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Why companies are offering employees early access to their paychecks


“I was smacked in the face and low on cash. It wasn’t payday yet,” said the 72-year-old Oklahoma resident. “It’s not like it’s optional. It’s not a luxury item you can choose to buy or not. You have to buy it.”

To cover the unexpected expense, Lawrence was able to request a portion of her pay early, enabling her to avoid taking out a loan.

For many workers, two weeks is a long time to wait for a paycheck. And unexpected events — whether it’s an unplanned medical expense or car repair — can be financially devastating.

But a growing number of companies have started offering employees early access to their earned pay.

On-demand pay services give workers the option of accessing part of their paycheck if they need it before their regular payday — but sometimes at a cost. Some apps and services charge fees per use, while some others are subscription-based. Typically, the money can be loaded onto a debit card or into a bank account.

“The pandemic has accelerated many existing economic trends and the demand from employees for these financial tools is certainly among them,” said Luke Pardue, an economist at payroll and benefits firm Gusto.

The company, which mainly works with small businesses, launched its pay-on-demand tool Cashout at the end of 2019. The feature gives workers early access to their pay based on accrued take home pay. From March to May 2021, Pardue said the company has seen a “significant jump” in the number of small businesses that offer Cashout to workers.

A little more than 40% of small and medium sized businesses using Gusto offer Cashout, the company said. And the number of companies with employees enrolled in the program has more than doubled since January. In March 2020, as lockdowns swept the country, the average withdrawal was $410. The number dipped to $332 last quarter, Gusto said.

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Payroll and human resources company Paychex has also seen an increase in the use of its on-demand pay service among its users. It started offering the option in late 2019. During the pandemic, the average number of early pay transactions per worker more than doubled from pre-pandemic norms, according the company, peaking in August 2020.

“On-demand pay became an opportunity for individuals who were working more sporadic shifts that needed access to their cash and couldn’t afford to wait for the standard pay cycle to complete,” said Tom Hammond, vice president of corporate strategy and product management at Paychex. He added that usage has increased recently in the retail, restaurant and home health care industries.

While more companies are offering on-demand pay options, the idea isn’t brand new. Walmart (WMT) was an early player, offering its workers instant access to wages in 2017.

“That set the tone for the American workforce….that legitimized it,” said Hammond.

Two weeks is a long time

Many workers live paycheck to paycheck, so when an unexpected expense comes up before payday, they may be forced to take out expensive loans or rely on credit cards that can sink them into debt.

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“As the pandemic has increased the awareness of household financial fragility, workers are returning to the workforce with this increased demand for tools to help them meet their needs” said Pardue. “While before we may have been able to operate on this system of biweekly or monthly paychecks, now there is a recognition that emergency expenses don’t operate on that same system.”

PayPal started offering its US employees early access to wages last fall through on-demand pay app Even, a company it also invests in. According to Paypal, the use of on-demand pay and the budgeting tools in the app is higher among its hourly workers than salaries workers.

“When we surveyed our employee population, we did find there were some of our salaried employees who were having a difficult time making ends meet from paycheck to paycheck as well,” said Lisa Beyer, director of compensation at PayPal.

Younger workers could also be playing a role in the increase in on-demand pay offerings, according to Michael Haske, president and chief operating officer at human resources and payroll provider Paylocity, which started offering on-demand pay services to its clients in 2019.

“Millennials and Gen Z’ers, they come with different expectations, they want an experience similar to what they are used to in their personal and consumer lives,” said Haske. “The idea that they are earning money and they want to be able to pull that down incrementally versus a pay period — we believe that is the future.”

Attracting and retaining workers

Offering on-demand pay has also become a way to draw in more candidates and retain workers in today’s tight labor market.

“[Companies] have to be competitive and have to offer market-leading benefits and value proposition to employees they’re recruiting,” said Seth Ross, general manager of Dayforce Wallet, a program from human capital management software firm Ceridian that allows early access to pay.

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He added that many companies list on-demand pay on their job postings.

“It really shifted from ‘this is something from an altruistic perspective that we need to do,’ to ‘this is actually a strategic imperative where we have to offer these kind of benefits or we wont be able to attract the talent we need,'” he said.

For small business owner Daniel Barbee, giving workers access to their wages as they earn it is one of the perks he offers to try to attract and retain workers. He is the franchise owner of in-home health company Always Best Care in Sacramento, California. He said he’s had to turn down clients because he doesn’t have enough workers.

“For us, it’s all about hiring and retention — that is the number one challenge. It’s not getting clients.” He currently has around 117 workers, but said he could easily hire another 20 to meet demand.

His workers can access their wages early using the on-demand payment service PayActiv offered by Paychex. “You don’t have to ask us for it, you can do it on your own. It preserves a little bit of dignity and it also makes us seem more humanistic,” he said.

While such services may offer convenience, workers should take into account any fees associated with accessing wages early.

“You owe it to yourself to do the math, calculate the fees and see how it stacks up to other options,” said Bruce McClary, spokesperson for the National Foundation for Credit Counseling. “In some instances, a loan may be the more affordable option.’

Not all on-demand pay services come with a cost to the employee. And many services have limits to how much a worker can take out of their paycheck early. For instance, with Gusto’s Cashout, employees can only take up to 40% of their estimated paycheck, with a maximum of $500.

But if an employee is consistently tapping their pay early, it isn’t a long-term solution, McClary said. “This could buy them some time to take care of a critical expense…but they should take the appropriate steps to address the issues that create this shortfall in savings or the ability to pay.”

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