Payroll Education Payroll Taxes Payroll Trends

Payroll 2022: What’s Out and In

With inflation in 2021 at its highest in many years, several key payroll-related numbers for 2022 increased and there are a lot of other issues that will be the focus of payroll this year.’s annual exclusive “out and in” for Payroll 2022 provides a glimpse at what no longer should be considered as the new year starts, and what will come into play as 2022 progresses.

There were some figures, set by tax law, that remain the same and they include the flat tax rate on supplemental wage payments (22%; 37% once $1 million in supplemental wage payments is reached). The general tax rates for individuals remain the same in 2022 as they were for 2021 (10%, 12%, 22%, 24%, 32%, 35%, 37%).

The Social Security payroll tax rate for 2022 stays at 6.2%, and that rate is to be applied up to the new wage base of earnings ($147,000, see below).

The Medicare/Hospital Insurance tax rates remain at 1.45% up to $200,000 in wages and 2.35% (for the employee only) on wage amounts  exceeding $200,000 in 2022.

The $6,500-a-year additional catch-up deferral amount for those individuals over 50 with 401(k)-type accounts also was unchanged.

And it always remains possible that legislative changes could impact these and others in 2022. 

But, beyond that, here are the major things in payroll that are going “out” and coming “in” for 2022:



Full Return to Office

Hybrid Work-From-Home Arrangements

250 Forms: Form W-2 Electronic Filing Threshold 

100 Forms: Form W-2 Electronic Filing Threshold 

Form 7200: Advance Employee Retention Credit (ERC)

Form 941, Schedule B: Reporting Additional Taxes Because ERC Ended 

$19,500: Tax-Free Deferral Limit for 401(k)-Type Programs

$20,500: Tax-Free Deferral Limit for 401(k)-Type Programs 

State Exceptions for Income Tax Withholding On In-State Telework/Remote Arrangements 

State/Local Withholding Taxes Based on Where Employee Works Remotely

$142,800: Social Security Wage Base

$147,000: Social Security Wage Base

COVID-Related Employment Tax Credits

Taxes On Previously-Eligible Credit Amounts

Social Security Tax Payment Deferrals

Payments of Deferred 2020 Amounts

56 cents-per-mile: Standard Business Mileage Rate

58.5 cents-per-mile: Standard Business Mileage Rate

COVID-Related Mandated Paid Time Off

State-Mandated Paid Time Off

Suspended Withholding on Student Loans

New Student Loan Withholding Orders

COVID-Related Emergency Unemployment 

FUTA Credit Reduction States 

Weekly or Biweekly Payroll Schedule

On-Demand Pay to Digital Wallets

Manual Reconciliations

Automated Reconciliations

Total Defined Contribution Tax-Free Limit


Total Defined Contribution Tax-Free Limit


As in 2021, more resilience and dedication will be required of payroll professionals as they navigate illnesses, changes in the employment environment, supply-chain challenges and social and political upheaval in 2022. 

With all this, staying focused on the commitment to process accurate and timely pay under continued trying circumstances remains at the top of the to-do lists for payroll professionals in 2022.


On Demand Payroll

Partnering with UKG

What to look for in a UKG-On Demand Pay Partnership

UKG is helping employees access their earned wages through its various partnerships with ODP Vendors

"Teaming up with UKG has empowered many top employers to offer the powerful, and often life-changing, benefit of on-demand pay that helps employees pay bills and take control of their finances on their own schedule."1

“By partnering with an established leader in Payactiv, UKG Wallet is already among the most comprehensive financial wellness platforms in the HCM market, ready to help our customers and their people find success right away”2

“By collaborating closely with UKG, [Instant Financial] is turning control back over to employees, allowing them to access a portion of their earned wages when they want them”3

Availability of Key Offerings Reliable Integrations Ongoing Support
Required Components HCM Services On-Demand Pay Services Multi-system integration API redundancy E2E Employer Support Daily Employee Support
DailyPay-UKG SolutionBusinesses greater than 400 employees, seeking a full-service, automated ODP solution
Payactiv-UKG SolutionSmall to mid-sized businesses seeking ongoing payroll involvement in ODP program
Instant Financial-UKG SolutionBusinesses primarily seeking a paycard solution with additional capabilities
On Demand Payroll Payroll Trends

Common Payroll Errors and How They Can Be Addressed

  • It takes a payroll department an average of two days to resolve a payroll irregularity.
  • Payroll errors often start with other operations and processing, and payroll departments have to catch and fix them.
  • The many moving parts of payroll means more areas of exposure to mistakes.
  • Most errors start with mistakes and problems entering time and timekeeping.
  • Recent payroll technology, when applied, has a side-effect of reducing timekeeping errors.    

