Why You Need On-Demand Pay

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

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At a Glance

  • On-demand pay gives employees more control over their finances by allowing them to access their earned wages before the traditional payday.
  • The benefits of adopting on-demand pay include increased retention, better employee engagement, and faster hiring times.
  • When evaluating an on-demand pay vendor, consider which model best suits your needs and ensure security and compliance are top-of-mind.
  • 60% of employees would take a job if they had more flexibility to select pay frequency, same-day pay, or early access to pay.

On-demand pay is a voluntary benefit that allows employees to access their earnings before their traditional payday. 

Various vendors provide their 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.

Today, employees expect more from their employers. According to ADP, 60% of employees would take a new job that offered more pay flexibility such as same-day pay or early access to pay.

This trend is driving on-demand pay to the forefront of employers’ benefits checklists given the data on American workers’ well-being:

  • of employees live paycheck to paycheck, including 40% who earn less than $100k1

  • of employees experienced financial stress during the pandemic2

  • of American workers have medical debt — and over half have defaulted on it3

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On-Demand Pay: The Benefits and Potential Pitfalls

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With on-demand pay, employees can benefit from:

60%

of employees would take a job if they had more flexibility to select pay frequency, same-day pay, or early access to pay—all benefits of on-demand pay.4

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:

 
  • A better workplace experience
    Companies that deliver strong employee experience are twice as likely to exceed financial goals, five times more likely to engage and retain employees, and four times more likely to innovate effectively.
 
  • Faster hiring
    Job postings featuring on-demand pay fill jobs in half the time because workers want opportunities with more flexible payment options.

Module 2

The Real Cost of On-Demand Pay

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There are four on-demand pay models to consider. Importantly, all 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.

Provider Type  

  • Digital on-demand pay
    Dedicated ODP company (completely digital app experience, can integrate with any HCM provide)
 
  • Proprietary HCM
    HCM/Payroll Provider (only available through HCM provider, digital or pay card)
 
  • Card
    Pay card provider or neobank, a digital challenger bank (pay card only, potential HCM integrations)
 
  • Direct-to-consumer
    Digital payday advance company (digital only, does not integrate with HCM systems)

Data encryption

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

Firewalls and network access controls and monitor privileged access to applications that process partner data.

Access control

Limit employee access to partner data, limit partner data available to the provider, and require secure log-ins and passwords from employees. 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

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 must account for the federal laws of constructive receipt. This can include avoiding self-funding the on-demand pay program and showing an employee’s full earnings in a pay period on their pay stub.

State wage and hour laws

Rules regarding everything from wage discounting to the timing of receipt for final paychecks vary by state, so providers must remain compliant in the relevant states

When considering partnering with an on-demand pay provider, it’s critical to evaluate each solution. 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 ask based on the teachings in this module are:

  • Do employees have the choice to take out as much as 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?

1 Source: Business Insider

2 Source: PwC

3 Source: CNBC

4 Source: ADP

Infographic

On-Demand Pay: The Benefits and Potential Pitfalls

Download now

Module 2

The Real Cost of On-Demand Pay

Explore now

Infographic

On-Demand Pay Models and How They Work

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Infographic

On-Demand Pay Models and How They Work

Download now

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