On-demand pay is an increasingly popular payroll innovation that offers advantages to both employees and employers. With on-demand pay programs, employees can elect to receive their day’s pay right after earning it rather than having to wait until the scheduled payroll period ends.
It’s an innovative concept—particularly since, for the past 80 years, biweekly pay periods have reigned supreme. According to the U.S. Bureau of Labor Statistics, 36.4% of employers pay their employees biweekly, while 32% process payroll on a weekly basis. For legions of cash-strapped workers, that’s a long time to wait.
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Now, employers have the option of adding employee choice to their payroll schedule—and in this era of soaring inflation, the Great Resignation and a growing gig economy, it’s worth consideration.
The Nuts and Bolts of On-demand Pay Plans
On-demand pay programs are linked to an employer’s time and attendance software. There is no cost to employers; workers are charged a transaction fee ranging from $1 to $3. For workers, the benefits are:
- After clocking out, they can request some or all of the day’s pay via a simple smartphone app.
- They are allowed a fixed number of requests per pay period.
- Their pay is then transferred to their bank account, pay card or debit card—sometimes, immediately or within a couple of business days.
- At the end of the standard pay period, they receive their remaining pay on schedule minus taxes, benefits and any other garnishments for the entire pay period.
Why Employees Love On-demand Pay
According to a recent, post-pandemic survey, 64% of U.S. consumers are living paycheck to paycheck. A full 45%of workers report financial stress with 1 in 5 workers saying they run out of money between paychecks. Low-wage hourly workers are at particularly high risk.
On-demand pay can improve workers’ cash flow, so they can pay bills on time, avoid late fees and stay away from exorbitant payday loans. It can also act as a safety net against unexpected expenses.
In other words, on-demand pay programs improve workers’ financial well-being, helping build good credit while easing their stress. That’s why 60% of employees say that on-demand pay would improve their lives.
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Why Employers Chose On-demand Pay
Employers like on-demand pay because it gives them a practical, valuable, highly prized benefit—at no cost to the company. Right now, on-demand pay is the “unicorn” of employee benefits, although more employers are poised to adopt it.
In the midst of the current talent shortage, offering an on-demand pay option could give employers a significant recruiting and retention edge.
Furthermore, by helping workers improve their financial wellness—a benefit that 93% of employees want—employers will not only cultivate a more-productive, more-focused workforce, but also help their people improve their lives.