DECEMBER 3, 2024
On-Demand Pay: Is it Right for your Business?
On-demand pay – also called earned wage access (EWA) – is changing the game for how employees get paid. While on-demand pay has been mainly used in high-turnover industries such as healthcare, retail, and hospitality, 2025 could see many companies rapidly adopt the practice.
What is On-Demand Pay?
In summary, instead of waiting for the usual bi-weekly or monthly paycheck, employees can access part of their earned wages as soon as they’ve put in the hours.
The process isn’t too complicated, especially for companies utilizing time management software. Employees continue to log their worked hours and wages as they normally would, but with the added benefit of having “instant access” to a certain portion or percentage of their wages (usually though an app).
Companies still have scheduled pay cycles and paydays. When that day comes, any employee who accessed on-demand pay during that time period has that portion of their pay deducted from their regularly scheduled paycheck.
According to some experts, this approach aims to provide more financial flexibility for employees should they need emergency funds. But, as with any innovation, there are both benefits and potential pitfalls to consider.
Pros of On-Demand Pay
1. Improved employee-employer relationship. According to studies, employees prefer the option of immediately receiving wages once they’re earned, which promotes trust in their employer. Not having to live “paycheck-to-paycheck” provides employees with a sense of financial freedom – after all, they have access to what they’ve earned immediately.
2. Decreased stress. Knowing they can access their wages immediately has shown to improve employee morale. Even if employees opt not to receive funds on-demand each and every week, having the option to do so alleviates concerns about running out of money between paychecks – something nearly 30% of full-time employees say is a concern.
3. Modernization of payroll systems. The benefits aren’t just for employees. Many companies find on-demand pay models help streamline their financial operations. While there are always concerns about increased fees for maintenance and implementation of changing systems, many on-demand pay companies already offer such services at no additional cost.
Cons of On-Demand Pay
1. Potential for payroll errors. Implementing any new system is never without hurdles. Maybe more than any internal program, payroll affects the livelihood of everyone, especially if your business has non-fixed salary earnings (commissions, overtime, bonuses, etc.). That’s why it is important, should your organization decide to implement on-demand pay, you work with a trusted payroll company that understands these nuances.
2. Educating employees on financial literacy. On-demand pay sounds like a win-win for all employee groups; however, instant access to wages can have its drawbacks. What happens if an employee starts living day-to-day versus paycheck-to-paycheck? It’s important for companies to continue offering financial advice to its employees and encourage them to understand the most appropriate times to use on-demand pay.
3. Impact on taxes. This applies to both employees and employers. Every state has different laws, and there could be implications. Going hand-in-hand with financial literacy, employees need to know if pulling down on-demand pay will impact their tax bills; just as companies need to know if their payroll rules will impact their business taxes. Again, working with a trusted payroll company can help all parties navigate these changes for the better.
Let Payroll Vault help your organization navigate on-demand pay
As your local payroll partner, Payroll Vault Santa Barbara delivers personalized service backed by cutting-edge technology - all without requiring long-term contracts.
Our flexible processing options adapt to your business rhythm, whether you need weekly, bi-weekly, or monthly services. We handle secure direct deposits with multi-account distribution capabilities, giving your employees complete control over their earnings.
Reach out to Payroll Vault today to learn how we can help your organization navigate on-demand pay.
