Intercept before paycheck: how the principle of pay on-demand is changing the labor market

Payday advance payment services have long been popular with large Western companies. Now this market is beginning to develop in our country. What is the pay on-demand trend and who needs it?

According to the Labor Code of the Russian Federation, wages are paid to an employee at least every two weeks. This is how 72% of employees receive payments, according to VTsIOM. However, even with such a schedule, 33% of our countries speak of a periodic shortage of money until the next accrual, and 10% of a constant one. Against this background, the demand for microloans is growing: in 2019, they were issued by 25% more than in 2018, and in three years by 2020, the share of requested money “before salary” increased by 1,5 times. The coronavirus crisis has made the financial issue particularly relevant: in April 2020, every fifth family took out a loan. All this makes pay on-demand or “salary on demand” services in demand, which allow you to receive what you have earned before the day of payments. If earlier only the United States gradually switched to the on-demand salary format, now the system is being developed in our country as well.

What’s the problem?

Historically, it so happened that both in the USSR and in our modern country, a worker receives a salary twice a month. On the ground, the situation may turn out differently: 11% of our country polled by VTsIOM receive money only once a month, and 15% – according to an individual schedule. At the same time, the idea of ​​on-demand pay already existed in the XNUMXs: some organizations allowed employees to take a small part of their salary from the accounting department until the day it was officially issued. The amount was regulated by the internal charter of the organization.

In fact, this is not a violation: the Labor Code requires the employee to be paid money at least every half a month. At the same time, half of the salary is accrued no later than the 15th day of the next month (after the reporting one), and the period before the “advance payment” cannot exceed half a month. Each enterprise sets specific deadlines individually, but they must be officially fixed in the documents. And here it turns out that you can make payments both weekly and daily. So pay on-demand services remain within the legal framework.

How payday loans work

The global system of issuing money “before payday” has already been practiced in our country: the first such solution was proposed by Rocketbank by launching “Rocket Advance”. However, this product was effectively an overdraft because the money came from the bank and not from the employer. The amount available for receipt was calculated from the volume of salaries of previous periods. The money had to be repaid within three days within the set repayment date, otherwise interest would begin to drip – from 20% per annum. In addition to this, the system charged a commission in the amount of 190-290 rubles. per month.

However, what Rocketbank offered only superficially resembled foreign earned wage access or on-demand pay services, but in fact remained a loan product.

Why do employers need early payment of money to employees?

The key advantage of earned wage access is the ability to keep an employee in the workplace without increasing staffing costs. Since the main pain of workers both in our country and abroad remains finances (78% of Americans, regardless of income level, live paycheck to paycheck), the easiest thing an employer can do is to let them get their money more often.

Early disbursement of money increases the efficiency of employees and has a positive effect on the economic situation of the company. According to PwC, 50% of employees worry about their financial condition up to 3 hours a week in total. The ability to receive money at any time for unforeseen expenses (treatment, repairs, etc.) reduces the level of stress. With an average hourly cost of $17,5, earned wage access saves the company more than $2,6k a year.

Payroll on demand is most valuable in sectors with low wages: hotel business, catering, catering, restaurant sector, retail. Here the level of wages rarely exceeds 30 thousand rubles.

How does technology work in Western companies?

Walmart, the world’s largest wholesale and retail chain, was the first to start mass payroll on demand for its employees: in December 2017, it connected 250 hourly and full-time employees to the system. The company said that such a move will help employees find more financial stability. The application, created in collaboration with startups Even and PayActive, not only gives out a salary at any time, but also allows you to control the budget and thereby increase financial literacy.

In 2018, Camden Town Brewery introduced British Wagestream technology. It allows employees to receive 30% of their own funds earned from the last paycheck to the current day. For the operation, the system took a commission of £1,75. This money comes to the accounting department, and the salary itself falls into the bank account on time. During six months of testing this technology, the company saw that almost 30% of employees use it, and within a month they take 15-25% of their salary. At the same time, the greatest activity in the early request for funds was noticed by the end of the month. The technology is implemented through a smartphone application.

