How On-Demand Pay is Changing the Way We Get Paid

Most organizations think about payroll as a rigid process where payment dates are set in stone, but on-demand pay is becoming increasingly popular. These on demand payroll solutions allow workers to access some or all of their earned wages as soon as they have clocked out of a shift through a mobile app. The concept makes perfect sense: You pay your babysitter or the professional who mows your lawn on the same day they provide the service—so why not your employees?

On-Demand Payroll System vs Traditional Payroll Systems

According to data from the Bureau of Labor Statistics, most employers pay their workers according to the traditional payroll system:

• 43% of US businesses pay their employees every two weeks.
• 24% pay every week.
• Semi-monthly and monthly pay cycles are less common (19.8% and 10.3%, respectively).

On-demand pay fundamentally alters the timing of wage distribution. As we touched on above, employees can withdraw a portion or all the money they’ve earned immediately after their shifts. This helps them smooth their consumption and better meet their spending needs while avoiding alternative and costly methods of accessing cash.

Key Features of On-Demand Pay Systems

• The best on-demand pay providers allow employees to access their earned wages through a handy mobile app.
• Funds can be loaded onto a debit or prepaid card, transferred to the employee’s bank account, or simply picked up as cash at Walmart.
• The administrative burden on payroll teams is minimal, provided the on-demand pay provider’s solution can integrate tightly with the company’s payroll platform.
• An on demand payroll solution like Payactiv allows employers to easily stick to their payroll schedule and run payroll accurately and on time while remaining compliant with all payroll- and tax-related regulations.

On Demand Payroll Benefits

On-demand pay is increasingly recognized as a win-win solution for employees and employers alike.

Benefits to Employees 

Flexibility for All 

The modern workplace has changed significantly in recent years, with corporate or office-based employees enjoying more location flexibility. However, frontline workers in sectors such as quick-service restaurants, retail, and the gig economy are also demanding more flexibility. Offering on-demand pay is an effective way to provide this.

Access to Funds When They’re Needed Most 

Life happens every day, not according to weekly or bi-weekly payroll dates. Household bills, for example, can be due throughout the month. Medical bills and other emergencies might also require immediate funds. On-demand pay allows workers to access their earnings as needed to be prepared for any unforeseen expense without having to wait until payday. This significantly reduces financial stress.

Better Financial Management 

When employees have real-time access to their earnings, it sets the stage for better budgeting and saving opportunities. For example, they could elect to transfer all their earnings for one day each week into an emergency savings account, boosting their financial resilience.

Lower Dependency on Credit, Overdrafts, and Payday Loans 

Many workers fall into the habit of relying on high-interest credit or payday loans to make ends meet, incurring additional charges. On-demand pay solutions like Payactiv’s Earned Wage Access help employees break the cycle, ensuring that they can pay for important expenses without becoming dependent on these forms of credit.

Fewer Money Worries 

On-demand pay gives your workers the freedom to save and spend on their own terms. It allows them to better manage their household budgets and set up savings plans, all of which give them the sense that they’re taking back control over their finances.

Better Work-life Balance

Many financially stressed employees seldom take the paid leave days they’re due simply because they can’t afford to pay for travel or other expenses typically associated with a vacation. Eventually, this can take its toll in the form of burnout. On-demand pay allows people to budget sensibly and set money aside for short-term goals (such as saving up for an annual family vacation). Ultimately, this puts them in a position to fully enjoy their paid leave benefits and take time off now and again to recharge.

Benefits to Employers 

Here are some of the positive outcomes that a well-executed corporate financial wellness program can deliver:

Increased Workforce Productivity

When people are worried about how they’re going to pay their rent, afford gas to get to work, or put food on the table for their families, they’re not going to be focused on their jobs. On-demand pay can help reduce financial-related stressors and distractions that negatively impact workers’ ability to focus and concentrate. In addition, when your employees know that their efforts translate to immediately available compensation, they become more motivated, which boosts productivity.

Lower Levels of Staff Turnover and Absenteeism

Financially stressed workers are more likely to look for a new place of employment. That’s because, too often, they believe that taking a job where they can earn a bit extra will put an end to their financial woes. To illustrate the positive effects of on-demand pay on retention, consider this statistic:

● Payactiv’s customers report increased retention rates and lowered turnover in businesses by 30% on average.

Equally, the sense of security that on-demand pay brings employees will curb their levels of finance-related stress and health ailments, which can result in them taking extended absences from work.

Reduced Health Care Costs

One in four adults say that in the past 12 months, they have skipped or postponed getting the health care they needed because of the cost. Notably, six in ten uninsured adults say they went without needed care because of the cost. Likewise, the cost of prescription drugs prevents some workers from filling prescriptions. About one in five adults (21%) say they haven’t filled a prescription because of the cost, while a similar percentage say they’ve instead opted for over-the-counter alternatives. About one in ten adults say they’ve cut pills in half or skipped doses of medication in the last year because of the cost. These behaviors can result in higher healthcare costs for employers if workers fail to schedule preventive care or, worse yet, ignore symptoms of conditions that become more serious over time.

Greater Overall Employee Engagement and Happiness

People will feel better about themselves—both personally and professionally—when they have tools at their disposal that help set them up to achieve their financial goals. These goals might include establishing a rainy-day savings fund, reducing or eliminating credit card debt, putting money aside for a child’s college education, or saving more for retirement. When employees manage to finally rid themselves of the cycle of debt and financial stress and feel they’re making meaningful steps towards financial freedom, they’ll generally be happier in their workplaces and more engaged in their work. This positively impacts the entire organization. 

No More Salary Advances 

Some companies allow workers to apply for salary advances every so often to deal with personal emergencies. In most cases, however, this is a protracted, admin-intensive process that creates additional workload for the employer and cannot always meet the employee’s needs in time. An on-demand pay solution addresses these challenges. The entire process is automated, so there is no extra work for the employer, and the employee can access their funds in seconds.

Impact on Financial Well-Being

A recent Payactiv survey shows that on-demand pay is instrumental in building employees’ financial health. It also helps people avoid falling into a dangerous debt cycle when they find themselves short of cash between paydays:

• Before using EWA, 30% of respondents reported resorting to high-interest payday loans, and 33% reported overdrafting from their bank accounts.
• After using EWA, those numbers dropped to 9% and 10%, respectively (a 70% reduction in payday loans and a 69% drop in overdraft usage).

Sidestepping Potential Pitfalls

While there are numerous advantages to allowing employees to access their wages after every shift, it’s vital to consider the practicalities of embracing on-demand pay. Here are some factors to consider:

1. Technology Integration Issues

You might be wondering, “Will integrating on-demand pay with my existing systems introduce additional workload for my payroll team?” Fortunately, leading on-demand pay services easily integrate with most payroll providers so you don’t need to make any adjustments to your existing payroll process.

2. Low Employee Adoption

Like any employee benefit, if your workers are unaware of your on-demand pay program, they won’t take advantage of it. Be sure to communicate this benefit and how it works through your internal communications channels.

3. Select a Solution that Addresses End-to-End Employee Financial Wellness

In addition to on-demand wage payments, the best platforms include comprehensive budget management and saving tools and tips for your employees, helping them improve their financial well-being at no extra cost.

Are You Ready for the Future of On Demand Payroll?

On-demand pay is redefining the payroll landscape, and this payroll model is becoming increasingly popular with both employers and employees. As more employers offer these solutions, more American employees who are struggling to make ends meet will experience relief from financial uncertainty and start the important journey towards long-term financial stability.