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You're Giving Your Boss A Loan

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JACOB GOLDSTEIN, BYLINE: I was talking the other day with Dean Karlan. He is an economist who has studied why people donate money. And as we were talking, he mentioned this sort of econ 101 question that is useful in thinking about this. The question is, when we're far away from home and eating out, why do we leave a tip?

DEAN KARLAN: Why would you ever pay? I don't live in this area. I don't have to worry about this waiter, you know, spitting in my food the next time I come.

GOLDSTEIN: But of course, we do tip, even when we'll never be back again. And Karlan says we tip for a pretty straightforward reason.

KARLAN: If I don't pay, I feel like crap. If I pay, I feel content with myself.

GOLDSTEIN: I was talking to Karlan about this because now is the time of year when we ask you for money. You don't have to pay to listen, but a lot of people who listen to PLANET MONEY do pay. They donate to NPR not because they have to, but because it makes them feel good. So if you can spare a few bucks, please go to Thanks very much.





GONZALEZ: How are you?

GOGWI: I'm well, and yourself?

GONZALEZ: Great. OK. Good. OK. Do you remember when we first met?

GOGWI: I do. It was a very long time ago at the bank.

GONZALEZ: Do you remember, remember?

GOGWI: Yeah, absolutely. I remember, remember when we met.

GONZALEZ: How old were you?

GOGWI: I was about 18, 19 years old - definitely before I had a mustache. We can say that much.

GONZALEZ: (Laughter) It was, like, 12 years ago when I was in college.

You were a teller?

GOGWI: Yeah. I was actually a teller supervisor at the time.

GONZALEZ: OK. So I'm working on this story right now about how we get paid and overdraft fees.


GONZALEZ: And so I was like, oh, my God, I have to call Sam because when I think of Sam, I think of my overdraft fees (laughter).

GOGWI: Overdraft fees, right? (Laughter) Definitely don't miss those days.

GONZALEZ: OK. Back then, when I was in college, I had this job where, at the end of the day, I'd have to go to the bank to deposit a bunch of company checks. So I'd go into this bank all the time, and I'd see this teller, Sam Gogwi (ph). And at the time, my job paid me once a month. So I regularly ran out of money before my next paycheck - like, zero dollars in my bank account.

GOGWI: Sometimes below zero, yeah.

GONZALEZ: And sometimes below zero. I got to negative dollars in my bank account because sometimes I needed to put $20 of gas in my car, and sometimes I didn't have $20 in my bank account. I'd have, like, 13 in there. So I would use money that I didn't have. I'd overdraw my account. And I'd get a fee for it - $35. And then if I bought lunch that day, that was another $35 fee, or I'd mail in a bill, and it'd get processed before my next paycheck came in - another $35 fee. And one time, I got a bunch of these fees all on the same day.

GOGWI: So when you walked up, I remember you asked me - you kind of said, hey, Sam, can you look at my account? This is a lot. I'm not - it doesn't make sense how I spent less than 50 bucks, and I'm being charged over $120 worth of fees. So I went in, and I waived the fees. And then I was like, OK, go; get away from my window now. I went into the system, and I just - I manually waived all your fees.

GONZALEZ: All four of them or however many there were.

GOGWI: As many as the system allowed me to do for the day. I remember 'cause I told them after, don't ask me to waive any more fees, guys. I'm done for the day. I'm maxed out.

GONZALEZ: Of course, I did find a way to avoid getting multiple fees in one day. I'd go to an ATM, take out a hundred dollars for everything I needed. And then I'd get one fee, not four. And Sam, this teller, went on to waive many of these fees for me.

GOGWI: I had the ability to do it, so why not?

GONZALEZ: For real, for real, I, like, always think of you.

GOGWI: I guess I just understood because definitely been there, done that and was still there at the time.

GONZALEZ: Right. We were both overdrawing our accounts.

Sam and I went on to become real-life actual friends outside of the bank.

You came to my college graduation.

GOGWI: Yes. I got invited to the wedding. I made the cut.


GONZALEZ: Sam came to my wedding. He was honestly, like, one of my heroes in college. And to be clear, back then, often - sometimes - I did have money. I worked for it. I was making money. I just couldn't access my money whenever I wanted. I had to wait for payday.

Did you see it a lot? Did you see people overdraw their accounts a lot?

GOGWI: Oh, absolutely. It was the day-to-day conversation. It was kind of like when you say hello. It just happened all the time. I've gotten written up, actually, for waiving fees.

GONZALEZ: Overdraft fees are basically pure profit for banks. Banks make billions from overdraft fees every year, charging people who have zero dollars in their bank account. And a lot of these people have jobs. They work every day, but they just don't get paid every day. They get paid every two weeks or so.

And if you think about it, when you're waiting for your paycheck to come, you're essentially giving your employer a two-week, interest-free loan on your labor, sometimes racking up overdraft fees while you wait. And why? Why do we have to wait for our money?