Making fixes and adjustments to pay, tax amounts or for other deductions or rewards after payday signifies something failed in the payroll process. We know this is the case, even though, many times, what ends up being labeled as a payroll error starts with other operations and not the payroll department. 

But, payroll is left to resolve the issue, after the fact. 

It takes an average of more than two days for payroll to resolve a payroll irregularity or error, according to a 2019 Bloomberg Tax & Accounting report of payroll issues. According to the 2020 Deloitte Payroll Benchmarking Survey, respondents named the payroll error rate as the number one key performance indicator for payroll operations. For example, just the process of issuing a payroll error or communication takes time and resources.

How Most Errors Begin

There are several areas of payroll that, without proper processes and oversight, can end up causing payroll professionals to stop, research, identify, resolve and then correct. 

The many moving parts of the payroll process means the practice often is exposed to mistakes. These include errors in calculations and in wage payments, and incorrect or delayed changes for employees, plus mistakes made in tax payments and withholding amounts.

The major area that always seems to come up centers on the timekeeping process. The Bloomberg Tax & Accounting report showed that only 83.35% of survey respondents reported having clean time collection runs. 

There are several reasons that accurate recording of work hours is more prone to problems than any other aspect of payroll.

First, there is an inherent reliance on the ability of employees to follow the proper procedures for recording their time. 

It’s great to have each person responsible for clocking in and out of each shift, or to have them ensure time off work is properly and timely reported. Employee self-service programs should make this easier as well. Yet so many — and this includes their supervisors, who often must sign off on time recorded — continue not to pay enough attention to do it right.

Second, time collection systems vary in their ability to keep track of real time worked. Often, in professional circles, those who have to report time using a computer interface have hours included by default, and it is up to them to make adjustments for any additional time worked or time off, and also to categorize those exceptions to the standard hours embedded in the system. 

Other self-service interfaces allow workers to input their daily time for each day at the end of the pay cycle, and, for many, this means no time worked is ever recorded until the last day of that cycle. The person has zero hours until they interface with the system and add them. 

Manual time clocks are now connected to systems that, in some cases, won’t allow a worker to clock in or out outside of the hours they are scheduled to work. Special permissions are needed to have those hours recorded. According to the Fair Labor Standards Act, employees are to be paid for all time they work, and employers have been in trouble with the Labor Department for allowing workers to perform duties “off-the-clock.”  

Finally, and again, primarily with manual time clocks, people can forget to clock out after a shift, or after a lunch break, they forget to clock back in. These anomalies occur frequently, making this initial part of the payroll experience for workers the most fraught for mistakes. Supervisors need to intervene, and payroll likely can get a record of time worked that is not accurate to start processing.

Because they occur before payroll can be processed, time-worked discrepancies, if identified, need to be resolved and this can slow the kick-off of what would otherwise be a smooth calculation and remittance process. 

So what can employers do to mitigate the challenges of collecting and accumulating actual time worked for employees? 

Recently, there have been reports of improved timekeeping due to the implementation of employer integrated earned wage access, or on-demand pay programs. This is because under some larger third-party on-demand pay programs, in order for workers to have amounts available to access prior to payday, they must complete the clock-in and -out process. 

If they fail to clock out, or clock back in, as noted above, there will be no amount recorded as earned for that day and nothing will be accessible to them on-demand, until it is resolved. 

Employers using such systems have seen a marked improvement in this area, with the payroll team noting these initial discrepancies have fallen off for those that use the earned wage access program. 

As technology improves, systems like those supporting on-demand pay are becoming more sophisticated, and some are now used for specific payment-related reporting that can catch not only the failure-to-clock-out issue, but others. Stay tuned.     