The Even service, which has existed since 2016 and covers all 50 states of America, remains the leader in the pay-on-demand industry abroad. The system is adapted to the legislation of each of them. According to the company, 51% of connected users use the service daily, and 72% use it weekly. After switching to Instapay, which is the name of Even’s early pay feature, people have saved more than $100 million by ditching credit, loans, and overdrafts. Even is competing with DailyPay, which has existed since 2015, also operates in 50 states and cooperates with Berkshire Hathaway, Adecco Staffing, Burger King.

Among the well-known providers, ZayZoon and Branch are also mentioned, as well as Earnin, Instant Financial. For most, a subscription model works: a monthly payment for using the service within $10.

What about in our country?

The pioneer of pay on-demand services in our country was the Money Forward project, launched in 2019. Users of the service can withdraw part of the funds already earned to a current account or bank card. The commission for each transfer is fixed – 50 rubles. This helps to save employees up to 100 thousand rubles on average. in a year.

To use the service, companies are offered to conclude a partnership agreement with the Money Forward service. After that, a plug-in is added to the organization’s accounting system, which transmits information about connected employees, their salaries, sick leave, maternity leave, vacations and dismissals to the service. Connection for the company-employer is free. The process of paying salaries does not change: twice a month, the organization transfers money to the employee’s nominal account. To receive part of the salary on demand, employees write an application for the transfer of wages through the service and send a request for payment in a mobile application. The accountant or HR company authorizes the entire procedure in the accounting system of the service. The employee does not have to pay additional taxes for this procedure.

Recently, another project of a similar type appeared on the Russian market – PayDay, the beta version of which was released in July 2020. This is a product of Mail.ru Group. The principle of operation for all on-demand pay programs is the same: they are integrated into the employer’s electronic systems. The difference lies in where the money for early payments comes from. When working with the “Dengi Vpered” company, an employee connected to the system receives funds from the service’s own fund. In the case of PayDay, the money comes directly from the employer who borrows from PayDay. According to some experts, such a scheme may create difficulties with the deduction of taxes. PayDay allows you to withdraw no more than 70% of earned funds, and the remaining 30% are transferred on the day of the official salary.

Future technology

The pandemic has pushed people to take loans more often, and companies to more actively implement earned wage services. Those who have already used them have shown the support of employees by taking on the costs associated with fees for early payouts. Walmart was one of the first to do so again. The company offered the service not only to some employees (250 thousand), but to all 1,3 million. They transferred their staff and Burger King with DHL to payroll on demand. In the UK, even the trusts of the National Health System have joined the earned wage services. Another change related to the coronavirus occurred in the Even Responsible Finance service – the limit for early withdrawal of money was increased from 50% to 80%.

Fintech startups in the Western market have stepped up and started to offer their solutions: Ceridian has launched its own Dayforce Wallet payment service for 4,5 thousand customers. The company is confident that in three to five years, daily payments will become the new reality.

The pandemic, which made pay-on-demand services popular, also stimulated their further development. Even says it plans to introduce new tools to access large sums (for example, for car repairs), which can be returned within two payment periods. In this case, no interest will be charged.

Interest in earned wages is also noticeable on the Russian market. In April, the Money Forward service had 13 companies and 13 thousand people (the total staff of all companies). As of July 2020, another 15 companies are at the connection stage. The partners who have implemented the service note that for some vacancies, after adding the option of early payments, the response increased by as much as nine times. PayDay has no statistics yet, as the beta version only became available in July.

Pay-on-demand services reduce the psychological burden on employees and also help them to better allocate the budget, which has become critical in the corona crisis. The opportunity to receive money before payday allowed Americans to save more: if before the pandemic they saved only about $150, and now it is $350. It remains to be seen until the effect of such programs manifests itself in our country.

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