GONZALEZ: Hello, and welcome to PLANET MONEY. I'm Sarah Gonzalez.


And I'm Mary Childs.

GONZALEZ: Today on the show, some of the biggest companies in the U.S. are completely reinventing how we get paid.

CHILDS: Walmart, Six Flags, grocery stores, steakhouses, resorts, cupcake stores, home health care companies - they're all saying you don't have to wait to get paid anymore; come work for us.

GONZALEZ: You can get paid every day.

CHILDS: For a small fee.

GONZALEZ: Plus, we find out how paychecks were born in the first place.

OK. By some estimates, U.S. banks made $34 billion in overdraft fees in 2017.

CHILDS: By comparison, payday loan companies make about 7- to $9 billion in fees a year.

GONZALEZ: And both of these - payday loans and overdraft fees - they're often incurred by people who are just waiting for their paychecks to come, right? Payday loans.

CHILDS: In 2017, the CFPB, the Consumer Financial Protection Bureau, actually sued a bank called TCF National for kind of sneaking in overdraft fees.

JESUS GARCIA: The practice had gotten so bad that its CEO - TCF's former CEO - actually named his yacht Overdraft.





GONZALEZ: This is Jesus "Chuy" Garcia, congressman from Chicago.

Like, overdraft fees.

GARCIA: Yes. He got to party and have this Overdraft yacht in oceans or seas or lakes, wherever he wanted, at the expense of the people who deposited money and couldn't get their money quickly enough to spend it.

CHILDS: At the time, a spokesperson for the bank said the name of the boat was simply irrelevant. But the bank did end up returning $25 million to customers as part of the settlement.

GONZALEZ: And this is the kind of stuff Garcia focuses on in Congress - unfair overdraft fees and also this weird bank red tape around how and when people have access to money they earned.

CHILDS: And it's not just the two-week or monthly pay periods. We actually have to wait two times to access our money. You wait for your paycheck to come, and then banks usually make us wait a few days before the money's available to use.

GONZALEZ: You know that whole waiting-for-a-paycheck-to-clear thing? Yeah, that's what we're talking about. Garcia says that wait period can really set someone back.

GARCIA: Waiting for checks to clear over a weekend or a holiday is one reason why American families spend billions in overdraft fees, turning to payday lenders because their money isn't being cleared quickly enough.

GONZALEZ: By the way, other countries do not have this wait time. In Mexico, you don't have to wait for a paycheck to clear. Funds are nearly instantly available. There's no, you know, wait-three-to-five-business-days thing. It's called real-time payment. Brazil has this, too, and the U.K. and other parts of Europe, but not the U.S.

CHILDS: Nearly a third of Americans can't pay their bills on time. That doesn't necessarily mean they can't pay their bills, just that they can't pay them on time. So a few months ago, Garcia, along with other Democrats in the House and Senate, introduced a bill to get rid of that lag, that wait-for-the-money-to-become-available lag. It's called the Payments Modernization Act of 2019.

GARCIA: So we're trying to reduce the amount of time that people have to wait to get the money that they've already earned.

CHILDS: And just a few weeks after they introduced it, the Federal Reserve announced that they will get rid of that wait time, that lag, but not until 2023. So Garcia is still pushing the bill in Congress to get there faster.

GONZALEZ: But remember, the processing period is only part of the waiting problem. Workers are still waiting two weeks to get their paychecks in the first place, waiting to get paid money that they are owed by their employers. And, like, why?

To find out where the pay period even came from, we called up a labor historian.

NELSON LICHTENSTEIN: Nelson Lichtenstein. And I'm a professor of history at the University of California, Santa Barbara.

GONZALEZ: How did you become a labor historian?

LICHTENSTEIN: I came out of the '60s. And so, you know, I'm a Marxist. So naturally, you're interested in labor. So that's how - that's where I came from.

CHILDS: Nelson says we didn't have pay periods and a wage system until after the Civil War. Before that, we were mainly a farming society.

LICHTENSTEIN: When America was an agricultural society, people actually then got paid literally once a year at the end of the harvest.

GONZALEZ: By the 1870s and '80s, when factory work became more widespread, people started to work for wages - hourly wages - which led to the pay period.

LICHTENSTEIN: And it was actually weekly, initially.

GONZALEZ: Like, wait a week for your wages. And your pay came in envelopes full of cash.

LICHTENSTEIN: Oh, yes, in cash. The - checks were only for the upper middle class. You got an envelope with the cash in it. They lined up on Saturday afternoon. It was offered outside, you know, and the lines were sometimes very long.

GONZALEZ: But then in 1942, payday started coming around less often.

CHILDS: The U.S. had just officially entered World War II. And obviously, the government wanted money to fund the war. And they also wanted to prevent the inflation the U.S. had seen after World War I. So President Roosevelt had this idea.

