A bit bizarre reading through the comments on here. It's like stepping back in time.
Many suppliers demand 0 day terms now: You pay with a credit card or wire upfront, often before service or goods are even provided. Certainly for everything under a few thousand dollars, and often even for five digit purchases. Yes, even large companies.
Oh, your super big company wants net 60 (or they'll threaten net 90)? If that even is offered, the vendor almost certainly adds a time and risk premium to the cost (that "early payment discount" is actually the real price. the net 30/60/90 prices are heavily penalized).
Vendors aren't your creditors. Certainly random individual freelancers aren't. The notion that you, the customer, start a relationship with a payment company that demands a fee to get paid is absolutely ludicrous. Despite all of the splitting of hairs, it is far closer to a payday loan than it is factoring (FastFunds/WorkMark or whatever has their relationship with the publisher, not with the freelancer who just wants his cash, much less at the usurious prices).
What a world when even the people of HN are defending these practices.
> Many suppliers demand 0 day terms now: You pay with a credit card or wire upfront, often before service or goods are even provided. Certainly for everything under a few thousand dollars, and often even for five digit purchases. Yes, even large companies.
I'm not necessarily defending it, but it just seems to be how the world works. I've been on this side of things as both a freelancer and as an employee of small companies invoicing bigger ones. Maybe if the product is physical, like semiconductors, things are different?
My experience was with lots of 5-6 digit software engineering work. Sometimes there was up front NRE payment, but negotiating payment milestones were typically part of the sales team. I've never heard of or seen a 0 day B2B contract. It was never my department to question the way the contracts were structured, but it just seemed to be how B2B was done. I'd tell finance whenever I made a deliverable so they could invoice.
A big offender of not paying timely (on NET 30/60) was the government themselves from what I saw. So it's not just like this is something some shady businesses are doing.
At the end of the day, isn't salaried work often NET 30 or NET 15? I've never heard of being paid more often than bi-weekly.
Upfront, I normally am not for legislation. However one thing that's been on my mind lately has been the lag between work and getting paid for that work. Even for regular employees. The days of being paid 1x / 2x per month, IMO, stem from when we had to cut a corporate check to pay someone. A check sometimes meant two signatures required. This was massive overhead and thus we wanted to batch them and do them as infrequently as possible.
Today payments are easily automated and extremely inexpensive.
I see little reason one couldnt be paid at the end of a work day or even more continuously such as per calendar day or what have you (ie there are ~22 work days per month, but ~30 calendar days) ... I could see a good pro labour legislation being to get paid daily for companies with automatic deposit or over size X.
Things like payday loans wouldnt make as much sense if you've already been paid 14/15ths of your pay up to that point and you're going to get the last 1/15th within 24 hours.
I run payroll, and everytime I do it's a potential mistake waiting to be made. We use Gusto, which is about as good as it gets for online / easy payroll, and there are still occasional issues. Payroll doesn't just pay an employee, it also handles proper withholding for each employee with an ever changing system that is tied to a huge swath of federal/state/city tax rules, which includes how often you have to pay the locality, usually based on how big payroll was in that locality. Basically, doing this everyday, having it trickle in, seems like a nightmare. I think for it to work properly the end to end system needs to be reworked, and I don't think the potential benefits outweigh the risk and work required.
I can see it being a pro-labor perk for those companies or industries that chose to adopt this type of scheme without being forced by legislation. That stated, it overlooks the number of capital-intensive industries and small businesses that simply cannot afford to pay on a more regular basis than every two weeks. In fact, I'd go so far as to say that legislation of this would be well-meaning, but would only serve to harm a lot of small /early-stage businesses.
Payroll isnt quite that simple though. It takes manpower to make sure folks clocked in and out correctly, for instance. There are automatic deductions beyond taxes - everything from health insurance to pensions to work shoes (seriously). Sometimes child support or other legal things. So many complications.
Heck, banks won't even let you have the money immediately when it is on the weekend or a holiday.
There are real costs to processing payroll more often, even though checks are not printed as often.
> However one thing that's been on my mind lately has been the lag between work and getting paid for that work. Even for regular employees.
Regular employees already benefit from legislation on this point (which often covers both minimum frequency and maximum delay from end of pay period or termination to delivering pay.) [0] So, with regular employees, it's just a matter of tweaking regs to better fit current conditions.
With gig economy contractors, the situation is less simple.
So are you saying you'll be increasing the frequency of ACH transactions by 14x (e.g. daily vs. biweekly) or 30x ?
There is likely a cost with that, even if the bank allows the frequency change for free. Most banks are starting to provide APIs, but many still charge fees for large volumes of ACH formatted files for example. The costs in making sure things are tied out (ie, all amounts match to the penny) seem pretty high.
