Why On-Demand Pay is In Demand

Some employers are turning to on-demand-pay apps to help employees living paycheck to paycheck.
By: | August 9, 2019 • 8 min read

Quick-service restaurants have never been known for racking up impressive retention rates. Often viewed as a temporary pit stop or stepping stone for workers, jobs are typically filled by high school and college students, retirees and people returning to the workforce after raising children or serving in the military. While the overall turnover rate in the restaurants and accommodations sector was 74.9% in 2018, according to data from the Bureau of Labor Statistics’ Job Openings and Labor Turnover program, QSR turnover averaged 150% that same year, as reported by Bloomberg.

At Church’s Chicken, Senior Vice President and Global Chief People Officer Karen Viera is operating under no delusions when it comes to the transient nature of the industry’s workforce and the difficulties in retaining employees.

“Wages in our industry are approximately the same from one restaurant to another, which means we have to bring value to the working relationship in other ways,” says Viera.

Advertisement




For Viera, that means paying close attention to employee concerns—both workplace-related and otherwise. In recent years, she’s become aware of an increasing number of store-level employees experiencing cash-flow problems. The situation was so dire that some turned to HR to request assistance in the form of pay advances, while others had come to rely on high-interest payday loans to cover unforeseen expenses.

While the payday-lending industry has flourished due to the sheer number of people living paycheck to paycheck, Viera didn’t want Church’s valued employees to be hit with exorbitant fees simply to pay for an unexpected car repair, medical bill or “any number of real-life situations.” She began looking for solutions that would provide flexibility with regard to when team members receive their earned wages, but at no cost to the workforce.

Viera was drawn to the concept of on-demand pay, which is quickly gathering steam, particularly among organizations that employ large numbers of low-wage, entry-level workers. Partnering with Instant Financial, Church’s launched the “Work Today-Get Paid Tomorrow” program, allowing restaurant-level employees to access up to half of their earned pay in advance of their official payday. Workers submit their request via mobile app during certain hours, and the wages are transferred onto their pay card the next day, immediately available to be used however the employee sees fit.

“Church’s is stepping out in front to serve our team members and find solutions that better serve our hard-working restaurant employees,” says Viera. “This program demonstrates our commitment to our employees by being forward thinkers and truly leveraging technology to bring convenience, which adds value.”

All hourly restaurant employees are eligible to participate in the program, which launched as a pilot at just one Church’s Chicken restaurant in Montgomery, Ala., in June. Response was overwhelmingly positive, with 75% of eligible employees signing up to participate in the pilot. Currently, Church’s is in the process of rolling out the program to its six other company-owned Alabama locations, then will continue the rollout to the rest of its 160 company-owned locations. While she can’t require the owners of Church’s more than 800 franchise locations to adopt on-demand pay, Viera says one of Church’s largest franchisees is already moving forward with plans to implement the program. She expects others will follow suit.

Driving Demand

Church’s hourly workers are certainly not alone in their financial struggles. Nearly 80% of American workers say they’re living paycheck to paycheck, according to a 2017 report by CareerBuilder. While there’s a slight variation between genders—81% of women, compared to 75% of men—across the board, the vast majority of American workers would be in a financial bind if an unexpected expense were to arise.

While it’s been suggested that younger workers are driving the trend toward on-demand pay, concern over a lack of savings spans the generations. According to PwC’s 8th annual Employee Financial Wellness Survey, issued in June, the top financial concern of “Not having enough emergency saving for unexpected expenses” was cited by 62% of millennials, 55% of Gen Xers and 44% of baby boomers.

A much bigger driver is the emergence of the gig economy, in which workers routinely cash out at the end of their shift, says Maggie Deptuck, global senior vice president and general manager of small business and mid-market at Replicon. As traditional employers compete with companies hiring gig workers, they are increasingly encountering the expectation of immediate—or near-immediate—pay.

At the same time, Deptuck says, the proliferation of online retailers like Amazon, Zappo’s and others has raised the bar when it comes to immediate gratification. Couple that with workplace changes that have restructured once-annual events into everyday, ongoing processes, and you’ve got a new set of expectations that is driving the move towards on-demand pay.

“There is such a sense of immediacy in everything we do in our lives, and that is bleeding over into the workplace,” says Lisa Sterling, chief people and culture officer at Ceridian HCM Inc. “It started with the conversation around moving from annual performance reviews to something that was much more real time. People are now expecting that same type of thing with regard to their compensation and pay.”

