More employers are considering earned wage access as a benefit for employees, many of whom want greater flexibility in how they are paid, a panel of industry experts said June 5.
About 25% of payroll professionals said in recent surveys that on-demand pay is a must-have solution for improving the employee experience, which is a top priority in 2020, said Jamie Phillips, a health-care account executive at Kronos Inc. A 2018 survey found that on-demand pay was favored by 10% of respondents.
Phillips moderated a panel of experts at the annual American Payroll Association Congress, which was held online this year because of the coronavirus crisis. The panel, which used a question-and-answer format, discussed how employers and payroll professionals should account for compliance and processing challenges as well as costs and benefits when considering earned wage access.
The on-demand payment of employee wages establishes the principle of constructive receipt, which triggers employer tax liabilities and reporting requirements, said Martin Armstrong, vice president of payroll shared services at Charter Communications Inc.
With generally no defined guidance on earned wage access from federal and state regulatory agencies, employers generally walk a tightrope on the issue, said Armstrong, a member of the Bloomberg Industry Group Payroll Advisory Board.
After constructive receipt, the next biggest compliance concern is the handling of garnishments with regard to earned wage, Armstrong said. Vendors that provide on-demand pay generally integrate the process with workforce management tools so they can account for garnishments, which take priority ahead of processing an pay requests.
Time-card approval is another area of concern because managers typically approve hours once a pay period, Armstrong said. Vendors have various mechanisms to handle those instances when hours are not approved before accessing early wage payments. Some vendors rely on scheduled hours within the workforce-management system to give employees credit while others use customer service representatives to contact managers for time-and-attendance approval before pay can be accessed.
On-demand pay platforms can be more cost-effective than managing an in-house solution, the panelists said. Additionally, employers may be able to reduce costs by weighing an on-demand option when considering a change in payroll frequency, Armstrong said. Funding of earned wage access falls on the vendor, which avoids cash-flow pressures on the employer, Armstrong said.
Other members of the panel were Safwan Shah, CEO of PayActiv; Atif Siddiqi, CEO of Branch; and Quinten Farmer, COO and co-founder of Even.