robb Holmes’s tire blew out, he could have been stranded for almost a week. 

“Normally, I wouldn’t have had the extra money,” he says, referring to the fact that the majority of his paycheck is allocated towards his rent, car insurance, and other bills at the beginning of each month. However, Holmes was able to solve his dilemma thanks to everyday pay: a process where employees are paid within twenty-four hours of their most recent shift. 

Chip, a local cookie delivery company, has recently adopted the everyday pay model, and as one of their bakers, Holmes was able to access the funds he needed for his tire almost right away. After confronting his defunct car, he quickly thought, “Oh, I’m getting paid from Chip tomorrow―there’s eighty bucks! That’s enough to get a tire change!” 

Ultimately, he says, being able to access his paycheck on a daily basis saved him from having to wait six more days―until payday―to fix his car. 

A brief history of bi-monthly paychecks

According to Nelson Lichtenstein, a professor of history at UC Santa Barbara, worker compensation in the nineteenth century was synonymous with indentured servitude. Agricultural workers were tied to the land and were paid in the form of food and shelter while sailors were paid once every two years for their daunting work at sea. 

As industrialization came about, factory laborers were compensated for their toils once a week―on Saturday afternoons―with the understanding that they could spend their paychecks on drinks at the local pub that evening and use Sunday as an opportunity to recover from their stupors. 

In the 1930s, Social Security came into existence, followed in 1942 with the first payroll tax that encompassed the entirety of the working class. This time also brought the advent of primitive computers that could manage massive paycheck calculations, and checks came to be used in order to properly report income tax information to the Treasury. 

ADVERTISEMENT

In order to organize this information for the tax regime, and implement a predictable schedule for the transfer of information in regards to employee salary, employers adopted the traditional model of bi-monthly paychecks. As a result, it appears that we are still operating off of a payment model that was born of the crude technology available to us in the 1940s.

It’s clear that our technology has evolved exponentially since the second World War, however for the first time in history, employee-first ideologies are beginning to come to the fore. As companies expand, employers are exploring options to provide the best employee experience in an effort to attract and keep top-notch talent. 

But, will everyday pay be more than just another company perk? Can it really offer an opportunity to help individual employees? 

What everyday pay does for employees

When Ron Ross’s daughter went off to college, he found himself faced with a distinct predicament: even though his daughter had a job, she continued to come to him for short-term loans to cover expenses that popped up between her scheduled paychecks. 

From what Ross could tell, there seemed to be a disconnection between when his daughter worked, when she received her paycheck, and when her bills were due. “People who are living paycheck-to-paycheck have earnings that are locked up in the pay cycle,” he explains. “If they had access to those earnings, they wouldn’t have that issue.”

This challenge prompted Ross to cofound Everee, a payment and HR management company that helps companies give their employees access to everyday pay. “We service companies that have a lot of gig workers or contractors,1099 employees, full-time and part-time employees; we built a solution that’s flexible and that can facilitate paying any type of employee or arrangement,” Ross says. 

“This new pay model points to the formation of an environment where employees feel connected to a larger sense of purpose―something that is becoming a priority for many startups.”

Chip has been working with Everee to deliver everyday pay to its employees since January 2020. “I was looking for a benefit I could offer to my employees,” says Sean Wilson, founder and CEO. “Because as we all know, it’s a competitive market out there. I felt like this was one of those benefits that everyone could enjoy. No matter what position you’re in, everyone thinks, ‘Man, it’d be nice to have that money in my bank account a little sooner.’” 

Connor Brookes, for one―manager of Chip’s Provo location―found it nearly impossible to cover the cost of his undergrad education with the bi-monthly pay model. Budgeting for his living expenses and his school payments every couple of weeks was too challenging: he repeatedly found himself falling short when it came to making his payments, and, consequently, was forced to take out a personal loan to cover his tuition.

After utilizing everyday pay, Brookes says that he was able to pay his tuition on time without the added interest of a personal loan, thereby saving him an extra cost. “I think [everyday pay is] really useful,” Brookes says. “It also makes it very convenient to get quick help if you need it.” 

