With companies all across the US struggling to fill vacant posts due to the current labor shortage, many small business owners have started offering same day pay as a way to attract new employees. However, while same day pay offers a definite competitive advantage in our current market, there are a few factors you need to consider before you adopt this new payment system, namely, your cash flow and your current payroll company. In this episode, Jon Aidukonis and Gene Marks provide small business owners with a detailed look at the same day pay model.

Executive Summary

1:40—Today’s Topic: Will Offering Same Day Pay Help My Small Business?

1:56—One way to attract new employees to your small business, particularly during this labor shortage, is to offer same day pay.

3:52—Same day pay is a program that enables you to pay an employee 50% of their wages for a given day and withhold the remaining 50% until the end of the pay period. As a small business owner, you can adjust the percentages according to your needs.

4:43—Offering same day pay as an employee benefit will really give you a competitive edge over other businesses when recruiting new talent.

6:19—This program might not be suitable if your small business is prone to cash flow issues.

6:56—Due to potential complications with taxes or deductions, same day pay is also not a good option for business owners who handle their payroll themselves. It is easier to let a payroll company handle this type of situation.

8:36—While same day pay is typically seen in the retail and service industries, it is now finding its way into larger corporations and Fortune 500 companies.

9:39—In addition to attracting new talent, same day pay has also become popular among businesses due to its positive impact on existing employees; the instant gratification has been shown to improve both staff morale and performance.

10:50—Small business owners who offer same day pay should really consult with a professional payroll service provider because it can save them a lot of money and legal troubles. If your current payroll company isn’t familiar with same day pay, you should consider that a red flag.



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Jon: Hello everybody. And welcome back to another episode of Small Biz Ahead. The small business podcast presented by The Hartford. This is Jon Aidukonis and I am joined by my co-host Gene Marks. Hey, Gene.

Gene: Hey Jon, how are you?

Jon: Good, thanks. How are you?

Gene: Doing good, man. We’re here in the fall. It’s getting a little bit cooler outside. So I got to walk the dog now and start layering up, which I’m not looking forward to.

Jon: It does, it’s starting to feel like the change of seasons for sure.

Gene: Everybody complains during the summer that it’s too hot and they can’t wait until the fall arrives. Then the fall arrives and we’re like, “Oh man, this kind of stinks. Let’s get back to the summer.”

Jon: I think I could look perpetually in any season, but winter. I could make the rest work.

Gene: Yeah, I hear you. And the wintertime gets tougher and tougher as you get older, trust me, you’ll see that someday.

Jon: I think I’m starting to see it now. I got to say it. I think it’s older, and as you start to accumulate things like property. Cleaning off snow is never fun, whether that be a house or a car or something else.

Gene: I couldn’t agree with you more. I know people that they go… they’re snowbirds, they go down to Florida in the winter and I used to make fun of them 20 years ago. And now I’m like, “Wow, those people were smarter than I give them credit for.”

Jon: What’s interesting about winter is, I think it kind of fits in today’s topic. So when I think about winter, I think of on demand labor. I’m not sure that’s where everyone heads goes. It’s not about the holidays or cookies. It’s about how people start to work. What we wanted to kind of talk to you about world is the rise of same-day pay today. And how we think about getting a workforce to show up for a moment in time or for a project, or really just augmenting our normal day to day business. And I know Gene had some thoughts there.

Gene: I do. Listen, you and I are talking right now, all the big news that we all read about is that late labor shortage, labor shortage, labor shortage. Jon, we were talking about that before COVID, this isn’t really new, but it’s been exacerbated a little bit, well, a lot because of COVID and I think that’s going to continue. So a lot of employers are scrambling to figure out good benefits and things to provide for their employees, like how do you attract people? And you mentioned, as we head into the holidays, we’re looking to attract people for maybe short term work or projects, seasonal work, hourly work. What do you do to set your company apart? And one of the things that’s been growing substantially over the past few years is something called same-day pay. Now, Jon, have you ever encountered same-day pay? Did you do this back in your restaurant days?

