What Does On Demand Pay Mean?

While we all enjoy the holidays leading up to the new year, they can put a strain on our finances. Many people who don’t have cash on hand will turn to credit cards, short-term installment loans, or even payday loans to fund these expenses.

The good news is that there’s a better option – pay on demand.

In this article, we’ll explore more about pay on demand, how to access it, and why it’s the smart choice for getting the cash you need for immediate spending.

The Perils of Post-Holiday Debt

Once the holiday season is over, many may end up with a “debt hangover.” Worse still, every week or month that they fail to pay off these debts in full, they’ll accrue more interest on the outstanding balance. Credit card companies demand monthly payments that typically have very high interest rates attached to them – some even have interest rates up to 29.99% APR. Likewise, lenders of small-dollar amounts usually charge very high fees and interest rates to borrowers.

Of course, these personal loans can lead to bad debt. What you may not know is that they also have the potential to harm your credit score. Some payday lenders will even deduct what’s owed to them from your bank account, leaving you unable to pay for necessities such as food, transport, and childcare.

What Is On-Demand Payment?

On-demand payment is exactly what it sounds like: a means for people to access wages that they’ve accrued but not yet received instead of having to wait for their next weekly or monthly payday.

It’s also known as Earned Wage Access (EWA), and it’s becoming an increasingly common element of employee benefit packages.

How Does On-Demand Pay Work?

Typically, you can access your already-earned wages instantly through a mobile app provided by your service provider. In the app, you can view your earned wages and request transfers to your bank account or load funds onto a debit or prepaid card. Leading service providers give you additional options, such as picking up cash at Walmart. Some also include additional perks like discounts and special offers, and handy features like budgeting, savings tools and free bill management.

After every completed shift, the app updates with your accumulated earnings which can be transferred on the same day.

Did you know? The best on-demand pay service providers give you choices with how you want to access your money and always provide a free option. Look for the instant deposit feature so that you can access your earned wages in real time in case of emergencies.

Why Use On-Demand Pay?

The option of accessing pay you’ve already earned but not yet collected helps in several ways. First, as discussed earlier, it avoids you maxing out credit cards or turning to expensive short-term loans.

But it also helps you feel less stressed, especially if you are in the lower wage bracket and working paycheck to paycheck. Aside from holiday spending, you could be exposed to situations where unplanned but significant expenses for issues like child care or healthcare can put family finances under pressure.

Solving these problems and trying to borrow money at short notice is time-consuming and often embarrassing.

How Can It Benefit Your Employer?

More than 7 in 10 employees say they’re stressed about their finances, which, in turn, affects their mental and physical health and workplace productivity.

If employees are worried about their debts or how they’ll feed their families while they wait for payday, it’s hard for them to be fully present at work and contribute with all they have to offer.

When financial stress is reduced through the option of collecting their pay on demand, employees are more motivated and focused on their work.

The Pros and Cons of On-Demand Pay

Pros

Enhanced Financial Management

Having real-time access to your earnings can set the stage for better saving and budgeting habits. Instead of planning out how to allocate your wages for a week or more, you can manage your finances day by day. For instance, you might decide every week to put all your earnings for one day into an interest-bearing savings account.

By accessing wages more frequently, you have another option for paying for important or unexpected expenses that doesn’t come with the extra costs associated with overdrafts and payday loans.

Increased Job Satisfaction and Productivity

When people know their efforts translate into immediate rewards, they’ll feel more motivated about their job and, in turn, more productive. That’s a win-win outcome for employees and employers alike.

Employers who offer EWA found that 89% stay longer, and 79% would even switch to an employer who offers it. EWA is an employee benefit that is available to employers at no cost, yet it gives them infinite ROI by helping recruit, retain, and engage their workforce.

Cons

Limited Employer Participation

Availability for some on-demand pay services may be limited to workers whose employers have partnered with a fintech company that offers EWA.

Check with your employer to verify whether they support this payment option.

Compliance Conundrums

Tracking hours worked and calculating taxes are essential in ensuring compliance with regulations. Moreover, tax compliance related to pay on demand is still taking shape and continually being updated.

The solution lies in ensuring the company has a configurable payroll solution in place that allows payroll teams to modify their processes to accommodate the on-demand payroll method while remaining compliant with tax rules and liabilities as they change.

Without an Integrated Technical Backed, On-Demand Pay Might Affect Payroll Reconciliation

Payroll reconciliation – ensuring what’s recorded in the company payroll matches the general ledger – is an accounting mechanism essential for maintaining an accurate record of a company’s financial health.

A real-time payroll reconciliation system with a unified data core will ensure that on-demand payments are accurately processed and balanced with the financial health of the company.

Pay On Demand FAQs

What Are the Advantages of On-Demand Pay?

On-demand pay gives you access to instant liquidity when you need it most. Choosing when to withdraw funds allows you to better manage your finances and deal with unexpected bills — less the stress!

As we outlined above, pay on demand is good for employers, too. Without personal finance worries to distract them, workers will be more focused and productive.

How Much Does On-Demand Pay Cost?

Pay on demand gives workers direct access to already earned wages either for free or for a small fee, depending on the provider. It’s a more attractive option than a payday loan, as no money is being borrowed, there’s no interest, and users don’t risk falling into a debt spiral. 

How Do I Access My Pay On-Demand?

EWA allows you to quickly access the money you’ve already earned before payday in several ways. The funds can be loaded onto a debit or prepaid card, transferred to your bank account, or even picked up as cash at Walmart.

With EWA providers like Payactiv, you can even use your earned wages to pay for services like Uber and Amazon and pay your bills directly in the app.

Does Your Employer Offer Pay On Demand?

If your employer is concerned about employees getting into debt this holiday season, they should consider offering pay on demand as part of their financial wellness benefits package, such as that provided by Payactiv.

Let your employer know about Payactiv’s Service so they can book a demo and get started.