In an attempt to clarify what payment-on-demand services offer to employers and employees, three representatives from the industry were invited by the American Payroll Association to discuss the issues as a panel at a conference.

One group, Gig Wage, is “completely focused on gig workers,” founder and CEO Craig Lewis said May 16 at the APA’s annual conference in Long Beach, Calif.

Jason Lee, CEO of DailyPay, said his organization works with employees to provide access to money that is earned before payday, but does not interfere with the employer’s payroll processing.

Chris Ruppel, the general manager of wage and corporate disbursements at Green Dot Corp., discussed a third model of on-demand access to money that involves working with employers to provide on-demand advances on wage amounts earned before payday.

The two programs for employees provide access-estimated amounts based on their earnings at a point in the pay cycle, but never the full amount of wages earned, the panelists said. The “estimated nets” is a safety margin to ensure that advanced amounts would not be more than full net pay, said Ruppel, who also co-founded rapid! PayCard.

The 60 million independent contractors in the market want their money almost immediately, Lewis said, adding that his group provides that option to such nonemployees.

All three providers charge fees for various levels of service to workers, and the fees could be paid by employers or payors. These amounts are not as high as paycheck-cashing operations or brick-and-mortar payday loan businesses, Ruppel said.

Cultural Shift

The desire to access earnings before payday is growing for several reasons. First, on-demand technology platforms have driven this type of pay model, which is built around virtual or online banking, Lewis said. On-demand pay is a “new mentality” because modern workers culturally seek to have more freedom and flexibility in transactions, he said.

Millennials are accustomed to getting “instant everything,” Lee said. They may not choose to access their pay every day, but it is important to them to have that ability, he said.

This change in lifestyle and expectancy is combined with a large financial need to provide the overall impetus to offer faster access to wage amounts, Ruppel said. Nearly 75 percent of the U.S. workforce lives paycheck to paycheck and needs options for when unexpected payments are to be made, he said.

For example, workers who “require income now,” before payday, could use the funds to repair a tire on a car so they can drive to work, Lee said.

For those paying workers, such as employers and platform operators paying gig workers, the panelists said there is a significant upside to arranging the ability to deliver pay on demand.

With the economy operating at nearly full employment, the “compelling and obvious need” for employers to retain workers drives companies to adopt an on-demand pay model, Lee said. Employers using the DailyPay model say employees are staying 40% longer at a company than when on-demand pay options are not available, he said.

The panelists all highlighted that the business case for on-demand pay included better ability to recruit talented workers. The tool “will help us get the best talent in the world,” Lewis said.

And hitting the exact number the first time may not be all that important, either. A Gig Wage internal study found that being paid quickly was more important to the payees than being paid accurately, Lewis said.

Question of Compliance

There is a concern that on-demand transaction models pushed to market have not been fully vetted for whether they meet legal and regulatory requirements for federal and state wage-payment purposes.

A parallel to the time when payroll cards were first introduced as a method of wage payment was drawn by Ruppel. Decades ago, there were questions on whether payroll cards were legitimate wage payments, he said. Similarly, questions are being asked about whether the on-demand payments constitute constructive receipt by the worker of wages.

At constructive receipt, employers must address the timing of tax liabilities and other deductions from wages, likely having to pay those amounts on a more accelerated schedule based on when a advance or loan payment is provided.

Lee claimed his company’s model “insulates” employers from the issue of constructive receipt because the transaction is between an employee who has arranged the account and the loan operator, DailyPay, and amounts are not prefunded by employers. Rather, employees redirect their scheduled direct deposits in an arrangement to secure the loaned amounts.

Ruppel’s Green Dot model is more like a service provider handling advances on wages for an employer than a direct loan-to-employee arrangement. The question of when constructive receipt should be recognized is more nuanced. Amounts are deducted out of future payroll runs, which is a well-documented approach to providing wage advances to workers, Ruppel said. While there may be a concern that constructive receipt occurs sooner than payday in these instances, employers and service providers have been taking a “reasonable approach,” in asserting the payments are “likely to be compliant,” he said.

The American Payroll Association is not advocating a position on this issue, said Bill Dunn, director of government relations for the association. The group is tracking the issue and wants an answer to the uncertainty surrounding constructive receipt, he said.