Persistent labor shortages are changing the employee-employer relationship, increasing the importance of benefits, salary and flexibility — a dynamic that could boost the growing on-demand pay industry, Scot Parnell, CFO of DailyPay, believes.
On-demand pay enables employees to access a portion of their wages between pay periods. That's a benefit that could help employers attract and retain employees, giving them an advantage in today's tight labor market. “The more satisfied and engaged the employees, the higher the stock value, the better the across-the-board growth," Parnell told CFO Dive.
By allowing employees to access their earnings on their own schedule and avoid resorting to predatory lenders and overdraft fees, DailyPay’s employer clients benefit from steeply improved retention rates and expedited hiring rates; two key metrics in high demand among short-staffed businesses.
"A lot of time employees might even miss a shift or two because they don’t have money to get to work," Parnell says. "So, they’re more able to show up and stay around longer. They’re more engaged, which means the company wins, because we all know engaged employees are more productive. And turnover is very expensive. Lastly, the CFO gains, because we’re lowering their staff costs and at no increase in SG&A [selling, general and administrative expenses] or acceleration of cash outflow to the company. The CFO’s benefiting while they’re using our balance sheet."
Parnell joined software-as-a-service (SaaS) company DailyPay as CFO in late 2019, just before the pandemic. During the initial shutdowns, he saw companies reevaluate their spending and operations, alongside an industry shift and capital markets freeze that gave DailyPay a “modest” revenue downturn.
The second half of 2020 was marked by uncertainty, Parnell said. “We had to manage our team through that, reinforcing their purpose and our ability to help others.” Soon, they saw a surge in bookings from companies with like-minded values.
In the current landscape, where tight labor markets are giving employees some newfound leverage, companies want to help them and provide additional support, Parnell said. But they still have to pay attention to their bottom line.
“Put simply, an employee needs money if they’ve worked a shift,” Parnell explained; most of DailyPay’s users are hourly, rather than salaried, employees. “They can push that button and get access to their money for less than at an ATM.”
Eye towards trends
The overwhelming theme of recent technological advances, Parnell said, is a move towards on-demand. “That’s what everyone wants now: on-demand, frictionless, clean and clear,” he said. “What DailyPay has done is make payroll real-time clean, clear and frictionless at a very reasonable cost.”
Parnell sees DailyPay’s product, on-demand pay, as a trend that will only accelerate as it attains greater market acceptance. It intends to remain ahead of its competitors in the space, including Earnin, FlexWage and PayActiv, because it’s “already, commercially, the most enterprise-stable solution,” Parnell said. “We’re already providing the most compliance.”
While DailyPay’s “immediate natural fit is for hourly workers,” the product has broad appeal, Parnell said. “When I was a newly minted CPA at an accounting firm, I had a lot of debt, and this would have been amazing,” he said. “Sometimes it’s just a liquidity thing. We’ve had people who wanted to exercise a small amount of stock options, and they used their DailyPay account to do that. Use cases are pretty broad.”
DailyPay relieves significant administrative burden for its clients, which is one of its largest selling points, Parnell said. “We make sure they're super compliant and in accordance with tax rules. There's a lot of burden in making sure when you pay someone, you're giving them the right amount, and the data is clean. That's why a lot of companies only do it once every two weeks.”
DailyPay takes the bulk of that off the employer’s plate, Parnell said. “If you pay someone, you have to collect taxes. If they use DailyPay, that doesn't trigger the tax requirement.”
As regulators take a closer look at the earned wage access industry, Parnell and his team have taken a “very forward position” with regulators to ensure their perspective is understood.
“We work very closely with the state, federal and local regulatory agencies, and we help them understand why this is such a good solution, and how it meets the criteria they’re looking for for this population,” he said.
“We’re the White Knight of payment providers,” Parnell said. “We compare ourselves to the other funding sources [like payday lenders], and constantly show the benefits, in terms of savings and cost avoidance.”
The company has a tremendous purpose to Parnell, who arrived in the role after many years as CFO of a public company and in private equity
“We’re saving employees a lot of money and stress and giving them more control over their financial lives,” he said. “This makes it better for the companies that employ them, and reduces turnover, which is better for CFOs."