By Anne Tergesen
A growing number of companies are helping workers gain access to
payroll advances and loans, reflecting concern over the impact
money problems are having on productivity levels and worker
retention.
Employers including Walmart Inc. and Pima County, Ariz., have
recently added these services. The aim is to help cash-strapped
employees, many with damaged credit, cover unexpected expenses
without resorting to high-cost debt.
"Employers have woken up to the fact that a majority of workers
are having a lot of trouble simply getting by, never mind getting
ahead," said Sophie Raseman, head of financial solutions at
Brightside, a company Comcast Corp. co-founded that provides
financial guidance to workers and is testing payroll loans with
some corporate clients.
Workers typically access the services online. The
payroll-advance programs generally give employees the option to
accelerate a portion of their next paycheck for a fee that often
amounts to a few dollars. The loans are typically a couple thousand
dollars, and are repaid through automatic payroll deductions over a
few months to a year or longer. Approval and interest rates,
generally 6% to 36%, often depend on factors including a borrower's
credit score.
Because the services deduct repayments from workers' paychecks
before the money goes to their bank accounts, default rates tend to
be low.
According to an Employee Benefit Research Institute survey of
250 employers last year, 12% offer accelerated pay. The same
percentage offer short-term loans repaid through payroll
deductions. Another 4% and 6% plan to add the services,
respectively.
Lauren Saunders, associate director of the National Consumer Law
Center, said payroll-advance services may create "a cycle of
chronic early spending."
Companies, meanwhile, are responding to data that indicate
American workers are financially stressed. While incomes have been
stagnant for many, expenses for items including health care and
education have risen.
Employers are concerned about the impact on productivity and
turnover. Research by Todd Baker, a senior fellow at Columbia
University's Richman Center for Business, Law and Public Policy,
looked at 16 companies in the U.K. that offered payroll loans and
found that borrowers had, on average, an annualized attrition rate
28% lower than the rate for all employees.
Mary Haynes, chief executive of Nazareth Home, which runs
long-term-care facilities in Louisville, Ky., said the company
began offering accelerated paychecks through PayActiv Inc. two
years ago after realizing many of its staff were incurring late
fees and using payday loans. PayActiv works with 500 employers,
including Walmart.
Of Nazareth's 400 employees, 338 are enrolled in PayActiv and
280 use it regularly, Ms. Haynes said.
The benefit attracts workers and saves Nazareth money, Ms.
Haynes said, by "practically eliminating" its use of a staffing
agency some workers preferred because the agency provided access to
paycheck advances.
Typically, payday loans charge $15 for every $100 borrowed. Bank
overdraft fees often cost about $35. In contrast, PayActiv charges
$5 per pay period when an employee uses the service, which also
includes financial counseling and online bill payments.
Some point out that a $5 fee can equate to a high annualized
percentage rate on a small short-term loan.
State officials also have concerns. Regulators in 10 states,
including New York, are investigating whether the payroll-advance
services are violating state banking laws. The companies that
provide this service maintain that they give employees access to
money they have already earned and aren't lenders.
Robyn McGuffin, a medication technician at Nazareth Home, says
PayActiv has helped her avoid late and overdraft fees of as much as
$80 a month.
Ms. McGuffin, 36 years old, says she typically uses PayActiv
once or twice per pay period, generally for bills due before her
next paycheck arrives. The Louisville resident also used it to buy
a new car battery and cover her fiancé's share of the household
expenses when he was temporarily out of work due to a medical
emergency.
By avoiding late fees, Ms. McGuffin, who earns about $16 an
hour, said she has been able to splurge on the occasional
restaurant meal or toy for her daughter. "I don't freak out as much
about bills, because I know I have the option to access money if I
need to."
Some employers pair loans or accelerated paychecks with online
tools to help workers budget, reduce debt and amass emergency
savings.
Walmart introduced salary advances in late 2017. It has seen
employees rely less on payday loans and bank overdrafts, said David
Hoke, who oversees health and well-being.
Employees pay $6 a month to use PayActiv. It is embedded in an
app called Even, which also includes a budgeting service that
nudges users to save surpluses. Walmart covers the cost for one
month per quarter and caps the amount workers can accelerate at 50%
of pay. Of the company's 1.4 million workers, 380,000 are frequent
app users, Mr. Hoke said.
For those in need of larger sums, some employers offer loan
services that typically advance as much as $5,000, with repayments
deducted from workers' paychecks over four months to a couple
years.
Lender Kashable approves "more than 60%" of applicants, said
co-CEO Einat Steklov. It considers factors including job tenure and
credit scores.
The average user has a subprime credit score and pays an annual
interest rate of about 20%, Ms. Steklov said. Kashable's default
rate is 5%. Borrowers who leave their jobs before repaying in full
generally switch to automated bank transfers.
Pima County, Ariz., has offered its 7,000 employees Kashable
loans since 2016. Nearly 500 workers, many with credit scores below
650, have borrowed an average of $2,000 each, said county
supervisor Richard Elías.
Mr. Elías said nearly half reported using the loan to pay off
higher-cost debt, and many purchased or repaired cars.
"Anything we can do to make the economic lives of our workers
more stable benefits us" in the form of higher productivity, said
Mr. Elías.
Write to Anne Tergesen at anne.tergesen@wsj.com
(END) Dow Jones Newswires
September 02, 2019 05:44 ET (09:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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