Same Day Pay: The Pros and Cons for Employees and Employers

Getting paid wages from the same day you work? It may sound like something from the future but it’s already here, and it’s a trend that isn’t going away.

Same day pay is a new service that many companies are beginning to offer as a benefit to gain and retain a younger generational workforce. Studies from the American Payroll Association show that if employers want to retain the younger generational workforce they are going to have to follow this trend. Companies like Lowe’s, Home Depot and Walmart all have plans to offer same day pay as one of their benefits going forward, along with an increased starting wage.

Same day pay offers workers the option to be paid a predetermined percentage of their daily net wages on the same day the work is performed, to be deposited on their pay card. Any and all deductions are held back to be deducted from the remainder of the worker’s wages on the regularly scheduled payday.

The benefits of same day pay aren’t only for the employee. From an employer standpoint same day pay not only allows the business to be more appealing to the workforce, it also makes the lower income jobs more attractive, helps to combat the instant pay market (Uber, Lyft), reduces requests for pay advances and helps the lower income workers avoid payday loan pitfalls. Cash-conscious companies with tipped employees have even more to gain from same day pay as some pay card companies include tipped wages in their same day pay, eliminating the need to carry as much cash on hand in each location.

Before signing up there are a few things employers need to be aware of and plan for to avoid some potential pitfalls of their own. There are more than a few providers out there offering same day pay services, some more advantageous than others. Some companies require the employer to fund a separate bank account upfront for same day pay services. Cash-conscious companies should avoid these types of pay card companies as there are others that do not require upfront funding.

Depending on whether the employer or the pay card company funds the same day pay there could be tax implications, as the funds could be considered constructive receipt of pay. Also, with the wrong card in place, they could be considered a payday loan. There is currently very little legislation surrounding same day pay services and, depending on which pay card company you choose, companies can set their own terms with regards to how much of the wages a worker is allowed to draw on, with some pay card companies allowing up to 100% of wages minus any deductions, including insurance and/or garnishments.

Companies should be careful when determining the percentage a worker is allowed to draw on with same day pay to avoid potential under withholding or perpetuating the payday loan environment. Before offering same day pay companies should restrict the access a worker has in changing their own bank account or pay card information through self-service portals to avoid repayment of payback loans from the employees.

The concept of same day pay is still new with many benefits to both the employee as well as the employer, and there is still more to be learned as we move forward. There are many things both pro and con to be considered before offering same day pay. If you have any questions or are interested, talk to one of our advisors. Together, we will do the research and can come up with a plan that fits your company’s specific needs to maximize the benefits for both you and your workers.

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