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

Human resource managers are always looking for ways to keep their employees happy and engaged. On-demand pay is an innovative payroll system that can do just that, making it a great option for HR managers to consider. 

On-demand pay, sometimes called earned wage access (EWA), is a payroll system that allows employees to receive their wages as soon as they have completed their work. It keeps money in employees’ pockets and gives employers more flexibility in paying them. This type of early access payment system has become increasingly popular among businesses, especially as employees expect more flexibility in the workplace. And it’s popular with employees too, with 79% of working Americans prefer an on-demand pay schedule to regular payroll.

How Does On-Demand Pay Work?

On-demand payments are usually processed by third-party vendors. Companies can partner with these pay providers to offer a more flexible payroll service to employees. 

If an employee wants earned wage access, typically, they can do this on a case-by-case basis per pay cycle. For example, if one week they want their earned wages before regular payroll hits, they can elect to have their wages on demand for that period. Then, they can return to the regular payroll with their next paycheck.

On-demand pay processing differs slightly from regular payroll processing. With on-demand, a third-party provider will send employees the money on your behalf. When an employee receives a payment from you through the provider, it is usually transferred to their bank account. 

On-Demand Pay Examples and Providers

There are many vendors that offer on-demand payment services to companies. For example, Instant Financial has become increasingly popular as more employees want earned wage access options. Many large chains, like Mcdonald’s and Taco Bell, use Instant Financial.

Walmart uses InstaPay, a product of Even — another earned wage access provider. Through Even, Walmart employees can get their pay weekly.

Gusto is another company that offers on-demand pay to employers. Through Gusto’s Clair On Demand-Pay program, companies can provide employees with earned wage access without disrupting their normal payroll processes.

Tax Implications for Employers Using On-Demand Pay

It’s easy to see why on-demand pay looks attractive to employees. But HR teams also need to consider the business impact of this payroll system.

Tax implications are an important consideration for companies that want to implement on-demand pay. Most payroll systems are set up to process taxes on a regular basis (weekly, biweekly, or monthly). When companies pay their employees on a regular schedule, taxes are generally taken out of an employee's paycheck automatically. 

But with on-demand pay, taxes are not typically taken out of the payment amount, unless the provider offers that service. Often with these flexible pay providers, the taxes an employee owes are taken out during the next regular pay period.

What Are the Employer Benefits of Implementing On-Demand Pay?

On-demand payment systems can foster a flexible environment that shows your organization prioritizes employees’ financial wellbeing. It can also offer you a range of benefits, including increased retention, attracting more candidates, and improved employee performance.

Increased Employee Retention

Flexible compensation programs can help increase retention for companies. By allowing employees to access their wages whenever they need it, employers are sending their employees a message of trust, respect, and understanding. This level of transparency can create an atmosphere of loyalty and appreciation, which can lead to higher retention rates.

Attract More Candidates

Nearly two-thirds (63%) of job candidates say compensation is one of the most important factors when they're looking for a new job. On-demand pay shows employees that you value compensation as well by recognizing your staff has important and unique financial needs and goals.

Improved Employee Performance

Since offering on-demand pay shows employees the company is invested in their wellbeing, it can also lead to an improved commitment to the organization. Employees are more apt to be engaged while they're at work and take ownership of their tasks, driving more motivation. This motivation can help increase higher productivity levels and job satisfaction among employees.

What Are the Employee Benefits of On-Demand Pay?

Earned wage access provides employees with the flexibility and financial security necessary to stay focused and productive at their jobs. It can support financial freedom and provide them with a greater sense of security.

Reduces Financial Stress

Seventy percent of Americans feel financially stressed, according to a survey by CNBC. On-demand pay can help mitigate some of that stress, as it gives employees access to their wages when it works best for them instead of having to wait until regular payroll hits. Employees can access their pay when they need it, eliminating anxiety waiting for a standard payday if unexpected costs arise.

Drives Financial Wellness

On-demand pay is a financial wellness benefit. It gives employees more control over their finances and helps them better manage their personal finances in order to achieve their goals. Employees can make more informed spending decisions based on how much they have earned for the week or month.

Employees can also easily adjust their budgets if unexpected expenses arise, like a medical bill or car repair. On-demand pay gives employees the autonomy to manage their finances more precisely, allowing them to plan ahead and put aside money for big purchases or financial goals.

Show Employees You Prioritize Their Wellbeing

Flexible compensation plans are a way of showing employees you care about their financial and general wellbeing. By prioritizing the wellbeing of your employees, you can attract and retain high-quality candidates.

You can promote wellbeing even further with a wellness program. Your employees are the foundation of your company’s success. A wellness program can provide employees with the resources, guidance, and support they need to maintain physical and emotional wellbeing. You can help drive the success of your employees through your wellness program.

If you want to implement a wellness program to supplement your existing benefits, talk with a Wellbeing Specialist today about how we can help!

References

• Dhue, S. & Epperson, S. (2023, April 11). 70% of Americans are feeling financially stressed, new CNBC survey finds. Retrieved May 6, 2023, from https://www.cnbc.com/2023/04/11/70percent-of-americans-feel-financially-stressed-new-cnbc-survey-finds.html. 
• Gusto. (2023, February 9). Clair On-Demand Pay via Gusto Embedded Payroll. Retrieved May 6, 2023, from https://embedded.gusto.com/blog/clair-on-demand-pay-via-gusto-embedded-payroll. 
• Ogletree Deakins. (2022, September 2). On-Demand Pay: Employees Love It, But Tax Implications Linger. Retrieved May 6, 2023, from https://ogletree.com/insights/on-demand-pay-employees-love-it-but-tax-implications-linger. 
• PRWeb. New Study Finds 79% of Working Americans Want On-Demand Pay. (2022, September 7). Retrieved May 6, 2023 from https://www.prweb.com/releases/new_study_finds_79_of_working_americans_want_on_demand_pay/prweb18881096.htm. 
• Remote. (2022). Global Benefits Report 2022. Retrieved May 6, 2023, from https://remote.com/global-benefits-report. 
• Shaw, E. (2017). McDonald's Franchisee Offers Employees Daily Access to Earned Wages via Mobile App. Retrieved May 6, 2023, from https://hospitalitytech.com/mcdonalds-franchisee-offers-employees-daily-access-earned-wages-mobile-app. 
• WorkLife. (2022, October 17). Flexible Compensation Benefits Will Boost Retention and ROI. Here’s How. Retrieved May 6, 2023, from https://www.worklife.vc/blog/compensation-benefits.