New Payday Options for Making Ends Meet

Originally published at nytimes.com
by STACY COWLEY
JULY 4, 2016

For decades, most American companies have paid their workers once every week or two, minimizing the administrative costs of frequent paydays and maximizing the interest the companies earn by keeping the money in the bank.

And for equally long, workers have complained about the unfairness of waiting for their paychecks.

But now, thanks in part to the gig economy, a small but growing number of employers and start-ups are testing ways to give employees faster access to their wages. A variety of options — some involving payroll cards, and others using A.T.M.s and other methods — have recently hit the market, permitting people to take home their pay as soon as they have earned it.

On one hand, this could be good news for people who live from paycheck to paycheck. If the trend catches on, it could reduce the demand for products like payday loans, which workers use when they run short of money, but which charge very high interest rates. On the other hand, the services that are providing on-demand wages charge fees every time a worker uses them, so there is a trade-off.

Mr. Dombroski’s company, FlexWage, of Mountainside, N.J., also advances employees part of their earned but unpaid wages, but unlike PayActiv, it doesn’t use its own money to fund the transactions — it pulls cash directly from employers’ coffers. That is the most financially sustainable approach, he says, but it appeals to only the most highly motivated employers.

“I would be lying if I didn’t say it’s been a struggle, but we kind of knew that going in,” he said.

He thinks the tide is starting to turn. A new partnership with ADP, a big provider of payroll services, has helped FlexWage get on the radar of bigger businesses. The company says it is finalizing deals with two employers that would double the 8,000 people currently using its system.

“There’s been so much attention to the high cost of short-term lending, like bank overdraft fees and payday loans, that employers understand a lot more clearly now the dire need,” Mr. Dombroski said. “We don’t have to convince them that there’s a problem any longer. Now we need to convince them there’s a solution.”