Every payroll cycle is difficult because you have things like [benefit|FSA|ESPP] deductions, and the occasional bonus earning or 0-dollar mandatory RSU vesting (to account for taxes paid).
The benefit for a daily payment is pretty low compared to the costs.
Until you deal with unions, tax rates across different states and countries, corrections, benefits, inaccurate time recording, etc.... Payroll isn't that easy.
The opposition you would get there is that makes it sound too much like actually getting paid for time worked, i.e., hourly wages. It'd be much harder then to justify the "salaried and exempt from overtime" dance that most companies do for employees.
I am not affiliated with this company, just like their idea a lot for all the reasons mentioned in your post. Obviously they have to make money and presumably take some cut or added fee for providing the service of getting you paid before your employer does it, but at least they shorten the time between work done and getting paid.
I get paid twice a month and I wouldn't care if I got paid only once a month considering all my bills are monthly or longer. Credit cards, rent, and internet are monthly. Utilities are monthly or biannually. I can't think of any other bill than that.
This is factoring, not payday loans. As the author investigates, he finds this out as well.
I've done plenty of freelance work and I deeply know the pain of getting paid late, but as others have pointed out, dealing with a larger business results in net 30/60/90 terms, when things are going well. The fee you pay to the intermediary is justified.
Now if the only option to ever get paid was to pay an intermediary a cut of your salary, well then that would be a major issue. But otherwise this is the freelancer paying an intermediary for a) quicker access to funds and b) reducing the (albeit often small) risk of the client not paying.
Net 30/60/90 is a scam, there's no reason companies couldn't pay earlier. That freelancers put up with it just means that they don't have enough market power.
I have sympathy for people subject to the vagaries of corporate payment settlement terms, but when you agree to net 60 you may not get paid for 60 days. To get paid sooner will cost something.
If we agree on net-60 and they actually pay net-60, then everybody is good. The problem is that anything > net-30 tends to be signaling that you'll get your money when we darn feel like it, maybe never. Yes, I understand that the larger the company, the longer the payment terms, but its that risk factor of the unknown that is the squeeze on the little guy. Ironically I was just discussing this with my partner this morning as I seek to collect on a debt of > 365 days... feels like there should be lots of opportunity for disruption around getting paid, as contract law (which should be the cornerstone of civilization) is not really helping me collect with any degree of speed.
Basically one needs a sliding rate scale on credit risk.
At the very least one should be charging ~6% more (1.02 ^3) for net 90 terms, along with Credit Card like rates for missed payments. A good rule of thumb in America is if they have lawyers, you need lawyers.
my company forces vendors to net 60, and if they argue with it, they will threaten net 90 and say that is the industry norm and they are being nice at net 60.
Per the article: "Should they not get paid by the client we don’t go after that money."
If the company goes under while you are waiting to be paid, you end up with $0. Someone else is borrowing money, paying you in advance, and eating shit if they collect nothing from it. Not even close to payday lending in analogy..
Yea, that was the value add I saw in the article. I wonder if they could provide that service more modestly and apart from the timing as a pure insurance.
You agree to take a fee on your check in exchange for being paid the amount owed when the employer cuts the check or when your contract dictates you'd be paid by, ignoring bad actors, mistakes, slow processing or bankruptcy. This is also a portion of our legal system that may just need more transparency and government assurances.
This practice has a very bad look, and my heart is with the freelancers. But I also know human psychology is fickle and there is a functionally identical way to pay freelancers that would generate far less ire:
The client quotes the freelancer a due-on-receipt, net-zero-days price and then offers a "no hurry payment" bonus of twenty-five or thirty percent or whatever that comes with net-30/60/90 terms.
If a freelancer doesn't ask about payment terms when negotiating payment with a new client, he or she will quickly learn to do so. You don't need to experience the sting of learning that your client intends to pay you net-120 more than once before you focus like a laser on payment terms and conditions.
When I engage with freelancers or small businesses as vendors, I make a point of making sure the accounting folks know a particular vendor should not be subjected to "cashflow optimization," which I have known AP folks to elevate to an art, a sport, perhaps even a tenet of a fanatical religion.
One indication that this isn't B2B is the use of WorkMarket instead of dealing with gig workers in a B2B fashion. The stated value-add of WorkMarket is to allow businesses to manage their "freelancers and independent contractors".
So businesses take a cut out of the budget to hand it over to a "management" company to sort out the paperwork, and they require their gig workers to provide liquidity to the client business via net30/60/90 terms.
One has to be blind or stupid to call this a B2B relationship in the sense of two equals dealing with each other.
I hope users of these systems start a class action lawsuit to recoup their payments and that the industry is regulated such that the client is responsible for the fee. So instead of the author getting $650 on their $700, HuffPo should pay $750 for their $700 invoice.