LICHTENSTEIN: They said, OK, how do we do it? They wanted to take money out of these paychecks so that people would have less cash.

GONZALEZ: They wanted Americans to have less cash because people weren't allowed to buy things during the war, like cars. Car companies couldn't sell cars. Everything made was going toward the war. So people had a lot of spare cash, which can cause inflation. So the government decided to take some of it, you know, out of everyone's pay.

LICHTENSTEIN: I mean, everyone had a sense this is a major event, so the taxation was not opposed. In fact, it was viewed as a progressive thing.

GONZALEZ: Withholding income tax really complicated things on the payroll side. There were all the paper time cards. Someone had to calculate hourly wages. The Social Security tax was already getting taken out. And now the income tax and unions are popping up around this time. So now union dues are being withheld. And people started thinking, it'd be really nice if we could have, like, a slip of paper that lists all these deductions, you know, so you can check what came out of your pay - you know, like, a pay check.

CHILDS: The paycheck had arrived, and also with it, pay stubs. Our editor is making us say that.

GONZALEZ: I guess that is where the deductions are listed. Sure. OK.

CHILDS: Fine. They're attached. So that pay envelope of yore went away. But because issuing paychecks with all of those calculations was so labor-intensive, companies started paying people every two weeks. PLANET MONEY listeners, the two-week pay period.

GONZALEZ: And Nelson - he likes the two-week pay period. He said it kind of forces you to pace your spending. But for a lot of people, waiting for pay day isn't really working.


UNIDENTIFIED PERSON #2: Could I get cheese on that, no pickle?

CHILDS: This is a Burger King in Epping, N.H.

GONZALEZ: The pickle's the best part.

CHILDS: Right? I love the pickles.

GONZALEZ: And this is Kelly Black (ph).

KELLY BLACK: Watch your hands, please - hot fries. There's your no onion, honey.

CHILDS: She's been working at this Burger King for three years.

BLACK: Obviously, drive-through is my least favorite. It gets crazy over there. My favorite task, honestly, is the kitchen.

All right, honey. Thank you.

GONZALEZ: Kelly gets paid every two weeks, but her bills show up on a different schedule.

BLACK: Paying the light bill - you know, if you don't pay it on time, they tend to shut you off. So you got to pay it when it's due. You send in the money, and you overdraft the account. And the bank charges you a fee. And it's just - it's crazy. So you end up paying twice as much for something that, if you had had access to your money sooner, you wouldn't have had to pay that much. And depending on the bank that you have, some of them will charge you $35 a day. Yes, they will charge you a late fee per day that your account is in the negative.

GONZALEZ: And while Kelly has been struggling to pay her bills, her boss - the big boss, the owner - has also been struggling to attract and keep workers.

CHILDS: It's not like a regular struggle. It's a boss struggle.

GONZALEZ: I understand you own a few Burger Kings.

ZO DHANANI: Just a few (laughter).

GONZALEZ: How many do you own?

DHANANI: Approximately 505.

GONZALEZ: Oh, 505 Burger Kings.

DHANANI: Correct.


Zo Dhanani actually owns 850 stores total - some Popeyes and some French bakeries, too - spread out across the U.S.

CHILDS: And about 2 1/2 years ago, the labor market started getting really tight. Employment was high. Basically, everybody had a job. And that's when it started getting harder for Zo to find workers.

DHANANI: We had a restaurant we were opening in Stoughton, Mass., and the restaurant sat there ready to open for three months because we couldn't get enough staff to open the restaurant.

GONZALEZ: Zo starts thinking he's got to offer some new perks. And this is what happens in a tight labor market. When you can't find people to hire, you offer them more.

DHANANI: I mean, we've done - we've got an aggressive bonus program. We rolled out 401Ks. We've raised wages.

CHILDS: They pay around $10 in some markets, 13 in others.

DHANANI: When you have everybody around you literally next door and behind you advertising for 12-, $13 an hour, I mean...

GONZALEZ: Why not - if retention is a problem, why not just increase wages more?

DHANANI: I mean, labor and our food costs are the biggest expenses in our business. So to constantly increase wages - just raise and raise wages - it will unfortunately have to be reflected in pricing that we pass to the consumer.

GONZALEZ: And then Zo hears about this thing that sounds like it might be the best work perk ever - an app called DailyPay. It gives workers access to their earned wages daily - DailyPay.

CHILDS: That's after the break.

The technology to give people their paycheck every single day exists. People waiting for paychecks - there's no real reason for that anymore. No one is calculating deductions by hand or stuffing physical envelopes with cash. Banking and payroll happen automatically and electronically. So you could get paid right when you walk out of your shift. That's the point of this ep.

GONZALEZ: And earlier this year, Zo decided to try it at his New England Burger Kings - a hundred stores - told employees, see what you think if you want.