For Checkers & Rally’s Restaurants Inc., it’s all about giving their 4,500 restaurant employees the same kind of “crazy good experience” they pride themselves on delivering to customers, according to Marna Killian, senior vice president of people. She learned of the on-demand-pay concept at a 2017 National Restaurant Association conference and was immediately sold on the idea. In January 2018, the drive-thru chain began piloting Instant Pay to approximately 800 employees in 40 restaurants throughout the Tampa market. Of the 93% of employees who had opted for a pay card rather than direct deposit, 66% took advantage of the program, which enables them to receive up to half of their pay the day after they’ve earned it without any fees or additional costs.

Having deemed the pilot successful, Killian and her team took Instant Pay to Orlando, Jacksonville and southern Florida, before heading to the Midwest. By the end of July 2019, the system-wide rollout was complete, and Killian will introduce the concept to franchisees at the chain’s national convention in September.

Safety Net

Before Checkers & Rally’s launched its program, Killian held a series of focus groups with the employees it would be impacting. While they were excited about the prospect of receiving their pay more immediately, several expressed trepidation, specifically around their ability to control their spending when they didn’t have to wait until payday to have money in their pockets.

“At least two people in each focus group said, ‘I don’t know if I would trust myself with that,’ ” says Killian. “ ‘If I get money out, I won’t have as much in my paycheck, and I don’t want to use it unwisely versus needing to pay rent when I get paid.’ ”

While Checkers & Rally’s doesn’t limit how employees can use the money they access via Instant Pay, the chain is careful to promote the service as being intended to cover emergency expenses. For the most part, Killian says, that’s how it’s being used.

In its pilot, Church’s Chicken employees were found to be using the service for more than just emergency expenses, but that doesn’t concern Viera in the least. “That’s completely fine because they’ve earned the money,” she explains.

Critics, however, have expressed concerns that allowing workers to access their pay on demand will harm them financially in the long run because they won’t learn to budget or plan for major, long-term purchases like a house.

“Having instant access to that cash, I might say, ‘I’m going to go out to dinner and have a couple drinks,’ rather than thinking, ‘I need to put some money aside for a rainy-day fund or expenses that are coming up at the end of the week or save up to move out of my parents’ house or put a down payment on a home,’ ” says Jennifer Loftus, national director of Astron Solutions. “That requires self-control and budgeting, and these apps could cause some individuals to lose the opportunity to develop those skills.”

Advertisement




Viera believes limiting employees to 50% of their earned pay is an effective means of protecting employees from finding themselves broke on payday, without intruding too much into their personal lives.

“Our employees are smart, accountable people, so we didn’t want to become Big Brother,” says Viera. “Giving them flexibility with a cap on it was the right middle ground.”

For the past two years, Bloomin’ Brands Inc.—the parent company of Outback Steakhouse, Fleming’s Prime Steakhouse & Wine Bar, Carrabba’s Italian Grill and Bonefish Grill—has offered the option of on-demand pay to its “customer-facing employees,” but only for tips, according to Pablo Brizi, senior vice president and chief human resources officer. Those who opt to participate can deposit 100% of their tips from any given shift onto a debit card, giving them immediate access to the money in a safe format. The company covers the fee for the service.

While most eligible employees take advantage of the service, Brizi says, some prefer to stick with the traditional means of getting their tips in cash after the restaurant closes for the night or the next day, or waiting until the end of the payroll cycle. It’s just one of the many ways the chain achieves “one of the best retention rates in the industry,” he explains.

When Walmart Inc. partnered with Even Responsible Finance and PayActiv to roll out a suite of financial-wellness services, including an on-demand-pay option, to its 1.4 million U.S.-based associates 18 months ago, the intention was that it serve as a “safety net for emergencies,” according to David Hoke, senior director of health and wellness. With that in mind, the mega-chain foots the bill for associates to use Instapay up to eight times per year to access up to 50% of their earned wages. If they feel the need to use it more often, it will cost the employee $6 per month.

Using the Even app, Walmart associates can plan ahead for bills and savings goals and see exactly how much money they’re OK to spend after anticipated expenses are subtracted from their anticipated cash inflows. Even CEO Jon Schlossberg says this kind of holistic approach, rather than one focused solely on instant access to earned wages, is the only way an employer can truly help its workers free themselves from living paycheck to paycheck.

“Any HR executive who thinks on-demand pay by itself is going to help their people escape the paycheck-to-paycheck cycle is significantly misguided,” says Schlossberg. “If used correctly, it can be a critical part of your ability to help your employees become financially healthy but, if it’s the only thing you provide, you might actually make someone’s situation worse.”

Send questions or comments about this story to [email protected]

 

Julie Cook Ramirez is a Rockford, Ill.-based journalist and copywriter covering all aspects of human resources. She can be reached at [email protected]