Payroll provider Everee is angling to elbow past earned wage access companies in offering on-demand pay services to employers and employees.

The Salt Lake City-based company, which also competes against the big payroll providers ADP and Workday, has fashioned its young business to be in tune with the on-demand pay trend that began about a decade ago. 

“Our focus or emphasis is on getting workers their pay as fast as possible,” Everee President Ron Ross said in an interview last month. “We can pay employees every day if they want to. We can pay on demand. We can pay when a job is finished.”

Everee has raised $14 million to date, Ross said, including $10 million in 2020. The company is self-funding for now and isn’t seeking to raise additional capital at the moment, he said.

Everee is taking on a bevy of earned wage access providers that have cropped up over the past decade to aid corporate employers in doling out wages to employees on an on-demand basis.

EWA providers such as Payactiv and DailyPay have enabled companies to pay their workers between paydays when workers want access to wages, but they haven’t supplanted payroll companies. They act alongside payroll companies, providing the capital and digital tools to let employers meet employees’ demands for fast payouts. 

While those EWA intermediaries have proliferated, using varying business models, Everee sees the legal landscape changing in a way that will give it an advantage over EWA firms. 

“There are going to be some compliance things that are going to disrupt their business models and make it really hard for them to exist, but the expectation is still there, so payroll providers, I think, are going to have to step up,” Ross said. “Fortunately for us, we've built a solution from the start that addresses it so I think we're going to be in a real strong strategic position.”

One way the landscape is changing, Ross noted, is the Internal Revenue Service’s proposed new approach for how employers calculate taxes for employees who get wages early. The tax agency renewed that proposal in March as part of its compendium of fiscal year 2024 proposals.

The IRS proposal, which calls for new legislation, would require employers to withhold money for employees’ taxes on a daily basis if they tap wages before the regularly scheduled pay cycle, requiring different payroll calculations and settlements. Most don’t do that now; rather, they remit their payments to the IRS on a semi-monthly or monthly basis, Ross said.

“Employers that offer on-demand pay arrangements should maintain either a daily or a miscellaneous payroll period and should withhold and pay employment taxes on employees’ earned wages on a daily basis,” the IRS document states.

For Everee, it’s not an issue because it already does a tax calculation for an employer every time an employee gets paid, Ross noted.

In addition, the Consumer Financial Protection Bureau’s scrutiny of EWA providers and separate labor laws that look askance at charging workers for getting paid are increasingly making it more difficult for EWA providers to offer their services to employers, Ross contended. 

A DailyPay executive, Rob Nardelli, argued at an industry conference last month that employers offering on-demand pay services directly to employees doesn’t work well because of certain payroll laws, the cost of doing so and capital management needs at companies. DailyPay is one of the biggest users of The Clearing House’s real-time payments network, using it to support its on-demand pay services.

Employers don’t want to go there because they like earning interest from holding employees’ wages for as long as they can, Ross said. “They’re incentivized to move slower,” he added.

While some EWA providers charge the employer for on-demand pay services, others charge employees, based on whether they tap the service. In yet other cases, EWA providers earn revenue from taking a slice of card interchange fees when employees use debit cards to which their wages are transferred to make purchases.

Everee earns money from charging employers a fee, based on the number of workers they employ or how often those workers use the services, and/or from taking a share interchange fees. The company shied away from charging employees because it considered it a less expensive form of a payday loan, Ross said.

As for competition with ADP and Workday, Ross argues that those legacy payroll providers’ on-demand pay services aren’t as fast as those from Everee. While other payroll providers mainly use ACH payments to disburse funds, and sometimes make next-day ACH services available, Everee uses same-day ACH for payments, Ross said.

And it recently took another step in speeding up those payments by partnering with card giant Visa this month so it’s able to use that company’s rails to deliver payments to workers, at no cost to the employer.

Ross doesn’t see the trend as confined to the gig economy, where there has been “explosive growth,” he said. Everee is already witnessing the spread of the demand for paying faster wages to the self-employed contract worker community. 

W-2 employees will want to be paid faster, too, though that might take another decade or two, Ross said. The Federal Reserve’s new instant payment system, FedNow, will also support this use case, making it even more economical for employers to provide pay on a faster basis, Ross said. “Eventually, the employees are going to demand that they get paid on a faster cadence,” he said.

Correction: The story has been updated to show that when Everee charges customers it’s based on the employer’s headcount and/or how often those workers use Everee’s services.

 

By Lynne Marek on May 11, 2023
Original link