Jon: It’s interesting because, I don’t think I ever thought about it that way as a different way, but I guess that’s always what drew me to restaurants as an employee and what still does to this day, kind of ad hock, is I can go in, I work a shift and I leave with my wages, tips for the most part. And it’s always, actually really afforded me the flexibility to live life or make decisions on my own term. I say that, I shouldn’t say it as a blanket statement because on every day is your best money day in a world like that. But I do, I think about shift jobs as a way, I guess we’ve always been thinking about same-day pay, but usually it’s paid in the form of something like a tip right, versus a wage.

Gene: Right. That’s exactly it, particularly in the restaurant industry where the actual wages are like $2 an hour, and then it’s the tips that you’re really making your money off of. But now that trend is starting to migrate, not necessarily away from just the restaurant and the retail industry, but towards all other industries, particularly ones that use hourly pay. And, just for all of you guys listening, if you’re… I’m going to insult your intelligence and just explain how this actually works. Just from a… just technically. So same-day pay is a program that’s offered by… you can get this usually through a payroll company. I don’t think you want to monkey with this on your own, if you’re doing your own payroll, because it can get a little complicated.

What it is that what most of the payroll companies offer is that when your employees work for you, they basically… you pay them that day, 50% of their wages. And then you withhold the other 50% until the end of the pay period. Now you can do more if you want to pay them, all of it that day. But generally what I’m seeing most of my clients that use same-day pay, they generally give them half of the wages on that day. When you think about it, Jon, say I want to hire you to work in my plant or do some work in the office or whatever. And you’re looking at other employers and I’m like, “Hey man, you come and work for me. I’ll give you 50% of what I owe you that day that you finish working.” It’s kind of a attractive thing. Don’t you think?

Jon: I think it is for sure. And I think when you think about the perspective of the employee, it’s the benefit of things we were talking about. When you think about restaurants or some more service level jobs. There’s something about leaving a job with the money in your pocket that you earned, that’s a really hard feeling and experience to replicate. So to be able to start to really learn from that industry and those types of jobs and be able to execute on it is an interesting concept. And I think it is compelling to folks who really want to have their cash in hand.

Gene: I think so too. And let’s face it, we’re already doing it now. We hired a babysitter for our kids when they were little, you pay them that night, you know what I mean? Or somebody comes and mows your lawn and you pay them when they’re done mowing your lawn. And so it’s not a crazy concept for some businesses, they pull back a little or recoil from the idea like, “Oh, I’m used to paying my people at the end of a two week period”, and my message to… if you’re thinking that way, my message to you is, you got to change your mindset a little bit. The world is different. And it’s more of an on-demand world. People tend to expect something like that, like some on-demand type of payment or feedback, if you’re an employee, it’s not an unusual thing to be requesting.

Now, for a business owner, there’s cashflow issues that are involved with this. There are some companies, as you know, Jon, they have to wait until the end of the two-week period just to make their payroll. If you’ve got those cash flow challenges, maybe this isn’t exactly the best deal for you. You know what I mean?

Jon: And what is the expectation of an employer here? Because again, I think about it in terms of things like you were talking about. So whether that tips or cash jobs, where it’s expected. But if you are more of a classically trained payroll processor, how do you start to get your mind around it? And what does that mean for how you should prepare for it?

Gene: Well, first of all, technically people either get paid either by a debit card or just a transfer into their bank account. It could be a typical payroll payment, or sometimes they’re getting a debit card at the end of the day or the same debit card they can use and it’ll get replenished for them. So that’s technically how the money gets out there. It’s complicated also, because it’s not just the payroll. But when you pay somebody, taxes have to be withheld. If you’ve got other benefit plans, like health insurance or a 401k plan or something like that, and it’s based on your salary, those calculations have to be made and then [inaudible 00:07:39] allocated. So that the with holdings are correct.

And like I said earlier in the conversation, it’s probably not something you want to do if you’re doing payroll on your own, because you can get kind of complicated. Which is exactly why the payroll services love this stuff because they’re like, “Hey, hire us and we’ll take care of it.” But the key thing is, is you’ve got to make sure that you’ve got to have your… you get your payroll put away and you’ve got enough cash in the bank to be able to do this. Some other people will say like, “Hey, we can play the float. We hold onto cash for two weeks and we get interest on that. We can use it for other purposes”, and that is true, but really up until now, interest rates have been so low that whatever cash that you’re hoarding in your checking account or even a money market account is probably not that much of a earnings anyway. And the benefits probably outweigh the costs, if you could use it as a recruitment tool.

