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is treated as three separate weekly date, and the assets used to fund the effective for calendar years and quarters
wage payments. ODPA come from the ODPA provider. beginning after Dec. 31, 2022, as follows:
As such, one could argue that a pay- ■ Sec. 7701 would be amended to
Tax treatment of AP programs ment under an ODPA, similar to one define an ODPA as “an arrangement
Through an AP program, the employer made through an AP program, does not that allows employees to withdraw
does not pay employees before their accelerate the timing of an employer’s earned wages before their regularly
regularly scheduled payday, actually withholding or deposits. scheduled pay dates”;
or constructively. Whether or not an ■ Sec. 3401(b) would be amended to
employee takes advantage of a financial Treasury’s Greenbook proposal provide that the payroll period for
institution’s AP program, where an Nonetheless, in March 2022, Treasury, ODPAs is treated as a weekly payroll
amount equal to future wage payments in its General Explanations of the Ad- period, even if employees have access
may be accessed by the employee in ministration’s Fiscal Year 2023 Revenue to wages during the week;
advance of the employer’s scheduled Proposals, or “Greenbook,” expressed ■ Secs. 3102, 3111, and 3301 would
pay date, the employer will pay the concern about employees’ ability “to be amended to clarify that ODPA
employee’s wages on the employer’s access accrued wages before the end of payments are not loans; and
scheduled pay date. As the employer their regular pay cycle” and suggested ■ Sec. 6302 would be amended to
is not involved in advancing wages (or that ODPAs do put employees in con- provide special payroll deposit rules
frequently not even aware of whether structive receipt of their wages. for ODPAs.
cash is advanced to its employees by the In a section titled “Clarify Tax While the Greenbook proposal has
employee’s financial institution), one Treatment of On-Demand Pay Ar- not yet progressed toward legislation, if it
could argue under current guidance that rangements,” the Greenbook stated that is enacted, employers would be required
there is no change to the timing of the access to wages before employees’ stated to adhere to a uniform ODPA system. In
employer’s payroll deposits or the tim- pay date may place them in “constant the meantime, current laws may be am-
ing of required withholding. The em- constructive receipt of their wages as biguous and difficult to apply, depending
ployees may receive funds in their bank they are earned” and proposed that af- on the specific ODPA system. The
accounts early, but the actual wages fected employers should maintain a daily proposed uniform system could prove
are not paid by the employer until the or a miscellaneous payroll period and beneficial since it would provide more
normal pay date. withhold and pay employment taxes on certainty and possibly reduce liability ex-
Financial institution employers, a daily basis. posure for employers. Alternatively, how-
however, should take note that if their Employers or third-party payers ever, one could argue that no changes are
own employees are taking advantage probably avoid treating these employees needed because, under current law, AP
of an AP program, the wages could be as being in constructive receipt of their programs and ODPAs do not change the
treated as credited to the account of, or wages, however, because of the likely time wages are actually or constructively
set aside for, the employee’s immediate significant financial and administra- paid for withholding tax purposes.
control and disposition as of the earliest tive burden, Treasury stated. One such
possible date of access by the employee. potential burden is that employers would Other possible effects
Also, there is a risk of constructive be required to “configure their payroll Employers should consider myriad ef-
receipt (even if some of the financial systems and make payroll deposits fects that AP programs and ODPAs
institution’s employees do not opt in to on a daily basis.” Treasury noted that may have on items outside federal
be paid early). As such, there is a risk some employers therefore ignore the employment tax withholding, including
that the employer may face a change to constructive-receipt issue entirely or the timely transmission of participant
accelerate the timing of its employment treat the arrangement as a loan from contributions to Sec. 401(k) and other
tax withholding and deposit. the employer to the employee, treating retirement plans, the impact to Sec.
wages as paid on the regularly scheduled 401(k) plan loan repayments, contribu-
Tax treatment of ODPAs pay dates instead of when they are, tion timing to flexible spending arrange-
Employers using ODPAs generally in Treasury’s opinion, constructively ments and health savings accounts, and
provide employee wage information to received. However, Treasury indicated any applicable state tax withholding and
ODPA providers. However, similar to that it does not view such arrangements deposit rules.
AP programs, the employer does not as loans. From Jonathan A. Monk, J.D., LL.M.,
pay actual wages to an employee before Treasury proposed changes to Secs. Washington, D.C., and Kristen Smith,
the employee’s regularly scheduled pay 7701, 3401, 3102, 3111, 3301, and 6302, Washington, D.C.

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