BY Sarah Wieselthier, Of Counsel, and Kevin Troutman, Senior Counsel, Fisher Phillips
You are probably tired of hearing about staffing shortages and burnout. However, retention of nurses and other key professionals remains a major issue for Texas healthcare employers. You may also explore traditional retention approaches, like increasing compensation or improving schedule flexibility. On-demand pay is a revolutionary employee benefits program that you may also consider, as it has proved to enhance recruitment and retention efforts with minimal cost to the employer. On-demand pay (also known as earned wage access or EWA) provides employees access to their earned wages before payday. This type of benefit program is a win-win: many employees appreciate these programs because they provide greater financial security and flexibility, and employers reap the benefits of employees who experience reduced financial stress, improved 
productivity, and a desire to remain at their current job.
What is On-Demand Pay?
State laws vary as to how frequently employees must be paid, including how many days after the pay period ends, an employee must receive their paycheck. On-demand pay allows employees to access wages for work already performed in advance of their traditional payday. This is a benefit program that is gaining in popularity, and surveys show is favored by employees across all age groups, income levels, and education levels, especially at a time when financial insecurity is prevalent.
How Does On-Demand Pay Work?
On-demand pay programs are offered through third-party providers that the employer contracts with directly. Employees then have access to an app or website where they can request their earned wages from the third-party provider.
Although each third-party provider is different, generally speaking, the employer can customize the benefits program to meet its business needs and ensure compliance with state-specific wage and hour laws. Employers set parameters, including how many times an employee can access their wages in advance of payday per pay period and what percentage of their wages can be accessed before payday.
Federal and State Wage and Hour Compliance is Key
There are a host of wage and hour issues that employers need to consider, both under federal and state laws. For each state where you have employees, you should partner with employment counsel to consider the following issues:
- Are there any specific laws or regulations concerning on-demand pay programs?
- What are the rules on deductions? If fees are charged to the employee, is this permissible under state law?
- Does the on-demand pay program involve an assignment of wages? If so, is the wage assignment permissible under state law?
- What checks and balances are in place to ensure the accurate payment of wages?
- Must employees provide consent prior to participation in the benefits program?
- Must employees provide consent prior to receiving on-demand pay through direct deposit?
- How and when should employment taxes be withheld, deposited, and reported?
- How and when should deductions for fringe benefits be calculated and withheld?
- Under federal or state law, will any fee charge create a minimum wage or overtime issue?
- Do you plan to use on-demand pay in conjunction with pay cards? Under federal law, employees cannot be forced to use payment cards, and many states have rules related to payment cards, the fees charged to employees, and other restrictions.
Best Practices for an On-Demand Pay Program
- You need a written policy.
As with any benefits program that addresses wages, you should work with your employment attorney to develop a written policy that covers the terms of the benefits program. The policy should address how often employees may access wages in advance of payday each pay period, what percentage of earned wages can be accessed in advance of payday each period, and what fees (if any) will be assessed against the employee.
Employers must ensure that employees are provided with proper notice of the benefits program and any other notice that federal or state law may require in connection with the payment of wages. For example, federal and some state laws impose notice requirements for payment of wages through a payroll debit card, and certain states require employees to provide written consent before paying wages through direct deposit.
While federal and state law is catching up to on-demand pay programs, traditional wage and hour laws still govern. It is important to review your policy and benefits program periodically for legal compliance and keep an eye out for new developments in the law.
- Partner with a reputable provider.
Employers must understand how the on-demand pay provider’s program works and how wages will be paid before engaging a third-party provider’s services. You should review the provider’s portfolio of clients, experience in the industry, and financial capabilities to ensure they are reputable, equipped to handle an organization of your size, and an overall good fit (the same as any vendor you may contract with).
Conclusion
Revolutionary concepts like on-demand pay may be a key to employee recruitment and retention. While it isn’t going to solve nursing shortage issues, it’s an arrow in the quiver that can set your company apart from your competitors. If you are considering implementing an on-demand pay program, partner with employment counsel and a reputable provider to ensure the program complies with federal and state wage and hour laws.