After months of dealing with rising costs and inflation, workers across the United States are doing what they can to make ends meet. Many employers are choosing to implement on-demand pay to ease some of the extra financial burdens their employees face.
As it turns out, on-demand pay programs, or programs that allow employees to have faster access to the money that they earn, can be both beneficial for employers and employees alike.
But how?
In this article, we’ll explore the topic of on-demand pay in depth. You’ll find out more about what on-demand pay is all about, the specific advantages for companies and employees, the pros and cons, and more. Plus, we’ll go through what you need to know about using payroll software like Factorial to implement an on-demand pay program in your company. So, without further ado, let’s get started.
Table of Contents
What is on-demand pay?
On-demand pay, also known as earned wage access (EWA), instant pay, or off-cycle pay, is a way of delivering payroll to employees by giving them direct access to some or all of their earnings. That’s to say, instead of waiting for a payroll cycle to end, employees have the option to receive payment as they earn.
This is most commonly done through an on-demand service provider. Basically, a platform that allows employees to make requests and automatically withdraw part of their paycheck ahead of time. The on-demand pay process differs from company to company, as does the amount of their earnings that companies allow employees to withdraw.
On-demand pay benefits for employers
As financial wellness becomes increasingly more important, on-demand pay is becoming more of a valued benefit for employers and employees alike. Here are some reasons why so many companies choose to adopt this payroll component.
An attractive benefit
According to a recent report, 64% of workers in the United States are living from paycheck to paycheck. In comparison to last year, 9.3 million more said that they are being “stretched too thin.”
More than ever, flexible earned-wage access programs help employees pay monthly bills, cover gas, and put food on the table. Meaning that on-demand pay is both an attractive benefit for employees and potential candidates.
A more satisfied workforce
As a result of implementing payroll practices like on-demand pay and expense reimbursement, employers can benefit from having more satisfied employees and fewer payroll-related disputes. Since employees can access their earnings whenever they’d like, there is less stress and fewer payroll management problems altogether.
It shows you care
Offering employees benefits like on-demand pay sends the right message to your employees. It shows that you have your employee’s interests at heart and take a vested interest in their financial well-being. Ultimately, your decision to incorporate will generate feelings of trust and create a more caring and positive workplace environment.
On-demand pay benefits for employees
Whether employees use on-demand pay to cover expenses or seize an investment opportunity, there are several known benefits. Here are a few to consider:
Reduced financial stress
For many employees, on-demand pay provides them with flexibility while planning and making payments. It also serves as a backup in case there’s an unexpected emergency that they need to immediately take care of. Rather than worry about whether recent medical or auto-repair charges will bounce, employees can rest assured that they can access money without having to wait.
Increased autonomy
Additionally, this model provides employees with more control over their finances and reduces the amount of stress that they may have for planning out budgets and financial issues. It can make your team feel more secure, even if it is not a benefit that they regularly use. Simply having the option to access earnings gives employees a feeling of financial empowerment.
Better long-term financial stance
If employees have limited funds and are forced to make financial decisions out of necessity, this could lead to long-term problems. For example, an employee might need to take out a high-interest payday loan to cover health expenses. Chances are, this will only lead to future debt and may even lead them to take out more predatory loans.
Having immediate access to earnings will provide an extra security net and prevent them from taking unnecessary financial risks.
Pros and cons of on-demand pay
While there are clear advantages to providing employees with on-demand pay benefits, it could be problematic for some. To see if it’s right for your situation, you’ve got to balance out all of the opposing factors. Here are some of the key pros and cons to consider so you can quickly see if on-demand pay is a good fit for your company.
Pros
- More transparency- Giving employees the option to access their earnings on an ongoing basis will remove any uncertainties about how much they are paid and when.
- More robust benefits- Having benefits like on-demand pay can help you stand out from other employers while attracting new talent. Additionally, benefits like these can really make employees’ day-to-day lives easier and strengthen their commitment to your organization. This will ultimately lead to increased productivity, engagement, and retention levels.
- Faster and more convenient- Employees can access their earnings when and where they need to. Automating this process will make things quick and efficient.
- Fewer worries and distractions- Even before inflation and covid, 1 in 3 workers said that their personal finances were distracting them at work. This will help to mitigate some of the concerns that your employees might be dealing with, especially during unstable times.
Cons
- The set up- Perhaps the biggest obstacle that many companies face with on-demand pay is the initial steps of adopting it to their existing payroll setup. Traditional biweekly payroll isn’t calculated on an ongoing basis, so this presents problems for companies that don’t have the right hr tech stack to get started.
- An extra layer of complication- If your company isn’t using any sort of payroll tools to automate the process, calculating payroll tax and deductions, staying compliant with payroll laws, and organizing employee documents can be overwhelming, to say the least. Without paperless payroll management, on-demand pay might be more than your company is ready for.
- It can make compliance more difficult- Since on-demand payment withdrawals are not exempt from taxes, employers need to be careful to calculate and withdraw taxes automatically. This can be problematic for those who take out taxes at the end of every biweekly or monthly pay cycle.
Is on-demand pay right for your business?
As we’ve discussed, there is much to be gained from an on-demand payroll. And perhaps you are unsure if it’s right for your company’s payroll structure. Here are a few key questions to ask when evaluating whether or not it’s right for you:
- What kind of on-demand pay system would your company ideally put in place? Think about how much of their earnings employees would be allowed to withdraw before each pay cycle. Consider your employee’s needs and what your company is capable of offering.
- Is an on-demand service costly for your company? Some on-demand pay services charge a fee and others don’t. So you’ll want to be sure that you choose an option within your company’s budget.
- Does your company have any training material about financial wellness? With on-demand pay, your team will have more financial autonomy. As an additional bonus to this, you could provide them with additional financial education resources. Like material that covers how to take care of personal budgeting and healthy financial practices. It will ultimately help employees to make better financial decisions and add to their overall well-being.
- Are you currently dealing with any compliance-related payroll issues? If your payroll team is already having difficulties with taxes and meeting deadlines in your company’s compliance calendar, on-demand pay might not be top on your list. For an on-demand pay system to work well, simplifying and streamlining your payroll processes must come first.
Simplify payroll with Factorial
When it comes to your company’s operations, payroll is a top priority. After all, your team depends on your company to have solid payroll processes in place. Failure to have a reliable and accurate system will result in frustration, legal problems, and negative backlash. Even seemingly careless mistakes can be costly, especially for smaller businesses.
But staying on top of payroll intricacies and changing employment laws can be arduous and even paralyzing. And if you manage payroll and employee documents manually, it can stop your company’s growth right in its tracks and weigh you down with hours of extra administrative work.
That’s where Factorial’s payroll management solution comes in. With our all-in-one software, you can automate the process so that it’s quicker, safer, and provides more insights about your company’s payroll and spending. Why not give Factorial a try and start saving now?
