Organizational Wellness

A Guide to On-Demand Pay: How It Works, Benefits, and Examples

Last Updated Jan 22, 2025

Time to read: 10 minutes

Imagine a payroll system where employees don’t have to wait until payday to access the money they’ve earned — one that puts financial control back in their hands.

On-demand pay, sometimes referred to as earned wage access (EWA), is transforming how businesses approach payroll, and offering more flexibility in the workplace.

With nearly 80% of working Americans favoring on-demand pay over traditional payroll schedules, HR managers have an opportunity to support employee financial wellbeing with a simple shift. Discover exactly how on-demand pay works — and why it’s an innovative approach to consider for your benefits offerings.

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What Is On-Demand Pay?

On-demand pay is a payroll solution that gives employees access to their earned wages before the standard payday, offering more financial control. Instead of waiting for the typical payroll cycle, employees can tap into the money they've already earned when they need it, which can make a significant difference in their financial wellness.

With the growing demand for flexible payment solutions, on-demand pay is reshaping traditional payroll practices. Employees increasingly desire flexibility in how and when they get paid, and providing that can help support those financial goals.

Comparison: Traditional Payroll vs. On-Demand Pay

The main difference between on-demand and traditional payroll processing is its flexibility. Regular payroll operates on fixed schedules, where employees receive their wages every two weeks or monthly. On-demand pay, on the other hand, allows employees to access their wages as soon as they've earned them. This helps reduce fiscal stress and aligns with the growing demand for workplace benefits that support financial wellness.

How Does On-Demand Pay Work?

On-demand payments are typically processed by third-party vendors, allowing you to offer a more flexible payroll service to employees — without needing to spend countless hours making a complete switch.

Third-Party Involvement

When you implement on-demand pay, third-party providers handle integrating it with your existing payroll system. They even typically manage the logistics of transferring wages to employees when they request an on-demand payment.

When an employee asks for access to their earned wages, the third-party provider processes the payment on behalf of the company and sends the funds directly to the employee’s bank account. This streamlined process allows you to offer early wage access without disrupting the regular payroll cycle for other employees.

The Employee Experience

For employees, accessing on-demand pay is pretty straightforward. If they want to receive a portion of their earned wages before the next scheduled payday, all they need to do is use the app or platform provided by the third-party vendor.

Employees can request their wages on a case-by-case basis, withdrawing a portion of their earned income when they need it. For example, if an employee requires early access to wages for one week, they can elect to use on-demand pay. Once their request is processed, the funds are transferred to their account — often within minutes. The flexibility of this system allows employees to return to the regular payroll schedule whenever they choose.

Examples of On-Demand Pay Providers

Several companies partner with on-demand pay providers to meet the growing demand for flexible payroll. These vendors enable businesses to offer earned wage access without disrupting normal payroll cycles.

Instant Financial

This provider allows businesses to give their teams instant access to a portion of their earned wages, often within seconds of completing their work. Large chains such as McDonald's and Taco Bell use Instant Financial to provide their employees with this level of financial flexibility, helping them stay competitive in today’s job market. By offering on-demand pay, these companies improve employee satisfaction and reduce turnover by 50% according to Level FT.

Even/InstaPay

Walmart, one of the world’s largest employers, partners with Even to offer its on-demand pay solution, InstaPay. Through InstaPay, Walmart associates can access their earned wages on a weekly basis, rather than waiting for the traditional two-week payroll cycle.

This service has proven popular among large corporations, as it supports employees' financial needs without creating significant disruptions to existing payroll systems. The widespread use of InstaPay highlights how major companies are using earned wage access to promote financial wellness and reduce any financial stress that often accompanies traditional payroll cycles.

Gusto’s Clair On-Demand Pay Program

Gusto, a well-known payroll provider, offers its own version of on-demand pay through the Clair On-Demand Pay program. This particular service integrates smoothly with a company’s existing payroll processes so that employers can offer early wage access without altering the normal payroll schedule.

By offering such a seamless solution, Gusto ensures that employers can meet the demands of their workforce without the complications that often accompany payroll modifications.

Benefits of On-Demand Pay

On-demand pay offers significant advantages for both employees and employers, creating a win-win situation by supporting financial wellness and enhancing workplace performance.

For Employees

Reduced Financial Stress

Financial stress is a common issue, with a CNBC survey revealing that 70% of all Americans are stressed about money. On-demand can help alleviate some of this burden by giving employees access to their earned wages when they need it instead of waiting for a scheduled payday. This flexibility acts as a financial safety net, allowing employees to cover unexpected expenses, such as medical bills or car repairs, without the anxiety of waiting for their paycheck.

Enhanced Financial Wellness

On-demand pay also plays a key role in promoting financial wellness. With the ability to access wages early, employees can make more informed spending decisions and adjust their budgets in real-time. Whether it’s setting aside funds for big purchases or covering unforeseen costs, earned wage access helps employees manage their finances more effectively, leading to greater financial stability and peace of mind.

