Module 1

Understanding On-Demand Pay

Gain a better understanding of on-demand pay benefits and the various vendor models available.

In this module, you will learn about the following:

  • The definition of on-demand pay
  • The benefits and potential pitfalls of different on-demand pay solutions
  • The different vendor models you should evaluate for an on-demand pay benefit
  • The compliance and security risks you need to understand for each model

You may have heard the buzz about the hottest new trend in employee benefits, but what really is on-demand pay, and what are the different vendor models associated with delivering the solution for companies like yours?

What is On-Demand Pay?

On-demand pay is a voluntary benefit that allows employees to access their earnings before their traditional payday. Payroll is becoming part of the on-demand economy. Employees can now receive their pay as they need it, just like they can order groceries for their family, their favorite morning coffee or a much-needed rideshare.

A lot of different vendors are providing their own versions of on-demand pay, so you should evaluate their capabilities carefully before making a final decision on your preferred on-demand pay benefits provider.

Why On-Demand Pay is Needed

It’s no wonder that on-demand pay has moved to the forefront of employers’ benefits checklists given the data on American workers’ well-being:

Today’s employees deserve a pay experience that helps them meet their financial obligations and matches the speed of the rest of their lives. Technology has advanced so far that the phrase “waiting for payday” may soon be as outdated as a rotary dial phone, helping financial well-being become more achievable. That said, every vendor will promise different degrees of benefits for both employees and employers. What they often don’t discuss are the potential pitfalls of which you should be aware.

Employee Benefits and Potential Pitfalls

COVID-19 was a catalyst for increasing America’s focus on financial well-being. Stimulus checks and child tax credits have been helping to support America’s workers as we slowly emerge from the pandemic. This time has enabled workers to pause and reflect on what is important to them in a job. The “Great Resignation” began in April when over 4,000,000 workers resigned from their jobs. Furthermore, it is estimated that 25-30% of workers will resign from their current employer as the pandemic comes to an end.

So what are America’s workers looking for today?

Employee benefits

  • Improved financial well-being, with less debt and more savings
  • Higher engagement with their employer
  • A willingness to work more hours
  • Higher productivity

Potential employee pitfalls

  • Will your vendor allow your employees to transfer their money to an account of their choosing or does the vendor dictate where the payment will get disbursed?
  • Will the employees’ regular paycheck explain and reflect changes incurred from early wage disbursements in a simple and transparent way to avoid employee confusion?
  • Will your employees have a single place to go for questions and problem resolution?
  • Is your vendor’s revenue model aligned with the best interests of your employees? For example, some vendors make money only when your employee spends money, which is not always conducive to saving.

Employer Benefits

The “Great Resignation” and worker re-evaluation of what is important to them in a job has created what Josh Bersin, esteemed HR analyst, refers to as this “crazy war for talent.” Companies of all sizes and industries are seeking ways to increase retention and accelerate hiring during a severe and unforeseen labor shortage.

At face value, on-demand pay may seem like a benefit designed only to better the lives of employees, but its positive effects are also being felt by employers, specifically:

  • Increased retention – A study from Mercator showed that on-demand pay can reduce turnover by as much as 73%. Higher retention rates can reduce your costs of back-filling positions and improve morale.
  • A better employee experience – Companies that deliver strong employee experience are 2.2x more likely to exceed financial goals, 5.1x more likely to engage and retain employees and 4.3x more likely to innovate effectively. On-demand pay reduces employee stress, and happier employees have been proven to be 31% more productive.
  • Faster hiring – Job postings featuring on-demand pay typically receive about twice as many applications because workers are actively seeking opportunities that provide more flexible pay options.

On-Demand Pay Models

There are four on-demand pay models that companies might consider when determining the best solution to meet their needs. Importantly, all of the four models make significant strides away from the predatory payday loan vendors of the past, which often burdened workers with excessive interest rates that put people further into debt.

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Security and Compliance Criteria

Evaluating an on-demand pay provider’s security and compliance capabilities deserves more attention here as both can put your company at risk if not done with exceptional diligence. Your IT and legal teams should be sure to dig into the following areas before agreeing to partner with any particular on-demand pay vendor:

  • Data encryption – The on-demand pay technology should include mandatory data encryption in transport (ex: SSL, SFTP) and strong encryption methodologies such as AES 256-bit to secure partner data while at rest.
  • Network security – The provider should use firewalls and network access controls and monitor privileged access to applications that process partner data.
  • Access control – The on-demand pay technology should limit employee access to partner data, limit partner data available to the provider, and require secure log-ins and passwords from each employee. The technology should also include multi-factor authentication for cloud-hosting administrator access and individually assigned Secure Socket Shell (SSH) keys for a small group of engineers.
  • Personnel management – Providers should perform employment verification and user training, and conduct routine and random monitoring of employee systems activity, including immediately disabling access to all systems upon termination.
  • Constructive receipt – To remain compliant, providers should take the federal laws of constructive receipt seriously when designing their technology and processes. This can include avoiding self-funding the on-demand pay program and making sure to show an employee’s full earnings in a pay period on their pay stub.
  • State wage and hour laws – On-demand pay providers should make it a point to follow state wage and hour laws, which can be vastly different across the country. Since rules regarding everything from wage discounting to timing of receipt for final paychecks vary from state to state, it’s important to ensure the provider you choose is compliant in states where your company is located.

Key Takeaways

By breaking down the importance of an on-demand pay benefit for today’s employees, the benefits and pitfalls of various models and their operational structure and compliance concerns, you should now be better able to make a more informed decision about the best on-demand pay provider for your company.

Sample RFP Questions

When considering partnering with an on-demand pay provider, it’s critical to holistically evaluate each solution you’re considering in order to make the most educated selection. Thoroughly assessing the product experience for employees and employers, as well as security, privacy and compliance for each solution will help you choose the best solution for your company.

Questions to consider asking based on the teachings in this module are:

  • Do employees have the choice to transfer up to their full net income?
  • Will implementing this program disrupt my current payroll processes?
  • Will employees have immediate access to this benefit on their first day of employment?

Receive the Sample On-Demand Pay RFP