Our society is moving toward giving people what they want, when they want it. Bill payments, movies, rides, financial services, and more can all be done with apps, and most are available nearly immediately. It may come as no surprise, then, that employers are following suit by offering on-demand pay so employees have more say in when they are paid rather than sticking with a rigid pay schedule.
On-demand pay is exactly what it sounds like—a way for employers to allow employees to access their pay on demand instead of waiting for the standard payday. On-demand pay is often implemented through a third-party app, coordinated by a payroll provider, to give employees early access to wages earned.
How Does On-Demand Pay Help Employees?
On-demand pay primarily reduces employees’ waiting time. Not having to wait for payday helps employees better manage their finances and provides for less financial stress over the timing of bills and payments. This is especially relevant for the millions of people living paycheck to paycheck.
Having quick access to pay before a standard payday can enable employees to manage an unexpected emergency, which reduces stress and anxiety for those in these situations. Overall, it can also reduce financial problems that result from inflexibility in pay dates.
How Does On-Demand Pay Help Employers?
There are also benefits for employers offering on-demand pay. For example:
- Employers can use it as a recruiting and differentiation tool, as immediate pay access is a benefit not all employers offer. This may be especially useful in the first weeks after employees are hired, during which they usually have to wait the longest between paychecks.
- It can help with retention because the convenience of quick access to pay is beneficial for employees.
- Emergencies can become less stressful with on-demand pay, which means less of a negative impact for employers during these situations if on-demand pay is utilized to reduce the problem.
- If stress levels are reduced, this might decrease the number of absences employees take long term.
Even with these benefits, however, employers need to be careful about how they communicate this process. Employees should understand the limits of the system. Steps may need to be implemented to reduce abuse and help employees budget well and to ensure employees are not being harmed by fees in the process. This type of pay advance can have downsides for employees, as well, so employers should weigh the pros and cons.
When deciding on a provider to use for an on-demand pay system, employers should note that some third-party providers take care of the payroll advance in-house, while others assume the employer will do so. There are also administrative and legal considerations that should be taken into account before implementing such a system.
Does your organization offer on-demand pay for employees? What has your experience been with it? If not, is this something you would consider?
Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.