Jon: That’s really interesting. Do you hear people asking you a lot about it? Do you see it being a rising trend?

Gene: I do. Right now, something like 30% of Fortune 500 companies right now are employing it where they have hourly workers. I’m seeing that when some of the bigger name brands that are using these systems like Amazon, Walmart, Target, have all implemented some types of same-day pay programs in different parts of the country. And what I’m finding now, Jon, again, is I have so many clients that are scrambling for workers. They’re losing workers to bigger companies. That’s one of our biggest competition, is corporate employers. And they’re hearing feedback that like, “Oh, one of the reasons I went there was that, these guys said they’ll pay me on the day that I work or at least 50%.” So a lot of business owners are starting to open up their ears and their eyes and saying, “We should probably be doing that as well, if we want to be competitive.”

That is reason why I’m hearing much, much more about it, Jon, and I expect I’m going to be hearing a lot more about it going forward. I really believe that the whole… again, the immediate gratification that we’re so used to, it’s seeping its way down into the payment world. And most FinTech products that you’re seeing now, whether it’s credit cards, mobile payments, other types of payments, they’re being transacted immediately. And it was only a matter of time before employees are like, “Dude, why am I… Look at you, Jon, you’re working your butt off 24 hours a day. I know you. And here you are, sitting around until the end of two weeks until you get your paycheck. Come on. Who needs that?” So, imagine if you had same-day pay or at least got 50% of your money in your bank account every day that you work, you’d be coming even into this conversation with that much more enthusiasm. Don’t you think?

Jon: It’s true. I think it’s still why you see me behind a bar from time to time.

Gene: In my case, under the bar.

Jon: Gene, that’s really interesting. When you think about payroll service providers, is that the ability to execute on a concept like this rising as fast as the popularity? Is it most places can kind of figure this out for you? Or if you’re a business owner who’s maybe considering it, is it tricky or a few people offering this right now?

Gene: Well, first of all, let me just tell you something about payroll service providers. I don’t understand some of my clients and other small business owners that don’t have a payroll service provider. I know I’ve heard the argument before like, “I got to pay a hundred bucks a week or whatever the cost is for my payroll.” But nowadays just doing payroll alone, Jon is such a headache. It is such a pain in the neck. And it’s so easy to make a mistake that God forbid, you don’t fill out a line on your quarterly payroll tax returns, you’re going to be buried in communication with the IRS, something like the day you die. And payroll service providers take all of that stuff away and do all the work for you. So I’m a big proponent of them.

Payroll service providers are also, they want to grow. So the better ones that are out there and there’s a bunch of them and you can Google them separately. They already offer this service already. So, if you’re talking to your payroll service provider and they’re not aware of same-day pay or don’t offer that capability, that should raise a couple of concerns to you as to whether or not that payroll service provider is really even keeping up with the times. So it’s not something you have to create with your payroll service provider. Trust me when I tell you if you’re using some of the bigger names, they’ve already got these products available for you to use.

Jon: It’s an interesting concept and I’m going to look forward to see how it comes to life over the next couple months and years, because I do think so much of what we do as a culture right now is this on-demand moment. And it only makes sense that eventually that’s going to change the way we think about our income as well. So definitely a topic to keep our eye on.

Gene: I agree.

Jon: Awesome. Well, Jean, thanks for the chat. I think this is a super interesting topic. And audience members let us know what you think, so go where you listen to your podcasts. You can visit on our blog. You can leave us questions in the comments, we’ll get back to you. But what do you think? Do you use same-day pay? Have you heard of it? Have your peers. Is it a fad? Is it something that’s going to last? Give us all your opinions and we will catch you on the next Small Biz Ahead, presented by the Hartford. Make sure again, you check us out@sba.thehartford.com. Make sure you rate and review wherever you listen to your podcasts and we’ll see you in the next one.

Gene: See you later, guys.

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