Once that happens, payments will magically be made as quickly as possible. Fast payment processing is a solved problem.
I'm sure their contract stated NET 30/60/90 though. I've done freelance engineering work and that's how it was after I submitted my hours for the month (NET 30 in my case).
Regular employees were paid every 2 weeks, but I was a freelancer. Freelancers also don't get benefits and get hit twice on Social Security. It's what you expect when you are getting paid on a 1099 and not a W-2.
CTO and co-founder of Gusto here. This has actually been on our mind for many years now, and it's a problem we've seen that hurts paycheck to paycheck employees the most. We've recently taken a first step towards rethinking how payroll should be for a modern workforce, and launched a pilot for a new product called Flexible Pay (https://gusto.com/flexible-pay).
Flexible Pay enables employees to cash out unpaid earned wages, without any changes to how payroll runs. Happy to answer any questions about it. Also, if this is a space you're passionate about, we're actively hiring engineers for that team!
[+] [-] endorphone|7 years ago|reply
Many suppliers demand 0 day terms now: You pay with a credit card or wire upfront, often before service or goods are even provided. Certainly for everything under a few thousand dollars, and often even for five digit purchases. Yes, even large companies.
Oh, your super big company wants net 60 (or they'll threaten net 90)? If that even is offered, the vendor almost certainly adds a time and risk premium to the cost (that "early payment discount" is actually the real price. the net 30/60/90 prices are heavily penalized).
Vendors aren't your creditors. Certainly random individual freelancers aren't. The notion that you, the customer, start a relationship with a payment company that demands a fee to get paid is absolutely ludicrous. Despite all of the splitting of hairs, it is far closer to a payday loan than it is factoring (FastFunds/WorkMark or whatever has their relationship with the publisher, not with the freelancer who just wants his cash, much less at the usurious prices).
What a world when even the people of HN are defending these practices.
[+] [-] planteen|7 years ago|reply
I'm not necessarily defending it, but it just seems to be how the world works. I've been on this side of things as both a freelancer and as an employee of small companies invoicing bigger ones. Maybe if the product is physical, like semiconductors, things are different?
My experience was with lots of 5-6 digit software engineering work. Sometimes there was up front NRE payment, but negotiating payment milestones were typically part of the sales team. I've never heard of or seen a 0 day B2B contract. It was never my department to question the way the contracts were structured, but it just seemed to be how B2B was done. I'd tell finance whenever I made a deliverable so they could invoice.
A big offender of not paying timely (on NET 30/60) was the government themselves from what I saw. So it's not just like this is something some shady businesses are doing.
At the end of the day, isn't salaried work often NET 30 or NET 15? I've never heard of being paid more often than bi-weekly.
[+] [-] maerF0x0|7 years ago|reply
Today payments are easily automated and extremely inexpensive. I see little reason one couldnt be paid at the end of a work day or even more continuously such as per calendar day or what have you (ie there are ~22 work days per month, but ~30 calendar days) ... I could see a good pro labour legislation being to get paid daily for companies with automatic deposit or over size X.
Things like payday loans wouldnt make as much sense if you've already been paid 14/15ths of your pay up to that point and you're going to get the last 1/15th within 24 hours.
Edit: Something like this: https://www.uber.com/info/instant-pay/ but automated and for everyone.
[+] [-] cullenking|7 years ago|reply
[+] [-] poulsbohemian|7 years ago|reply
[+] [-] Broken_Hippo|7 years ago|reply
Heck, banks won't even let you have the money immediately when it is on the weekend or a holiday.
There are real costs to processing payroll more often, even though checks are not printed as often.
[+] [-] dragonwriter|7 years ago|reply
Regular employees already benefit from legislation on this point (which often covers both minimum frequency and maximum delay from end of pay period or termination to delivering pay.) [0] So, with regular employees, it's just a matter of tweaking regs to better fit current conditions.
With gig economy contractors, the situation is less simple.
[0] A description of the CA state rules: https://www.dir.ca.gov/dlse/FAQ_Paydays.htm
[+] [-] r00fus|7 years ago|reply
There is likely a cost with that, even if the bank allows the frequency change for free. Most banks are starting to provide APIs, but many still charge fees for large volumes of ACH formatted files for example. The costs in making sure things are tied out (ie, all amounts match to the penny) seem pretty high.
Every payroll cycle is difficult because you have things like [benefit|FSA|ESPP] deductions, and the occasional bonus earning or 0-dollar mandatory RSU vesting (to account for taxes paid).
The benefit for a daily payment is pretty low compared to the costs.
[+] [-] ProAm|7 years ago|reply
[+] [-] acheron|7 years ago|reply
[+] [-] loganfrederick|7 years ago|reply
I am not affiliated with this company, just like their idea a lot for all the reasons mentioned in your post. Obviously they have to make money and presumably take some cut or added fee for providing the service of getting you paid before your employer does it, but at least they shorten the time between work done and getting paid.