“It takes a little bit of adjustment for a lot of employees,” Wilson notes. “But over time, they start to get comfortable with the idea. It just reduces the time between when you do the work and when you get paid, so I think there’s a little bit more of that instant gratification and reward than people are used to.”

However, it seems that everyday pay transcends the simple notion of instant gratification. Holmes tells me, “Today, for instance, I worked a six-hour shift. I’m getting paid tomorrow, and I already paid my credit card bill that’s due on Friday. I’m not getting a late fee; I’m paying things on time.” 

As an hourly employee, Holmes is able to mentally keep track of his hours spent working and effectively budget for his bills on a day-to-day basis. The result is that he stays ahead of his payment deadlines and avoids late fees. “It’s a lot harder and more stressful to budget a bigger paycheck every two weeks versus getting paid daily,” he says. 

For Brookes and Holmes, it’s clear that everyday pay offers a sense of personal agency―an opportunity to have more control over their finances on a daily basis, and as a result, more control over their lives. 

What everyday pay does for employers

At the beginning of 2020, twenty-one states across America increased their minimum wages. As the cost of labor continues to rise on a national scale, small businesses and burgeoning startups are striving to find clever ways to keep up with the demands required to recruit talent. 

Many founders understand that, in order to compete for high-level workers, they must offer benefits such as more paid time off or the opportunity to engage in mentorship programs. However, as employee expectations continue to rise, the resulting perks end up costing companies. 

“People who are living paycheck-to-paycheck have earnings that are locked up in the pay cycle,” he explains. “If they had access to those earnings, they wouldn’t have that issue.”

-Ron Ross

As the cofounder of Everee, Ross employed his deep understanding of how employees think in order to create something that would meet a clear demand: “I think there will come a day when employees expect to get paid on a much faster cycle. If you think about it, employees are actually creditors of their company―they’ve worked and provided value to their employer but haven’t captured that value in exchange in the form of a paycheck.”

By offering access to funds within 24 hours of working, companies can satisfy a very real need that their workers have. This new pay model poses a potential solution to the employee demand for lifestyle benefits―and it comes at a reduced cost for companies when compared with paid time off and other perks like extraneous wellness programs and company-paid gym memberships. 

However, a specific challenge employers will have to navigate when it comes to everyday pay is making an adaptation in their HR processes. Currently, HR departments organize their payroll activities to reflect the bi-monthly model, meaning that all deadlines are curated to fit this schedule. With everyday pay, companies will have to adapt by utilizing micro-processes that can be used on a day-to-day basis: keeping track of employee clock-ins and clock-outs and adjusting any errors resulting from workers forgetting to properly execute these tasks, will have to be reformatted to fit a daily calculation model. 

“We had to implement a system where we had management verifying the hours and then [have] HR and corporate verifying those hours and making sure that that was happening on a daily basis so we could continue to get everyone paid,” says Wilson. He thought this would be a difficult administrative task but found that it actually benefited his entire company.

ADVERTISEMENT

He says that the process is kind of like cleaning your house. The idea is that it’s easier to tackle a few chores every day than it is to let many tasks pile up over a longer period of time. Chip now responds to changes in real-time, and has gained better labor data. As a result, Wilson has seen his company’s administrative procedures improve steadily. The commitment to a daily cleanup on the HR front has led to better organization overall. 

The future of work

The concept of everyday pay signifies a shift from our focus on developing technology for the sake of growing businesses, to a focus on how technology can help make people’s lives the best they can be. This new pay model points to the formation of an environment where employees feel connected to a larger sense of purpose―something that is becoming a priority for many startups. 

Everyday pay is not only evidence of an emerging perception of how employees operate in their lives; it’s an opportunity for employers to build unprecedented empathy for the individuals who contribute to their visions.

