Why wait two weeks for your pay? New services allow Canadian workers to access pay as they earn it

Why should you wait two weeks for a pay check in a computerized world where money transfers take a fraction of a second?

Soon, you may not have to.

Fintech companies are set to shake up the traditional biweekly payroll system in Canada, with a new service that offers workers on-demand pay for completed work.

Early wage access – also known as on-demand pay and early pay access – is a third party service offered by employers that allows workers to access some, or all, of the money they’ve already earned without the two-week payroll delay. The concept is in its infancy in Canada.

It is touted as an alternative to payday loans, which carry exorbitant interest rates, and a solution for people living pay check to pay check who need immediate access to their pay.

“We’re really empowering people to have access to their earnings,” said Seth Ross, who heads Dayforce Wallet at Ceridian, a human resources and payroll software company that’s headquartered in the United States and operates in Canada, Europe and Australia.

“If someone does not have access to their funds when they need it, where are they going to go? They’re going to go into credit card debt or payday lenders who charge 300 per cent interest, ”he said.

Dayforce Wallet started in 2001 in the US and became available in Canada in July 2021. It works with more than 100 companies. Industries that traditionally hire hourly, part-time or contingent workers find the system the most attractive. Dayforce Wallet clients include La Vie en Rose and lease-to-own retailer Aaron’s.

Dayforce Wallet allows workers to access their pay through an app, with money directly deposited to their Dayforce Wallet card. There is no fee to transfer funds to other accounts and there are no interest rate charges. However, standard ATM fees do apply.

“It’s the right thing to do, it’s about helping people take control of their financial lives,” said Ross.

Canadian owned on-demand pay company ZayZoon was created in 2014 with a goal of ending predatory lending. To date it has worked with more than 2,500 companies in the US including Domino’s, Wendy’s and 7-Eleven.

While headquartered in Calgary, it does not work with any Canadian employers yet.

“Canada was not ready for a service like this when we started the company,” said CEO and founder Tate Hackert. “The population size is just smaller and there are also more conglomerates that have a stronghold in Canada.”

But that could be changing.

Many Canadians have faced layoffs or unreliable work hours during the pandemic and are having trouble paying bills on time. And with job vacancies surging across the nation, companies need to offer more compelling benefits for their workers, Hackert said.

The goal is to help people who have a cash flow problem by allowing them to pay their bills when they need to, Hackert said. Instead of paying high interest on payday loans, they can access their own wages when they need them and pay no interest.

Toronto startup KOHO also got into on-demand pay in 2014 to provide a healthier alternative to payday loans.

“You only need to look around and see lenders are on every corner. It’s super corrosive to financial stability, so that’s the problem we’re trying to help solve, ”said CEO Dan Eberhard.

KOHO has teamed up with Canadian companies that use the online payroll system Automatic Data Processing (ADP) to offer employees Instant Pay, which allows them to cash out up to 50 per cent of the pay earned every workday.

“Employers are looking for stability in the market,” Eberhard said. “This is of no cost to employers. It offers them a compelling edge to show they care about employees. ”

Early wage access helps with worker retention and during this “great resignation,” it’s imperative for companies to compete, Ross said.

The two-week pay cycle came into existence after payroll taxation began (in which money is deducted at source), according to Dilip Soman, a professor of behavioral science and economics at the University of Toronto. Because payroll systems were complicated and costly, doing it every two weeks was more efficient and less expensive, he said.

Today, the biweekly payroll system does not make as much sense, Soman said.

“If your credit card statement comes on the 27th of the month, but your pay check only arrives a few days later and you can not pay it off, then this (early wage) service is a benefit, as it’s an alternative to payday loans, ”he said.

Nonetheless, there are caveats. Giving early access to wages could be extremely risky for those who have trouble budgeting, he said, and there needs to be absolute transparency about costs and fees.

Also, there is a segment of the population that does not need to access earnings faster; having two pay checks a month can help them budget better, Soman said.

“Any technology that makes spending easy can backfire. We’ve seen this with credit cards; it’s great for some and causes debt for others. This is something we need to flag. ”

Pamela George, a financial literacy and credit counselor, agrees.

“If you do not know how to budget, you end up spending the money and then there’s not enough for rent,” said George. “Paying on demand could be dangerous for those who can not save.”

It’s up to employers to responsibly set their workers up for financial success, she added.

What are employers doing to ensure their employees are saving? Are they helping them with their goals? If a company wants to implement this system, education on financial literacy and planning needs to be given to employees, ”she said.


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