Over the past few years, on-demand pay programs, which allow workers to access their wages at any time after they’ve been earned, have become more popular. Now, new guidance from the feds paves the way for employers to offer this option while staying in compliance.
The Consumer Financial Protection Bureau issued a bulletin, published on the Federal Register, saying that earned wage access programs offering on-demand pay that meet certain standards aren’t considered “credit.”
This means they aren’t subject to stringent requirements for loans under the Truth In Lending Act (also known as Regulation Z).
So, when workers take advantage of an on-demand pay program, the feds won’t require employers to provide them with certain disclosures on costs and charges or offer them the right to rescind any payouts within a specified time frame.
On-demand pay programs that are eligible for these protections need to meet specific requirements.
Employers must contract with a third-party provider that offers workers early access to their wages. The amount of each payment can’t be more than the wages the worker’s earned up to the date of access.
And, employees can’t pay any fees for early wage access.
The terms of the bulletin aren’t applicable to any programs that charge fees to participants. Though, the bureau said it may consider them eligible for the protections on a case-by-case basis if they meet the other requirements.
Current status of on-demand pay programs
The coronavirus pandemic has financially impacted more workers as it rages on. So, on-demand pay access is getting more attention.
In the most recent Getting Paid in America Survey from the American Payroll Association, about 22% of respondents said they were now interested in on-demand pay.
Also, offering on-demand pay has contributed to lower employee turnover and better employee engagement in many industries. Together, those factors significantly boost the bottom line.
There’s finally a bit of federal guidance coming on these programs. But we’ve yet to hear from the IRS about the tax implications of early wage access for workers and Payroll. We’ll continue to keep you updated.