Comments (6)

  • Avatar

    Bryan

    This is dangerous thinking. This will create an unhealthy level of dependency. The examples in this article used to demonstrate why this would be beneficial can also be used to show its deficiencies. If a person can not properly budget their income to handle small financial surprises like a flat tire, then how will they ever have the foresight or discipline to save enough of their daily earnings to handle rent, mortgage payments or other larger monthly expenses? It is not the employers’ responsibility to manage employees daily financial needs. Everyone is responsible for their own spending decisions whether you are an employee or an employer. In my business, I have employees that are paid bi-weekly as well as others that are paid weekly. Both types of employees frequently run out of money before their next pay period. It isn’t a problem with how they are paid. It is a problem with how they spend their money once it is received.

    • Avatar

      BJ

      I understand what you’re saying, but I’d say getting paid daily actually encourages people to use their own money to pay for things rather than borrowed money. If history has shown anything, it’s that getting paid on traditional pay cycles isn’t helping a LOT of people budget their money correctly, it just causes them to look for other ways to make ends meet. In fact, its created an unhealthy level of dependency on credit card debt and other more drastic means, such as payday loans. At least by getting paid daily, people can use their money on the things they need to rather than having to pay fees to companies letting them borrow money.

    • Avatar

      Michael

      Bryan’s comment above displays a remarkable lack of understanding of what it’s like out there for many low-level/low-wage employees. Sure, sometimes people, especially those just starting out, don’t know how to budget properly, but problems like the ones discussed in the article can affect anyone on the lower end of the wage scale.

      I once had a job making $70,000/year, and had no problems paying my mortgage, my bills, and putting money away in savings. Then I lost my job, and as an older employee (50+), was unemployed for over a year before being able to find another job, which paid less than half of what my previous position did. During my period of unemployment, I ultimately depleted my savings, despite reducing my expenses to the bare minimum.

      Once working again, I found myself in the same shoes of the employees mentioned in the article. While I was generally able to budget my meagre paycheck to cover my normal expenses (mortgage, food, utilities, insurance, gas, etc.), there was not enough left over to build any sort of rainy day fund, and when emergency expenses like car repairs came up (for example, $900 to replace a power-brake booster), it threw off my budgeting and payment schedule for months. Throw in things like unpaid sick days, or being sent home early because there was not enough work on a given day, and the size of the paycheck itself became unreliable, making it even more difficult to plan ahead.

      After moving to a gig economy job that allowed me to cash out on a daily basis, I no longer had to worry about whether or not I would be able to eat on a given day; I can stash money aside to pay my mortgage, and make multiple small payments to ensure that my regular bills are paid every month … and I’ve been able to start stashing money away for emergencies again; maybe only $25 one month and $100 the next depending on the unknowns that come up, but some dollars set-aside is better than no dollars being set-aside.

  • Avatar

    Dodge B

    I agree with the comment above. This process might be good for recruiting, a “benefit” to offer in a competitive hiring landscape but rather than alleviate, it seems to double down on the notion of living pay check to pay check. I’ve tried to talk to my employees about getting at least one two week cycle/pay period ahead on their bills, basically treating that one paycheck as an emergency fund. Therefor when the flat tire happens, if they absolutely have too, they can reach in to the emergency fund to cover those unexpected expenses. on a personal level I don’t really care if my employees get paid daily or weekly but I would also worry about commitment. The idea of having skin in the game, the two week notice, commitment–I would worry that my younger hires, who already have commitment issues would see the daily pay as a chance to work and get out easily. I could be wrong but just my intuition on this. Still, an interesting concept.

  • Avatar

    Will

    My company has 110 of its 150 employees in non-US locations (Switzerland, Taiwan, China and Vietnam).

    Most every country in the world (including the most advanced, wealthy countries and the least advanced poorer countries) have monthly payroll systems.

    In the four non-US locations, staff are paid monthly. These 110 monthly-paid staff operate their personal budgets really well on monthly paychecks.

    The US staff are paid bi-weekly and seem to have more problems living on a paycheck to paycheck basis that their counterparts in other countries.

  • Avatar

    Kelly Jensen

    The article quotes Ron Ross using the term “1099 employees.” I’m amused at how often this inaccurate term is used. An individual may be an employee (issued a Form W-2) or an independent contractor (issued a Form 1099), but there is no such thing as a 1099 employee.

Sorry, the comment form is closed at this time.