Bloomberg Tax & Accounting, 2019 Payroll Benchmarks Survey Report 

Deloitte Payroll Benchmarking Survey Sponsored by the American Payroll Association and the Global Payroll Management Institute, 2020, Case Study, Starboard Management Group, 2021

Payroll Trends Uncategorized

Staffing Up: Payroll’s Role in Recruitment and Retention

  • Scenarios for payroll playing out across the country reflect the need to hire new workers.
  • Employers now must pay more attention to employee needs and wants.
  • Payroll’s influence on how well employees are treated cannot be underestimated.
  • Value-added processes, including new technology, can help improve retention.

“I put 10 new hires into the system this morning,” said the HR manager to the payroll director. “They are attending orientation tomorrow.” This is the largest number of new hires at one time the company has ever experienced. 

Payroll Paula paused and looked at the HR manager as she pulled up the system interface with the new data. Then she peppered her HR colleague with questions and issues: 

“When is their actual start date? Tomorrow? You will handle E-Verify for work eligibility, right? I don’t see W-4 information for any of these. I can’t put them into the payroll system until they have submitted their tax withholding certificates, both federal and state. Once I have that, I can verify the name/social security numbers with the Social Security Administration.”

The HR manager replied: “At orientation, we expect to get the forms and selections for benefits submitted by the new employees. Systems says they cannot use employee self-service for this until they actually start work tomorrow.”

Payroll Paula knew she had her work cut out for her, and while she knows 10 new hires are coming tomorrow, she really cannot do anything about it on her end until she gets all the information she needs to get them on the system properly, accumulating earnings.

Employee Leverage Grows

Across the country as the economic shut down comes to an end, employers are scrambling to staff up in a number of areas. Flush with federal stimulus loans and tax credits, coupled with boosts in investment dollars because of major growth expectations, many companies are aggressively pursuing new workers. 

But the employment equation has changed. This is especially seen in some key service sectors of the economy, where workers are coming out of this pause looking for greener pastures, and this pressures employers to rethink base wage rates and apply other incentives, such as hiring and retention bonuses and on-demand pay, also known as earned wage access.

What can payroll do to help?

Beyond Basic Administration

The ability to timely and accurately pay remains the lynchpin to a successful pay experience. Almost a quarter (24%) of respondents to a 2017 Workforce Institute survey said they’ve looked for a new job after experiencing a single paycheck error, while 25% said they would seek different employment if they experienced two payroll mistakes.  

Payroll is known for its ability to effectively apply tools and resources to ensure people are paid timely and accurately, but now is the time to take this skill to the next level.

Payroll Paula can do more than just react and ensure the basics are done right. She can be a champion for positive change.

She has always served the employees and her employer, but she’s seen the transformation coming for several years now. This includes a big employer adjustment that focuses now on the financial wellbeing needs of staff. 

Payroll Paula has read myriad studies that show workers are more likely to choose an employer that has a robust commitment to providing tools for workers that can help them save and stay out of payday loan debt, and that uses new technology to provide convenient apps for saving and accessing on-demand pay. And she knows they stay longer when that additional commitment is made by the employer to provide more financial awareness, such as a daily pay balance that tells employees how much they have accumulated, what they have earned so far.

It is time for her to let her colleagues in HR and higher up the chain know that payroll can be key in helping the company navigate successfully out of the pandemic economy and into a new landscape of bettering the work experience for everyone. 


Payroll Education

The Biggest Payroll Event of the Year

  • For payroll, there is “year-end” and then there is mid-May, when the biggest payroll conference of the year commences.
  • Approved educational recertification credits are available for Certified Payroll Professionals.
  • Thousands stream as well to vendor booths at the American Payroll Association’s premier event.

For payroll professionals in the United States, there is “year-end” that starts each November and ends in mid-February. In this short time period, in addition to continuing to process employee pay, payroll is required to do two more major things at once. 

First, it must consolidate amounts and data for the year that is ending to cross t’s and dot i’s so the employer can provide an accurate accounting on full-year reports. At the same time, any changes for the new year, such as tax calculations, new or expired requirements or revised policies and benefits — all have to be identified and adjustments to systems in place for that first payroll run of the new year.   

