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Regulations surrounding on-demand pay providers are constantly evolving to keep up with a rapidly growing industry. In the post-pandemic economy, there is a surplus of jobs and a limited number of workers. Because of this, we find that organizations offer more benefits, such as: B. Wage on demand to attract workers. However, these organizations also need to be aware of how best to comply – which includes keeping tabs on changing state, local, and federal regulations related to pay-on-demand.

On-demand payment is a must for 2021

The economy is heating up, but the talent market is tight, so the company with the best pay and benefits wins. We know that 60% of employees would take a job if they had more flexibility in choosing payment frequency, same-day pay, or early access to pay, so it’s clear that flexible payment 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 to payday loan – and the pandemic has not improved the situation. According to market observation, 38% of Americans would have to sell something or take out a loan if they needed just $500 in cash.

Additionally, nearly 25% of all Americans had no emergency savings, 16% have taken on more debt, and nearly 33% of households reported lower income since the pandemic began, according to a separate report by Bankrate.com closed.

An ideal solution is on-demand pay. The financial well-being of employees has become a top priority for companies. They believe employees deserve access to the wages they have already earned. Not only is it the right thing to do, but these companies see a 34% less absenteeism, 40% less turnover and 86% more work output.

Government regulations for pay-on-demand are constantly changing

As on-demand wage payments, or access to earned wages, become more popular, states are stepping in to ensure that access to earned wages is truly a benefit for workers. California was the first with an incriminating law that eventually failed. New Jersey then attempted to enact a similarly detailed law, but that also failed. Both states have since introduced looser laws.

Eight states are currently 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, on-demand pay programs are subject to changing state laws.

Organizations with state-regulated on-demand payment programs need to stay current with new and changing state laws. The good news is that these various pieces of legislation largely distinguish between employer-based pay-means-test and consumer-based pay advance programs, which have their own regulatory considerations.

The federal government also has regulations

The United States government has observed the developing innovation in pay-on-demand. In December 2020, the Consumer Financial Protection Bureau issued a bulletin advising that on-demand pay providers that offer on-demand payment and meet certain standards are not considered credit and do not meet the strict requirements for credit according to the regulation subject to Z (the truth in the Lending Act).

However, to qualify, they must meet certain requirements, including:

  • The on-demand pay provider must deposit funds into an account of the employee’s choice
  • The On-Demand Pay Provider cannot charge any fees for opening an account, delivery of funds or usage fees
  • Each prepaid card associated with the account must be issued on a major brand network and be available for use at multiple merchants
  • There must be a free and reasonably accessible way to withdraw cash from the account

Before anyone implements an on-demand pay solution, they must clearly explain to the employee that they:

  • The employee does not have to pay any fees related to their account
  • No overdraft fees will be charged
  • Not involved in collection activities
  • Will not assess the credit risk of individual employees, directly or indirectly, by reviewing credit reports or credit scores

How to ensure on-demand pay solutions are compliant

Whether you’re an HR tech provider or an employer, before implementing an on-demand pay program, here’s a summary of things to look for in an on-demand pay provider :

  • Make sure the on-demand pay provider doesn’t charge employees for payroll advances
  • Ensure the on-demand pay provider is supported by a federally regulated (subject to state regulations), non-state regulated (subject to changing state regulations) brand network
  • Make sure the on-demand payment provider uses a large branded network with access to multiple merchants and accessible (toll-free) ways to withdraw cash from the account
  • Additionally, you should always contact a legal department to ensure the on-demand pay provider is following all regulations.

On-demand pay is a next-level benefit where everyone wins. However, the on-demand pay provider must be thoroughly vetted to ensure compliance with federal and state laws.

Understanding what to look for in an on-demand pay provider is important for complying with today’s ever-changing legislation.

Ron DiGiacomo is the Chief Compliance Officer for Clear and a financial regulation expert. He is the former COO of Consumer Banking at JP Morgan Chase and Deputy Chief Compliance Officer at Wells Fargo.