“We are rewriting the invisible rules of money,” claims DailyPay, a financial technology (or “fintech”) company that pairs with participating employers’ payroll systems to permit hourly employees to access earned wages prior to their scheduled payday. According to PitchBook (a company that provides capital market and firm data to would-be investors), DailyPay’s services are “intended to reduce employee turnover by improving [their] financial condition.” As DailyPay notes, the traditional two-week payment cycle has forced many workers into a precarious financial position; to make ends meet, these workers have often turned to “payday loans” — short-term loans with notoriously predatory terms and high interest rates.
While fintechs like DailyPay market themselves as alternatives to payday lending by allowing employees to “get access to earned wages before the scheduled payday, pay their bills on time, and ultimately achieve financial security at their place of employment,” they are a far cry from “rewriting the invisible rules of money.” Rather, these providers use money’s “invisible rules” to their advantage — charging employees fees to access wages they have already earned but are not yet obligated to be paid due to anachronistic pay periods.
Two-thirds of workers receive their wages on a biweekly or longer basis. Extended pay periods are baked into our system — from the Fair Labor Standards Act which requires “prompt payment” of wages (interpreted as requiring payment for all hours within a suggested weekly, biweekly or monthly pay period), to state laws that dictate acceptable pay periods and may differentiate between occupations (as in California, where farmworkers must be paid weekly while other occupations are generally allowed to be paid once a month).
These periods are historic; labor historian Nelson Lichtenstein traces modern payment norms to the rise of industry, when factory workers lined up to receive their cash wages on Saturdays. The biweekly standard arose at least 80 years ago with the mass implementation of Social Security and payroll taxes; the two-week period gave employers the opportunity to calculate and cut checks to employees and the Treasury in a time preceding excel spreadsheets and accounting software. But these pay periods have outlived their origins — as Professor Lichtenstein concludes, the survival of the biweekly pay period is not a technological issue, but a sociopolitical one.
Although extended pay periods have been encoded into law and custom, it’s worth taking a step back to consider their implications. Hourly employees earn wages for work performed on an hourly basis. In the time between laboring and receiving their paycheck, whether at the conclusion of a two-week pay period or a full month later, employees are extending an interest-free loan to their employers in the form of labor performed for payment at a later date. Given the time value of money, extended pay periods allow employers to retain value from yet-unpaid wages. At the same time, workers incur their own costs on a daily basis and quite literally pay for not receiving wages as they earn them.
Increasing numbers of workers want access to their wages as they earn them — in a poll from last year, 83% of respondents believed they “should have access to their earned wages at the end of each workday or shift.” And why shouldn’t they?
One response is that automatically paying employees on a daily basis would impose potentially insurmountable HR and other administrative hurdles especially for smaller or heavily regulated entities. However, the proliferation of fintechs like DailyPay proves that many employers can and have been providing employees daily access to earned wages, minus taxes, pay garnishments, and other administrative odds and ends. Today, one in six U.S. workers has access to DailyPay. Walmart, with over a million employees and accounting for nearly 1% of total U.S. employment, implemented its own on-demand early wage payment system in 2017 with slightly different features from DailyPay’s. At the very least, these developments suggest that large corporations are more than able to pay their workers on a daily basis despite the entrenchment of the biweekly pay period. This accounts for a lot of people, since over half of the nation’s private-sector workforce is employed by a company with more than 500 employees.
Others may argue that extended pay periods operate as a kind of short-term “forced savings” or monetary disciplinary device for workers who might otherwise squander their wages on a daily basis. Besides its paternalism, this theory falls short because, unlike an actual savings account, employers do not pay interest on unpaid wages because of the presumption that they are not yet owed to employees; nor can employees withdraw from their earned wages in the case of a fiscal emergency absent intervening technology like DailyPay.
The majority of Americans live paycheck to paycheck; as Daniel Horowitz notes: “Running out of money before payday makes life more than hard. It makes life nearly impossible.” Payday lenders, according to Horowitz, fill this gap — enabling workers to meet their needs in the days or weeks preceding payday. Yet Americans pay $9 billion dollars in fees for the short-term funding provided by payday lenders every year; the majority of payday loans get “rolled over” by borrowers who remain in escalating debt for months and the average payday borrower ends up paying more in fees than she originally borrowed to make ends meet.
This is where fintechs like DailyPay come in. DailyPay purports to throw workers a lifeline in the form of an “affordable alternative” to payday loans. Although DailyPay’s model differs significantly from payday lending and is consequently a safer, more affordable option than a payday loan (and one not subject to the same consumer finance regulations), workers are still footing the bill to access their earned wages using its services. Users can expect to pay a “small fee” of up to $2.99 to transfer earned wages to their bank account. This may seem negligible, but it has the potential to add up to impose significant costs on workers; an employee who requested her pay at the conclusion of each working day could expect to pay roughly $90 a month — over $1000 a year — to receive her daily wages on a daily basis.
And why should workers pay to access their earned wages at all? As Professor Lichtenstein notes, large employers do not lack the technology or resources to compensate their employees on a daily, even hourly basis; rather, they lack the will to do so, at least without pairing with services like DailyPay that shift the onus and cost of receiving their wages before a scheduled payday onto workers. DailyPay is undoubtedly a preferable alternative to a payday loan for a worker whose needs mismatch the timing of her next paycheck, but it does nothing to challenge the “invisible rules” of money, which impose the burden of accessing earned wages onto employees while employers (and fintechs) reap the benefits of an antiquated payment regime. Rewriting those rules entails a much more radical project — beginning with the presumption that workers ought to receive their wages as they earn them and employers should bear whatever costs and burdens accompany that transition.