It’s a heavy lift, and when it’s over . . . well, many payroll pros will say it’s never really over. But the period between February and May is used to ensure things are working properly in the new year and to clean up any leftover issues from the prior year’s filings. In addition, forward-looking payroll units examine costs and processes, and this often includes initiatives that include introducing new technology or vetting new systems for compatibility.

Then, in mid-May, there is the American Payroll Association’s annual conference. Called a “Congress” by the APA, this is the largest single event of each year for payroll. In normal times, Congress attracts more than 2,000 attendees and well over 100 vendors to, once again, the biggest payroll-focused exhibition of the year anywhere. 

Usually, there are more than 100 separate workshops and several general sessions.

In the U.S. Those certified by the APA as payroll professionals (CPP) or those who have a Fundamental Payroll Certification (FPC) get many, many educational recertification credits for attending these sessions, and the credits help them to keep their designations. (See a separate Payroll Times story on APA’s certification program for more detail.)

In 2021, Congress XStream, as it was titled, went virtual for the second year in a row due to the pandemic. But the several thousand registrants still had access to some of the best minds in payroll through numerous online educational workshops and key announcements during general sessions. And these workshop sessions remain available on-demand through most of the summer to registrants.

Then there is the virtual exhibit hall. Again dozens of payroll-related vendors and service providers had a presence and were allowed to do demonstrations and talk to potential clients and prospects.  

There are other payroll-focused events during the year, such as the APA Capital Summit, normally held in Washington, D.C. during the spring, and the Payroll Leaders Conference coming up in September (this one will be an in-person event in Las Vegas). 

But APA’s Congress is the granddaddy of them all, and I look forward to going in-person next year! 


Payroll Fraud

How to Avoid Payroll Fraud and Secure Employee Data

  • Payroll pivots the last few years have centered on technological changes to processes.
  • Has the ability to secure employee and payroll data kept up with the changes?
  • Payroll fraud vulnerabilities can be found in the ability to access and in the routines performed.
  • Locking down the privacy and security of payroll data means changing protocols.

Payroll operations in the last several years have dramatically changed how employee data is collected, shared and secured, and not just because of the pandemic and the need to process payroll from remote locations. And payroll fraud-related data breaches remain an ongoing threat to operations. According to the Ponemon Institute’s Cost of a Data Breach Report, it cost employers an average of $3.86 million to resolve a data breach in 2020 that wasn’t discovered, on average, for some 280 days!  

The cost to secure systems started going through the roof several years ago. Do you remember when companies had their own proprietary email solutions and struggled to ramp up email security (and storage capacity) in order to improve delivery? Quickly, it became untenable to maintain such a growing set of servers and to secure them and the data stored within them — and efficiently run payroll at the same time, all while avoiding payroll fraud. 

With new solutions, companies no longer have to invest a lot of capital to increase the hardware capacity needed to keep up with the ever-evolving applications, and in the computer expertise that goes along with that. They could use a service company that has those capabilities. Currently, just about all payroll service organizations use cloud technology in at least some of their client offerings. 

The offer of a less expensive solution for data storage and, along with it, top-of-the-line security applications — at least we hope — is being embraced now. But, this creates a new set of issues around data privacy and security that now need to be addressed.

Keeping up with the new applications

New processes, applications and technology running through third parties means changing the security protocols surrounding the data involved. And it means learning a lot of new acronyms for the different security assessments and applications. Each organization that you are considering for handling or storing some of your data should provide you with a detailed summary of their security policy. 

In that policy description you should receive: 

  • Ways data is protected from improper access
  • General description of how encryption protocols are applied
  • How they secure the network, endpoints and the physical environment
  • Validation that other parties they use have similarly stringent protocols
  • Verification that independent security assessments are ongoing
  • Incident response and business continuity plan summaries

The policy description from the third party also should include credentialed audit reporting under the oversight of The American Institute of Certified Public Accountants (AICPA) and other certifications from organizations that set up watchdog types of assessments for security and data privacy.  

In 2011, the AICPA created a Statement on Standards for Attestation Engagements (SSAE) No. 16, a rigorous set of guidelines for auditing. At the same time, the AICPA announced complementary Service Organization Controls (SOC) reports that the AICPA developed, which can differ depending on the needs of a service organization and their clients. The one most visible in the payroll community is the SOC 2®: Trust Services Criteria. 