DHANANI: I just needed to find something to differentiate myself from everyone else out there.

GONZALEZ: Kelly was one of the first to sign up.

BLACK: I was a little skeptical. I was like, is it really - I mean, are we really going to get our money the same day? Is it really going to be there?

All right. So you open the app, and you log in. And then you get a screen that looks like this, and it tells you what your available balance is - 342.07. And then you can choose a dollar amount. I'm going to choose 20.

CHILDS: The app lets you either transfer your money to your bank account now or the next day, both for a fee.

BLACK: The now is 2.99. The next day is $1.99.


BLACK: So I'm going to do the now. So you hit complete transfer. So if I close out of that app and I open my bank app and - it shows me right there it's already in my account.

GONZALEZ: I mean, that whole thing took seconds.

BLACK: Yep. It's already there - $20.

CHILDS: Now Kelly uses the app two to three times a week, which is actually about how often the average user transfers money - not every day, just when they need it.

BLACK: To get gas or run to the grocery store or - I actually used it on Monday to put gas in my car.

GONZALEZ: About 750 workers at Zo's Burger Kings have signed up for the app so far, and he says it has lowered turnover. Even if a store down the street pays more - like, a dollar an hour more - workers will still stay with him so that they can have access to their daily wages because - think about it. That's maybe $8 more a day. But every time you overdraw your account, that's $35. So maybe the extra money isn't actually worth it.

CHILDS: And lower turnover saves Zo money in recruiting and training new people. Plus, for him, this whole thing is free. DailyPay doesn't charge companies anything.

GONZALEZ: Today, about half a million users can access their daily wages on this app, and they aren't usually taking out round dollar amounts. So they're not using it like an ATM.

JEANNIE MALONE: They're not taking out 40- or 20- or $60. They're taking very odd amounts, which typically are the exact amount of a bill - $15.23, $110.09.

CHILDS: This is Jeannie Malone (ph) with DailyPay.

GONZALEZ: And it's not just DailyPay. There are other similar apps offering on-demand pay to Walmart employees.

CHILDS: Just America's smallest employer.

GONZALEZ: Yeah - and another one offering it to McDonald's employees. And that app is actually free to the worker - no fees. They're called Instant Financial. They issue prepaid debit cards to employees. And when employees use the card, it drives revenue.

CHILDS: DailyPay works with a security guard company called G4S and a home health company, BrightSprings (ph) Health. They work with Kroger, the grocery store, and a bunch of Applebee'ses (ph) and Taco Bells and Panera Breads and Arby's in, like, 25 states.

GONZALEZ: So it's like you are - you - DailyPay has money.


GONZALEZ: Like, DailyPay has a pool - a little pool of money.

MALONE: Yes. Yes.

GONZALEZ: And you are handing out this money to employees that use DailyPay.

MALONE: Yeah. We have a big pool of money.

GONZALEZ: A big pool of money.

MALONE: Yes. Yes.


GONZALEZ: They front the money. If employees use the app to take out money before their paycheck comes, then when their paycheck comes on the regular two-week pay schedule, it kind of makes a little stop at DailyPay. And DailyPay takes out what they fronted, and then the rest of the paycheck continues on its way to the employee.

I mean, it's a loan, but maybe interest-free or something.

MALONE: Well, it's not a loan...


MALONE: ...Because you've already earned your wages. So you can't take money that you didn't earn. You can take money that you've earned.

CHILDS: OK. So it's not a loan, but workers who aren't making that much money still have to pay a fee every time they want to access money that they've already earned.

GONZALEZ: And yeah, a better solution would be to pay people more money, increase wages. But until that happens, Kelly from Burger King says the fee is actually worth it to her to have instant access to her money, filling in the gap between paychecks.

BLACK: No matter how hard you try and budget your money, it's not always easy 'cause things happen. You get a flat tire. A child needs something for school. Somebody gets sick; you got to pay for medication, a copay to a doctor's office.

GONZALEZ: Using the app is kind of like paying an ATM fee to access your own money. It's not a great option for people with zero dollars in their bank account, but it's still cheaper than an overdraft fee - right? - 2.99 versus $35.


GONZALEZ: Today's show was produced by Bianca Giacobone and Liza Yeager.

CHILDS: Alex Goldmark is our supervising producer, and Bryant Urstadt edits the show.

GONZALEZ: We also have to thank Aaron Klein at the Brookings Institute. He explained so much about banking and how payments work in the U.S. and in other countries. And thanks, also, to producer Sara Ernst at New Hampshire Public Radio.

CHILDS: Tweet at us. Tag us on Instagram. Find us on Facebook. We are @PlanetMoney. And you can email us, too, at

I'm Mary Childs.

GONZALEZ: And I'm Sarah Gonzalez. This is NPR. Thanks for listening.

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