For Employers

Increased Employee Retention

Flexible compensation programs show that employers trust and respect their staff, which can go a long way in fostering loyalty. When employees feel that their financial needs are being acknowledged, they are more likely to remain committed to the organization. This sense of trust and transparency helps build a positive work environment that encourages long-term retention.

Attracting Top Talent

These days, attracting the best candidates for a role in your company takes more than the standard benefits. On-demand pay is a powerful tool for recruitment, as nearly two-thirds of job candidates consider compensation one of the most important factors when evaluating job opportunities.

By providing EWA, companies demonstrate how they prioritize the financial health of their employees. This in turn makes them more attractive to top talent who value flexibility and financial freedom. Eighty-one percent of workers consider on-demand pay a contributing factor in accepting a job offer based on a recent Ceridian study.

Improved Employee Performance

Financial wellbeing is directly linked to employee performance since reducing financial stress allows employees to focus more on their work. In fact, 88% of business leaders offering earned wage access observed decreased stress among employees, according to Employee Benefit News. On-demand pay signals that the company is invested in its employee wellbeing, which can lead to higher productivity and job satisfaction.

Tax Implications for Employers Using On-Demand Pay

While on-demand pay offers clear benefits to employees who want a little more flexibility with their paychecks, it’s important for HR teams to also consider the business and tax implications. Managing payroll taxes can become a bit more complicated when you make the shift from a traditional payroll cycle to an on-demand pay model.

How Tax Processing Differs

In a standard payroll system, taxes are automatically deducted from an employee’s paycheck at regular intervals — generally on a weekly, biweekly, or monthly basis. However, the process naturally changes slightly with on-demand pay. Most third-party providers don’t automatically deduct taxes from early wage withdrawals. Instead, the taxes on these wages are often taken out during the next regular pay period.

This means that, while employees can access their earnings early, the employer still needs to make sure taxes are processed at the appropriate time. Some payroll providers may offer automatic tax deductions as part of their service, but it’s important for HR teams to understand how each provider handles this aspect.

Key Tax Considerations

For HR leaders managing these tax implications, partnering with a provider that offers integrated tax services is an easy way to manage it. By choosing a provider that automatically processes tax deductions with each on-demand payment, companies can avoid any headaches in their normal payroll tax obligations.

Another way to smooth this process is by maintaining accurate records. Since on-demand pay splits wages across multiple pay periods, it’s important for HR teams to keep detailed records of each transaction to ensure tax compliance. Staying organized and partnering with the right provider can help companies implement on-demand pay without unnecessary tax complications.

Challenges and Solutions in Implementing On-Demand Pay

Although on-demand pay systems have provided benefits for both employees and employers, implementing them comes with certain challenges. From ensuring smooth integration with current payroll processes to maintaining regulatory compliance, careful planning can help businesses navigate these hurdles successfully.

Integration with Existing Payroll Systems

One of the primary challenges when implementing on-demand pay is integrating the new system with your existing payroll infrastructure. A seamless shift is especially important as disruptions to regular payroll processes can lead to confusion among employees.

To address this, HR can collaborate with the IT department. Together, these teams can address technical considerations like security protocols and user authentication to make sure things run smoothly. This collaboration ensures that both employee data and payroll processes are protected, minimizing the risk of errors or delays that could affect employee trust.

Regulatory Compliance

To stay compliant with labor laws and tax regulations, you can conduct a comprehensive review of the legal implications associated with early wage access. You can also collaborate with legal experts to stay on top of any regulatory updates.

Employers are responsible for aligning their on-demand pay system with local and national labor laws, including tax codes and other financial regulations. Compliance checks within the system are one way to provide an added layer of legal protection so that your organization can reap the benefits of on-demand pay.

Educating Employees and Management

All of the advantages will be useless if employees don’t understand how to use the on-demand pay system. That’s why it is important to educate them about how it works, as well as the benefits and responsible usage.

Offering training programs and informational materials can bridge the knowledge gap and help address this challenge. Clear communication channels are another way to improve understanding of these systems. This includes dedicated support teams and FAQs to address common concerns.

Monitoring and Evaluation

Once the system is in place, it is important to continue monitoring its impact on different aspects of the business. HR can set up metrics like employee satisfaction and financial stability to measure the success of the new system.

Regular feedback sessions can also provide valuable insights. These metrics and KPIs can help your business make data-driven adjustments to get the most out of on-demand pay.

Support Employee Wellbeing with Flexible Benefits

Flexible pay systems like on-demand pay empower you to better meet your employees’ needs. Coupled with a flexible wellness program, these benefits give employees more control over both their finances and personal wellness journey.

With customizable wellness resources, such as fitness, mental wellness, and financial apps, organizations can address the unique needs of every team member. In fact, 98% of HR leaders say wellbeing programs reduce turnover. This dual flexibility fosters a healthier, more resilient, and loyal workforce.

Speak with a Wellhub Wellbeing Specialist to explore how flexible wellbeing benefits can strengthen your workplace!

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