What to look for when considering a third-party provider: SOC 2, Type II certified. Type II means that the organization was audited over a specific period of time to determine the effectiveness of the controls they have in place.

Several other compliance assessments and designations should be met by service providers, and some of these depend on the type of service.

For example, compliance with the Payment Card Industry Data Security Standard (PCI DSS) is necessary if payments via a pay card are being facilitated by the provider.

For information security management, there is the ISO 27001:2013 certification. Put together by the International Organization for Standardization, ISO 27001 is a family of system standards that “enables organizations of any kind to manage the security of assets such as financial information, intellectual property, employee details or information entrusted by third parties.”

The 2013 certification is for any kind of digital information. 

But that's not all!

I would be remiss to not cover the impact that Europe’s General Data Protection Regulation (GDPR) has wrought on organizations operating both within and outside the sphere of the GDPR.

The GDPR redefined data protection and the use of employee personal data for many employers, and service providers have been compelled to follow suit. The goal is to increase transparency of data processing, establish clear privacy safeguards and develop consent provisions for use of employee data.

For example, a data breach under GDPR can simply be the use of employee or an individual’s information for something other than the main purpose for which it was collected, and for which the individual consented for it to be used. This can result in huge fines. The new regime in Europe has begun to impact operations in the U.S. in how they handle cross-ocean transactions and interactions with individuals in Europe. 

The landscape for ensuring the data security and privacy of payroll data is ever-changing, and there is a constant need to be vigilant about staying up to date on the new technology.

Of course, keeping the data safe from hackers and other data miners seeking to steal private information from the systems you run on involves not biting on social engineering techniques (i.e., email phishing scams), which account for a high percentage of all breaches. 

Payroll fraud can come in a number of ways. Using third-party applications is beneficial, so long as you can be assured those parties are applying the right procedures to lock down that data.  Leveraging the right software in tandem with best practice protocols can set you on the right path, helping you to avoid long-term damage and even prevent fraud from happening in the first place.


Payroll Service Payroll Trends

Payroll Professionals Turn to Social Media to Evaluate Service Providers

  • A prime outlet for airing complaints in general, social media is becoming a forum for calling out the shortcomings of payroll service providers.
  • It appears no particular service provider is immune to the brickbats.
  • Payroll pros help each other to navigate selecting service providers.

As challenges for payroll pile up due to major, complex legislative changes, payroll service provider solutions are struggling to keep up and deliver at crucial times, according to user reports on social media.

For all that third-party providers do to ensure their clients’ payroll processes are efficient, accurate and timely, there remains concern. 

The complaints appear to span across the entire third-party payroll provider industry of, from the very reputable and well-known to the mid-size and specialty service providers. 

These issues appear to range from system instability and processing delays that impact payroll delivery, to not being able to create usable reports for the employer from the data. There are instances of confusion due to updating procedures, year-end anomalies, and serious customer service problems, all aired out on Facebook, Twitter, Reddit and other platforms. 

Users of services that were pressed minced no words. One said: “Another 65-minute wait for a representative … I finally got a person and they couldn’t figure out the issue … Two hours wasted — payroll processing was delayed.”

Another complained about lack of sufficient support for a specific reporting issue. “When we try to fix or add something, something else ‘breaks.’ I’ve been with this company for a year now and we are on our third rep!” 

A separate service provider received similar bad comments: “Reporting is terrible and if you need something specific you pay a lot for it.”

The issues keep going: 

At year-end, employees using an earned wage access provider at one major retailer were told the option “is not available to associates from Dec 19 to Dec 31.” What a great time to not have access to the highly-touted benefit. 

On being able to generate reports, several echoed this complaint, “They ignored my report request. I had to get other departmental directors involved. We had to pay extra for these reports.”

“Unfortunately, their answer as usual was ‘system limitations’ … no follow-up, no research, no accountability,” cried another.

Many professionals discussed their own work-arounds due to system limitations.

“I keep a separate excel spreadsheet just to make sure it’s right because even though you can see what will be accrued, it may or may not be in the EE’s (employee’s) total,” said one who posted. “Their customer service is horrible”

“Every single time they have an upgrade over the weekend, Monday’s are shot.”

