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on demand pay

What is On-Demand Pay and How Can It Benefit Employers and Employees?

Payroll
Article
01/24/2020

In an era of same-day shipping, on-demand movies, and ubiquitous mobile access, individuals are increasingly expecting prompt access to nearly anything they need. For employees, this also means getting quick access to their paychecks. Fortunately, employers don't have to change their payroll schedule to meet this need; instead, they can leverage an on-demand pay service to their employees in partnership with their payroll provider.

On-demand-pay allows staff to access income as it is earned (typically up to a certain dollar amount each pay period), rather than waiting until the next payroll cycle. Fees for this service are incurred on an as-needed basis and paid only by employees who use it, making this an ideal addition to an employee benefits package.

On-demand-pay benefits to employers

While many employers are looking for helpful, low cost benefits to offer employees, the price tag isn't the only benefit to employers. In fact, integrating on-demand-pay into the company payroll system can actually save organizations money in multiple ways.

Higher productivity

According to a PwC employee financial wellness survey, one in four employees have been distracted at work by personal finance issues within the past year. Of those who responded that they were distracted, nearly half spent three or more working hours thinking about or trying to handle or resolve the problem.

By helping improve employees' financial situations, employers can have less stressed, less distracted, and a more productive workforce. If and when an issue does arise, employees can use the pay on demand feature when they need help.

Improved engagement and retention

Financial stress doesn't just cause a decrease in productivity — it could lead to lower levels of pay satisfaction from employees, increased absenteeism, and increased turnover rates.

Employers can offer the perk of quick access to pay as a recruiting incentive and engagement tool. With on-demand-pay, staff know that they can have private, secure access to a pay advance if needed without the embarrassment of asking the employer directly.

Better relationships with employees

By providing this helpful service, employers can demonstrate their commitment to helping employees find a healthy work/life balance and maintaining good physical and mental well-being. This can increase communication and trust, leading to better relationships and more loyal, dedicated employees.

On-demand-pay benefits to employees

Having access to their money on their terms can give workers a sense of empowerment and financial stability, ultimately leading to happier, more productive employees. The immediate benefit of quick access to money is also accompanied by several other helpful benefits.

Financial management and wellness

A Federal Reserve study found that over 40% of adults would not be able to cover an emergency expense of $400 if one arose. When emergencies occur, many workers turn to payday loans, credit cards, or other high interest stop-gap options that often exacerbate the problem. If employees have access to a low-cost way to resolve financial emergencies quickly, they can better maintain financial stability without going further into debt, even in the face of unexpected expenses.

Reputable on-demand-pay providers will often provide a comprehensive employee portal that allows workers to quickly process a pay advance when one is needed. The portal also includes access to financial wellness tools and training materials to help employees maintain financial stability over the long term.

Increased productivity

By having access to a tool that can help them resolve monetary issues quickly, employees might worry less about their lives outside of work and focus on being more productive while at the office. Higher productivity can lead to increase job satisfaction and performance, allowing staff to do their best work and be proud of it.

Physical well-being

Stress has long been known to cause significant health problems, and financial issues are a leading cause of stress for employees. By helping to reduce financial worry and stress, employers can help their employees maintain a healthy work/life balance and do their best work while on the job.

Job stress is estimated to cost American businesses nearly $300 billion a year, so reducing stress and improving physical well-being has an added bonus for employers. Providing access to pay-on-demand services can improve employees' mental mindset, decrease distractions and resulting work accidents, and reduce medical costs due to stress-related illnesses. In short, improving employees' financial standing can improve their overall quality of life.

Issues of pay-on-demand

While on-demand pay offers multiple benefits to both employers and employees, there are still some factors to consider before implementing a program. By carefully exploring these factors, employers can be better equipped to roll out an on-demand program and clearly communicate all the facts to their employees.

Per-use transaction fees 

Not all on-demand pay service providers are equal. While some companies offer the service at a reasonable cost, others may be offering a payday loan in disguise. If you have your employees' best interests in mind, review the fee schedule they will be charged for using the service.

Long-term financial stability

For those workers who are constantly living paycheck to paycheck, constant use of an on-demand pay service, even a reasonably priced one, is simply perpetuating a cycle of financial mismanagement. Help your employees get on the path to long-term economic stability by choosing a service provider that offers more than just pay advances; financial wellness tools and education can help employees make better choices today to build a stronger tomorrow.

Constructive receipts

To the IRS, constructive receipts mean that employees must pay taxes on all earned income, even if it is not physically received. Workers with poor financial literacy may be unpleasantly surprised when they receive a paycheck after an advance is given and a comparatively high amount of taxes is taken out, so it's important to educate employees on this process in advance to avoid misunderstandings.

Working with a reliable payroll provider can help you offer your workforce flexibility in getting paid when they want, how they want, and in a way that benefits both employer and employee. Learn more about pay-on-demand options available for businesses.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.