[+] [-] mrep|7 years ago|reply
[+] [-] ljoshua|7 years ago|reply
I've done plenty of freelance work and I deeply know the pain of getting paid late, but as others have pointed out, dealing with a larger business results in net 30/60/90 terms, when things are going well. The fee you pay to the intermediary is justified.
Now if the only option to ever get paid was to pay an intermediary a cut of your salary, well then that would be a major issue. But otherwise this is the freelancer paying an intermediary for a) quicker access to funds and b) reducing the (albeit often small) risk of the client not paying.
[+] [-] guelo|7 years ago|reply
[+] [-] stanleydrew|7 years ago|reply
[+] [-] poulsbohemian|7 years ago|reply
[+] [-] howeyc|7 years ago|reply
That there are intermediary companies offering cash-flow for a fee isn't exactly new either.
[+] [-] maerF0x0|7 years ago|reply
At the very least one should be charging ~6% more (1.02 ^3) for net 90 terms, along with Credit Card like rates for missed payments. A good rule of thumb in America is if they have lawyers, you need lawyers.
[+] [-] chaosbutters|7 years ago|reply
[+] [-] AJ007|7 years ago|reply
If the company goes under while you are waiting to be paid, you end up with $0. Someone else is borrowing money, paying you in advance, and eating shit if they collect nothing from it. Not even close to payday lending in analogy..
[+] [-] munk-a|7 years ago|reply
You agree to take a fee on your check in exchange for being paid the amount owed when the employer cuts the check or when your contract dictates you'd be paid by, ignoring bad actors, mistakes, slow processing or bankruptcy. This is also a portion of our legal system that may just need more transparency and government assurances.
[+] [-] edw|7 years ago|reply
The client quotes the freelancer a due-on-receipt, net-zero-days price and then offers a "no hurry payment" bonus of twenty-five or thirty percent or whatever that comes with net-30/60/90 terms.
If a freelancer doesn't ask about payment terms when negotiating payment with a new client, he or she will quickly learn to do so. You don't need to experience the sting of learning that your client intends to pay you net-120 more than once before you focus like a laser on payment terms and conditions.
When I engage with freelancers or small businesses as vendors, I make a point of making sure the accounting folks know a particular vendor should not be subjected to "cashflow optimization," which I have known AP folks to elevate to an art, a sport, perhaps even a tenet of a fanatical religion.
A couple of related items:
Why Variable Pricing Fails at the Vending Machine: https://www.nytimes.com/2005/06/27/business/why-variable-pri...
Coke’s Segmentation Error: https://pragmaticpricing.com/2010/05/15/cokes-segmentation-e...
[+] [-] tedunangst|7 years ago|reply
[+] [-] sqrt17|7 years ago|reply
So businesses take a cut out of the budget to hand it over to a "management" company to sort out the paperwork, and they require their gig workers to provide liquidity to the client business via net30/60/90 terms.
One has to be blind or stupid to call this a B2B relationship in the sense of two equals dealing with each other.
[+] [-] planteen|7 years ago|reply
[+] [-] mywittyname|7 years ago|reply
Once that happens, payments will magically be made as quickly as possible. Fast payment processing is a solved problem.
[+] [-] planteen|7 years ago|reply
Regular employees were paid every 2 weeks, but I was a freelancer. Freelancers also don't get benefits and get hit twice on Social Security. It's what you expect when you are getting paid on a 1099 and not a W-2.
[+] [-] dumbfounder|7 years ago|reply
[+] [-] s_dev|7 years ago|reply
https://www.theguardian.com/business/2018/aug/30/wonga-colla...
[+] [-] madebylaw|7 years ago|reply
- We are paid back by the company on payday so the credit risk is on the company not the consumer.
- Many (most?) of our users do not have access to consumer credit and would be classified as underbanked / unbanked. This is a great book for more background: https://www.amazon.com/Unbanking-America-Middle-Class-Surviv...
- We charge a fixed fee per transaction, no interest is accrued or carried.
- Philosophically, every day you work and are unpaid for it, you are selling your employer an interest-free bond of your labor whose term is payday.
[+] [-] rahimnathwani|7 years ago|reply
I would add another, which has similar stories about the challenges of managing money when income and costs are volatile, but in developing countries rather than in the US: https://www.amazon.com/Portfolios-Poor-How-Worlds-Live-ebook...
[+] [-] edawerd|7 years ago|reply
Flexible Pay enables employees to cash out unpaid earned wages, without any changes to how payroll runs. Happy to answer any questions about it. Also, if this is a space you're passionate about, we're actively hiring engineers for that team!
[+] [-] dwighttk|7 years ago|reply
And "for everyone"? Not really.