Payroll pros rely on peer evaluation in selecting a provider

Often when these situations are identified as someone asks about a particular service provider, there are a few in the same thread who endorse, and others who pan.

While one says “We are using products from both systems and it’s been great!” Another says “Not user friendly at all. I would never recommend it to any of my payroll friends.”

On another thread about garnishment processing, a similar refrain has one poster saying, “We used them in the past and won’t do it again,” while another says, “The service benefits outweigh the few problems that we know of.”

And there can be more to the concerns than simply what the service provider has offered and can or cannot deliver effectively. Often large service provider systems are set up at the client by approved consultants or teams that specialize in such implementations. And implementations can go badly. For example, “My implementation specialist wasn’t very good. They really made a mess …”

Some are resigned to having to deal with shortfalls in service and delivery.

One in payroll said “I want to switch … but I am just scared it’ll be the same thing elsewhere.” Then another seems to back that issue up, “I wish we hadn’t switched right now. We are at the third check into our new provider and I am so very sad.”

Others pull back completely.

“This is why I appreciate a full in-house payroll. Everything is under my control.”   PYD

Payroll Taxes

Fallout From the Payroll Tax Deferrals of 2020

  • Payroll taxes, otherwise known as Social Security taxes, were allowed to be deferred in 2020, to be paid later.
  • The 12.4% Social Security tax rate on wages is split evenly between the employer and the employee, up to a maximum wage base ($137,700 in 2020).
  • Employers were allowed to defer their share of the tax for much of the year; the deferral for employees was only effective from Sept. 1,  2020, through Dec. 31, 2020.
  • There are no payroll tax deferral options in play for 2021.

In March 2020, a provision of the Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allowed employers to defer the deposit and payment of the employer’s share of Social Security taxes from March 27, 2020, through Dec. 31, 2020. 

Later in 2020, President Trump, in an administrative move, declared  that starting Sept. 1, 2020, through the end of 2020, employers were allowed to stop withholding Social Security taxes from employees, effectively deferring the employee’s share of the tax for the last quarter of the year.

These two separate programs allow employers to pay the amounts deferred at different times in the future, depending on whether the deferral was for the employer portion of the tax, or the employee portion.

Employer Payroll Tax Deferral: What's Next

The CARES Act deferral time frame ended Dec. 31, 2020, and the liability to pay the taxes remains. All employers were allowed to take advantage of the deferral, but those that deferred paying the taxes did not have their Social Security tax liability waived. Reporting of the liability on quarterly Forms 941 still was required. The payment of the taxes accrued have only been delayed by this law.  

IRS guidance initially said that half the payment of the deferred employer-portion taxes  (of the total amount actually deferred for the quarter) would be due Dec. 31, 2021, with the other half due Dec. 31, 2022. This has changed. Now, regardless of amounts actually deferred, half of the total amount of the employer portion of the tax still owed for 2020 is due Jan. 3, 2022, with the other half due Jan. 3, 2023.  See IRS FAQs for more details on the continued obligations of employers that deferred their portion of the Social Security tax in 2020.

Employee Payroll Tax Deferral: Changing Options

The deferral of the employee portion of the Social Security tax was announced by President Trump in August 2020, with the plan for it to be effective from Sept. 1, 2020, until the end of the year.  

Almost immediately, many employers announced that they would not or could not make the deferral happen for their employees. The Treasury Department stated that employers would not be forced to defer withholding of employee wages to pay for the tax that would have become due by April 2021 anyway. President Trump indicated the employee portion could be legislated away in early 2021, making the payment of the taxes deferred moot.

There appeared to be too much to change in a short period of time for systems to pivot and put in place a complicated process that involved limiting the deferral to those employees whose biweekly pre-tax compensation generally was less than $4,000.  In addition, it appeared that employers would need to ensure that employees who had the tax deferred, paid the deferred amounts off by the end of April 2021, or would be liable for the taxes, penalties and interest.

Several federal agencies and some, but not many,  private employers stopped withholding on worker Social Security taxes through Dec. 31, 2020. These employers are to withhold, deposit and pay the deferred amounts from Jan. 1, 2021, to Jan. 3, 2022 (Dec. 31, 2021 falls on a public holiday). These amounts are to be withheld and paid in addition to normal Social Security taxes withheld for 2021 for 2021 wages.

