On-demand pay, also known as Earned Wage Access (EWA), is a flexible payroll solution that allows employees to get their money before the regular pay cycle ends. Gaining access to wages ahead of time carries potential benefits for both employees and employers.
With six out of ten Americans living from paycheck to paycheck, on-demand pay can be an effective talent attraction and retention tool. It provides employees with more control over their finances and can help ease some of the stress related to financial burdens.
Here is what employers need to know about the nuances of the on-demand pay system.
What Is On-Demand Pay?
On-demand pay is a flexible financial solution that allows employees to access their earned wages on an as-needed basis, providing them with greater financial flexibility and control.
With this system, employees can typically request immediate access to a portion of their earned wages before the standard payday, often gaining access within hours or a day. This eliminates the traditional biweekly or monthly pay cycle and empowers employees to manage their finances more effectively.
The on-demand pay process is different for each organization. The company controls the amount of earnings the employee can withdraw before the payday and the frequency of such payments.
How Does On-Demand Pay Work?
On-demand pay platforms work by integrating with a company's existing payroll software. This integration is a necessary first step, as the technology is what facilitates the streamlined nature of earned wage access. It’s often managed through a software and services provider, where employees register to withdraw the available funds to their bank account or to a separate pay card.
When employees need access to their earned wages before the scheduled payday, they can request a specific amount through the software. It tracks employees' work hours and calculates their earned wages based on the company's pay policies.
Different types of on-demand pay include:
- Earned wages – an employee can withdraw some or all of the wages they've earned from the last payday until the moment of withdrawal.
- Instant pay – an employee receives earned wages right after they finish a shift or task.
- Same-day pay – an employee receives wages after completing a day of work.
On the regular payday, the company deducts the advanced amount from the employee's paycheck to reconcile the funds.
On-demand pay platforms generally charge a fee for each transaction. It could be covered either by the employee or the employer.
Benefits of On-Demand Pay
While the on-demand payroll structure is highly beneficial for the employee, it has many advantages for the company, including:
- Improved Employee Satisfaction Rates - Access to wages on-demand can improve employee satisfaction and morale, which in turn boosts productivity and reduces turnover.
- Employer of Choice - In a competitive job market, benefits such as earned wage access can help employers stand. With an average annual turnover being 30%, this can be a game changer.
- Financial Wellness Support - On-demand pay empowers employees to more actively budget and manage their finances, reducing financial stress. This, in turn, can result in improved employee focus, reduced absenteeism, and increased job satisfaction.
- Cost-Effectiveness - While implementing an on-demand pay system may involve initial costs, the long-term benefits can outweigh them. Employers may see reduced payroll processing costs from the elimination of paper and additional administrative work, lower turnover expenses, and increased operational efficiency.
Studies show that over 60% of Gen Zr's would prefer an on-demand daily pay option. Employers who invest in this now, may gain access to the best talent ahead of the competition.
How To Implement On-Demand in Your Business
Implementing an on-demand pay model should be a streamlined process. First and foremost, if your organization is not satisfied with its current Payroll & HR solution provider, should start there. Your company’s payroll and HR partner may already have partnerships and integrations with leading on-demand pay providers. Some things to pay attention to with a prospective on-demand pay provider are:
- Integration with current or prospective payroll software
- Fees
- Security measures
- Software learning curve
- Customer support
Next, determine the parameters of the on-demand pay program, including guidelines regarding the maximum advance amount, frequency of requests, and any associated fees.
Educating employees about the system is an important part of the implementation process. The HR department should strongly consider conducting training sessions to teach employees how to use the platform effectively and answer any relevant questions.
If you plan to implement the on-demand pay system in your organization, we can help you find the right service provider for your needs. Contact us for more information today.
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