App helps ease CASH CRUNCH
Employees allowed to access advance of their pay
Luis Vazquez and his girlfriend were down to their last $50 after she got sick and had to miss work for a month.
He already paid his rent and bills for the month, but without her income the couple couldn’t cover groceries and other essentials. His next paycheck was more than a week away.
Faced with a similar cash crunch years ago, Vazquez had resorted to a payday loan, a high-interest, short term loan meant to tide a borrower over until the next paycheck. But the couple and their toddler son were eventually evicted from their apartment because they couldn’t make both their rent and the loan payments.
Vazquez vowed never to take out such a loan again. This time, he had another option. An overnight support manager at Walmart, Vazquez was able get a $150 advance on his pay using an app that allows the company’s employees to access up to half their earned wages during a pay period.
A growing number of companies are rolling out products and services that allow employees to receive a portion of their pay when they need it. This can help workers, especially those making hourly wages or working irregular schedules, to avoid unpleasant and potentially costly options such as borrowing from loved ones, running up credit-card debt, selling possessions or taking out payday or other highinterest loans when bills come due or emergencies arise before the next paycheck.
Could this be the future of payday? Developers of flexible-pay services say adhering to a rigid pay cycle doesn’t make sense.
Josh Reeves, CEO and cofounder of the payroll company Gusto, sees a model in the way parents
pay their kids for doing chores.
“If they mow the lawn, they get paid right away,” Reeves says. “We think in the future, everyone will get paid (for their work) when they do it.”
Some experts acknowledge that giving employees early access to their pay can backfire if, for instance, they spend the money unwisely. But the need for flexible pay services is clear. About one-third of U.S. adults were either unable to pay their monthly bills or were one modest financial setback away from financial hardship last year, according to a recent survey by the Federal Reserve.
Vazquez started working at Walmart in November and says he used the app six times since Walmart made it available in December. The app was developed by the technology company Even.
Vazquez pays $6 a month to use the app — there is no transaction fee. By comparison, a payday loan typically carries an annual percentage rate of 300 percent to 500 percent and is due in a lump sum, or balloon payment, on the borrower’s next payday. Vazquez didn’t provide the terms of the payday loan he took out years ago.
“It gives me peace of mind,” Vazquez says.