In an age where instant payments — and if not instant, then faster payments — are becoming the norm for consumers and commerce, wither the faster access to paychecks?
Though direct deposit is a standard antidote to paper checks, some firms have been angling to give employees faster access — and on-demand access — to their pay, a move that some firms say cements worker loyalty and can improve employers’ bottom lines.
To that end, FinTech DailyPay said Wednesday that it had entered into a national partnership with The Maids, a franchise residential cleaning firm operating in the United States and Canada.
The partnership allows Maids’ employees to get their wages instantly through DailyPay, limited to earned but as-yet unpaid wages. (DailyPay already works with companies in high-tech industries, for Uber and other firms.)
In an interview with PYMNTS, Jason Lee, DailyPay’s CEO, stated that hourly employees are the bulk of the workforce in the United States, at up to 59 percent of all workers. And through the use of technology, he said, money delivered instantly, regardless of day or time or holidays — when banks are closed — can help smooth the process of obtaining financial security.
Financial security is indeed scarce in an age where 70 percent of Americans live on a paycheck-to-paycheck basis, with the caveat that they cannot afford even a $400 unplanned expense.
High turnover has costs for businesses, said the executive, who cited a study claiming that everything from training to uniforms to new IDs and other expenses can cost a firm as much as $4,000 as new employees are brought on board. It also takes two to four weeks for those employees to be fully brought through the process of getting up and running and contributing to the top line — so companies, as he said, “are constantly running with a layer of fat in the system.”
That can be especially tough for firms that operate within verticals that pay low to median wages, from fast food establishments to cleaning firms to construction outfits, where annual turnover can range from 100 percent to 300 percent.
If the aim is to reduce the operational frictions and costs tied to high turnover, technology can help, maintained Lee. If employees have access to their pay on an on-demand basis, “as they have financial security,” said Lee, “they will stay at a job longer.”
DailyPay estimates that it has reduced turnover by more than a third at its served verticals via cash advances tied to hours already worked.
Payment is made through the web application and transferred to bank accounts, backed by outside funding (the firm itself does not issue loans but has a credit facility in place with a New York-based finance company that funds the daily payouts), while DailyPay is paid by the employer tied to normal accounting cycles.
This means that the employer itself need not change its own cash flow mechanics or accounting systems and technologies. And the employee, he said, is freed from the constraints of traditional reliance on ACH and other payments systems that mean bills may not get paid on time — especially if they are due the next (or even same) day.
Lee told PYMNTS that firms whose employees use the payment options do also have the choice of getting paid through ACH, but for variable needs (such as emergencies) there are variable costs, all of which would pale next to the late charge of as much as $50 that might accrue to an account in late fees — in essence, the employee is “spending $2 to save $50.”