Payday, every day: employers rely on instant compensation to retain millennials

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A local tech company says its instant pay app can keep millennials from giving up work, and some big restaurant chains are starting to capitalize on that.

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The idea behind Vancouver-based Instant Financial’s app is to put money in the hands of employees the same day they work. This instant reward encourages employees to choose to flip burgers, empty plates, and take orders as scheduled rather than chilling out at home – at least that’s the theory.

Many large businesses are embracing the instant payment concept, with McDonald’s, Outback Steakhouse, Earls, De Dutch and Mr. Mikes among the company’s customers to date.

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But a credit counseling expert worries the app may discourage long-term financial planning for those who depend on it.

This is how the app works: At the end of each working day, an employee of a participating company can choose to take 50% of their salary for that day’s work and transfer it to an “instant account”. The remaining 50 percent is paid at the end of the company’s normal pay period.

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Money in an Instant account can be spent or withdrawn using a debit card, or it can be transferred to a regular bank account.

Jordan Cardinal, a 33-year-old cook at Mr Mikes in Prince George, was able to receive his salary instantly for about six months and said he uses the app every day.

“It helps. Usually I spend the money on bills and rent, but some days I would like to buy something for the kids, like a special dinner or some groceries, ”Cardinal said.

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I think in our day people want things now. … nobody wants to wait

When asked if the instant payment system made it harder to cover monthly expenses, Cardinal said no. “I have everything up to a T.”

For Dave Halley, Cardinal manager at Mr. Mikes, the app was not necessary for employees to continue their shifts, as they don’t have absenteeism issues.

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But what it does is keep Mikes “an employer of choice,” he said.

“I think in our day people want things now. … No one wants to wait, so if there is a way for people to access the money they have already earned in advance, it was obvious to us.

Steve Barha, CEO of Instant Financial, said that
Steve Barha, CEO of Instant Financial, said that “a few hundred” restaurants are using the company’s compensation system and are seeing in return reduced turnover and employee absenteeism, and happier employees.

Steve Barha, CEO of Instant Financial, said that “a few hundred” restaurants are using the company’s compensation system. What they are seeing in return is reduced employee turnover and absenteeism, and happier employees, said Barha.

His company isn’t the only one occupying the quick payment space, with many lenders who can close the gap in pay periods. But unlike a payday loan, employees don’t pay overwhelming fees or stratospheric rates to use an Instant account.

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It goes against the basics of financial planning that people should learn

Instant Financial makes money by charging employers for the service and merchants when its cards are used, Barha said.

Employees aren’t charged to pay through the app or to use their cards, but they do pay an ATM fee for withdrawals at certain machines. They are also charged an “inactivity fee” when they do not load or spend from their accounts within a 90-day period.

But Scott Hannah, CEO of the Credit Counseling Society, says instant access to a paycheck could encourage bad financial habits and make people more vulnerable to debt.

“I’m a little shocked,” he said of the app. “It goes against the basic principles of financial planning that people should learn – to take a longer-term perspective in planning their expenses, their savings and their income.”

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Hannah believes the app could make people more vulnerable to payday loans or credit card debt as they could find themselves running out of funds to pay bills at the end of the month.

In a perfect world, it doesn’t matter how often employees are paid, but in real life people aren’t as disciplined as they should be, Hannah said.

“Getting paid every two weeks forces someone to manage their money more efficiently than getting paid daily. “

Hannah said the app could give businesses a competitive edge in attracting and retaining staff, but is warning employers to think about the long-term impact the app could have on their employees.

He also advised employees who use the app to make sure they manage their money wisely, limit discretionary spending, keep track of basic expenses – such as rent, utilities, and groceries – and set aside funds for rainy days.

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