Generally, employers that implemented the deferral of employee portion of the Social Security tax are to apportion additional withholding on the employee wages during 2021 so that by Jan. 3, 2022, the deferred tax amounts from 2020 have been completely eliminated.

So far for 2021, there is no indication that there will be other actions to defer Social Security taxes. But payroll professionals know that there always is a possibility this could happen again, in some form, as part of a future economic stimulus package. PYD

On Demand Payroll

How Does the CFPB’s Earned Wage Access Guidance Impact Payroll?

  • Understanding on-demand pay/earned wage access for payroll purposes 
  • Why are employers and employees seeking this payment option?
  • New guidance distinguishes on-demand pay from loans
  • What does this have to do with payroll compliance?

Have you, in your role in payroll, been involved in some way in earned wage access (EWA) or on-demand pay? 

These are not advances in pay in the sense that we are used to, say, when an employee asks for and gets an advance on next week’s pay but has not worked the week yet. That’s an advance. 

I’m talking about access, on demand, to amounts already earned. That’s what an ever-growing number of third-party providers are claiming they do. They work with employers to get payroll data for employees to determine amounts accrued for working. This includes daily or even hourly feeds of timekeeping information and, for the most sophisticated programs, algorithms that can calculate prorated net pay.

Why Is On-Demand Pay/EWA Growing?

Employers are attracted to offering some sort of on-demand pay because of increases seen in retention, engagement and the ability to recruit workers. With reliance on accurate time accruals to determine amounts available, colleagues have told me they have noticed far fewer timeclock discrepancies. People are more conscientious about clocking in and out. Some of these third-party programs add tasks for payroll though, while some don’t.

Hourly workers, and those who live paycheck-to-paycheck, see a lot of benefit in being able to draw on their pay before payday to pay bills or to deal with unexpected expenses. Salaried workers also are benefiting from earned wage access tools.

Most of these programs generally are not considered loans or credit, but I’ve been told to beware of some of these outfits because they really are online payday loan operations, or they employ a lot of payday loan-like processes, especially to get their money back.

New Guidance Addresses Loan/Not Loan Question

At the end of 2020, the Consumer Financial Protection Bureau (CFPB) started to address this situation, releasing first an advisory opinion and, second, a temporary approval order for one of the providers allowing them to continue to operate not as a loan operation so long as they follow some strict guidelines. They will be reassessed in two years.

The CFPB EWA order could have gone one of two ways. The Bureau could have said their approach is credit, and then the outfit would have been considered a loan operator that has to meet all kinds of requirements under the consumer codes, and they would have to stop operating in several states (a number of states outlaw payday loan operations). But, the CFPB said this one approach to on-demand pay is excluded from being considered a credit or loan program for at least the next two years.

It was all about whether a particular on-demand pay company’s offering was considered credit. 

The order does not rule on the status of other third-party providers, instead speaking to their potential issues indirectly, laying out how other earned wage access provider programs also are not likely loan operations. That’s where the story ends here with this guidance.

Payroll Compliance and Burden

But for payroll, the story really ends with ensuring not whether some vehicle for providing earned wage access is a loan, but with protecting the employer from undue compliance exposure and burdensome, expensive processes when offering such programs.

Face it, just about all third-party providers of anything involving payroll say they are fully compliant. We all have to look into those claims. The issue the CFPB addressed had literally nothing to do with payroll compliance. 

In fact, wage deductions were the provider’s proposed repayment method in the CFPB application, but wage deductions as a way to repay amounts under an earned wage access program remain illegal in several states. 

Other on-demand pay providers do not use wage deductions to recoup on-demand amounts. 

As such, these providers don’t believe there is a need at this time to request a determination from the CFPB.

This is why we’ll see some on-demand pay providers scrambling to get the CFPB to state their particular programs are not credit, and others that are more secure in their particular existing on-demand pay solution, do not see that need.

Whatever the solution you are presented with, know that CFPB approval of an approach will not address the payroll angle on the employer’s side, so please remember to vet for payroll compliance and additional burden. PYD