Regulations for on-demand payment service providers are continually evolving to keep pace with a rapidly growing industry. In the post-pandemic economy, there is a surplus of jobs and a limited number of workers. For this reason, we find that organizations are offering more benefits, such as pay on demand, to attract workers. However, these organizations also need to be aware of how best to stay in compliance, including being aware of evolving state and local laws, as well as federal regulations, regarding pay-on-demand.
Pay-on-demand is a must for 2021
The economy is heating up, but the talent market is tight, so the company with the best pay and the best benefits will win. We know that 60% of employees Would accept a job if they had more flexibility to select pay frequency, same-day pay, or early access to pay, so it’s clear that flexible pay options are a must.
American workers need access to their money. The reality of today’s workforce is that workers are living paycheck to paycheck, or worse – payday loan for payday loan – and the pandemic has not improved matters. According to MarketWatch, 38% of Americans would have to sell something or take out a loan if they needed $ 500 in cash.
On top of that, nearly 25% of all Americans had no emergency savings, 16% took on more debt, and nearly 33% of households reported lower incomes since the start of the pandemic, a separate report from Bankrate.com concluded.
An ideal solution is payment on demand. The financial well-being of employees has become a top priority for organizations. They believe that employees deserve to have access to the wages they have already earned. Not only is this the right thing to do, but these companies are seeing a 34% reduction in absenteeism, 40% reduction in turnover and 86% increase in work performance.
National regulations on pay-on-demand are constantly evolving
As access to on-demand or earned wages becomes increasingly popular, states are stepping in to ensure that access to earned wages is truly a benefit for workers. California was the first with an onerous law that ultimately failed. New Jersey then tried to enact an equally detailed law, but that also failed. Both states have since implemented more flexible laws.
There are currently eight states experimenting with legislation, including New Jersey, New York, North and South Carolina, Georgia, Utah, Nevada, and California. It is important to understand that some, but not all, pay-on-demand programs are subject to changing state laws.
Organizations with state-regulated pay-on-demand programs need to keep abreast of new and changing state law. The good news is that, for the most part, these various laws differentiate between employer-based pay-as-you-go programs and direct pay advance programs for consumers, which have their own regulatory considerations.
The federal government also has regulations
The United States government has watched the evolution of pay-on-demand innovation. In December 2020, the Consumer Financial Protection Bureau issued a bulletin advising that on-demand payment service providers that offer on-demand payments and meet certain standards are not considered credit and are not subject to the requirements. strict for loans under the regulations. Z (the truth in the loan law).
However, to be eligible, they must meet certain requirements, including:
- Pay-on-demand provider must deposit funds into an account of the employee’s choice
- The pay-on-demand provider cannot charge account opening fees, fund delivery, or usage fees
- Any prepaid card associated with the account must be issued on a major brand network and available for use at multiple merchants.
- There must be a free and reasonably accessible way to get money into the account
Before implementing a pay-on-demand solution, anyone should make it clear to the employee that they:
- Will not require the employee to pay fees related to their account
- Will not charge any overdraft fees
- Will not engage in any debt collection activity
- Will not directly or indirectly assess the credit risk of individual employees by reviewing credit reports or credit scores
How to ensure payment-on-demand solutions are compliant
Whether you’re an HR technology provider or an employer, before implementing a pay-on-demand program, here’s a summary of what you should look for in a pay-on-demand provider:
- Make sure the pay-on-demand provider doesn’t charge employees fees for payday advances
- Make sure the pay-on-demand service provider is supported by a federally regulated brand network (subject to federal regulation), and not state regulated (subject to regulatory changes from the State).
- Make sure the pay-on-demand service provider uses a network of top brands with access to multiple merchants and accessible (no-cost) means of getting money from the account
- Additionally, you should always check with a legal team to make sure the pay-on-demand provider is in compliance with all regulations.
Pay on Demand is a top tier benefit everyone wins. However, the pay-on-demand provider must be carefully vetted to ensure compliance with federal and state laws.
Understanding what to look for in a pay-on-demand service provider is important in complying with today’s ever-changing legislation.
Ron Di Giacamo is the Chief Compliance Officer for Clear and an expert in financial regulation. He is the former COO of Consumer Banking at JP Morgan Chase and Deputy Director of Compliance for Wells Fargo.