Flexible-pay service pays off for workers

Access to funds helps those who face unexpected costs between paychecks

The Associated Press

Luis Vazquez and his girlfriend were down to their last $50 after she got sick and had tomiss 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, Mr. Vazquezhad resorted to a payday loan, a high-interest shortterm loan meant to tide a borrowerover 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 andthe loan payments.

Mr. Vazquez vowed never to take out such a loan again. This time, he had another option. An overnight support manager at Walmart, Mr. 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 high-interest loans when bills come due or emergencies arise before the nextpaycheck.

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,” Mr. Reeves said. “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 FederalReserve.

Mr. Vazquez started working at Walmart in November and said he has used the app six times since Walmart made it available in December. The app was developed by the technology company Even.

Mr. 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. Mr. Vazquez didn’t provide the terms of the payday loan he took out years ago.

“It gives me peace of mind,” Mr. Vazquez said of the app.

Newer companies such as Uber and Lyft have used immediate payment as their model for years. Now other organizations are catching on to the advantages of a flexible payday.

Jon Schlossberg, CEO of Even, said more than 200,000 of Walmart’s 1.4 million U.S. employees use his company’s app, which also has a cash flow projection feature that deducts upcoming bills from expected pay and shows users an“OK to spend” balance.

Gusto, which provides its payroll services to more than 60,000businesses nationwide, recently began offering its flexible pay option as an addon feature at no cost to employers or employees. The company just launched the service in Texas and plans to expand it to additional states later this year.

There’s a tremendous need for such services in the U.S. for several reasons, said Rachel Schneider of the Aspen Institute Financial Security Program and co-author of the book “The Financial Diaries: How American Families Cope in a World of Uncertainty.”

Income and spending needs are volatile and don’t always match up. While some households might be able to make their finances work on paper over the course of a year, they could end up short in any given month, she said.

Some families can build up savings to provide a cushion. But for many workers, the cost of living is outpacing wage growth by such a wide margin that “expecting them to save their way out of volatility is not realistic,” Ms. Schneider said.

Cutting checks for every employee used to be timeconsuming and costly for companies, which partly explains why many have spread out the pay period. Now the process is largely automated and new technology has enabled more flexibility in timing.

“It takes no extra effort or little effort, so leaving people subject to an outdated rhythm payment or cadence, there’s no real logic to it,” Ms. Schneider said.

There are some potential downsides, however.

The immediate access to cash may encourage some people to pick up extra shifts when they are short. While that makes sense in the near term, it can backfire on workers over time. This bigger pool of labor could take the pressure off employers to increase wages,Ms. Schneider said.

Employees could also burn through cash faster. Some companies have countered that by limiting the number of times workers can access their money or by making only a portion available. And some are adding a financial counseling component to their services.

FlexWage Solutions is offering a package that combines its flexible pay service with Trusted Advisor, a mobile phone tool developed by the New York City nonprofit Neighborhood Trust Financial Partners, to give employees access to one-on-one financial counseling. Restaurant chain Panda Express is the first to sign on, FlexWage CEOFrank Dombroski said.