What Is On-Demand Pay?

Flexibility is the one buzzword that’s seemingly on the lips of every business right now. For the most part, that means media headlines about how employees want the choice of where and when they work, so that they can keep working from home or even work four days a week instead of five.

But this flexibility can potentially stretch much further than an employee’s working arrangements. Payroll is no exception to this new trend. If employees can have more control in where and when they work, why can’t they have the same control of when and how they’re paid?

The solution that makes this all possible is on-demand pay. Also referred to as 'Earned Wage Access' (EWA) or 'Flexible Pay'.

In this blog, we’ll look at how it works, how it benefits employees and businesses alike, and the hurdles to overcome in getting on-demand payroll solutions up and running.

Contents


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What is on-demand pay?

On-demand pay is a model where technology is used to allow employees to be paid whenever they want. Through a web-based platform, a mobile app or a solution that encompasses both, employees can login whenever they want and see their wages accrue day by day, or shift by shift. They can then withdraw any amount of their accrued wages to their personal bank account at any time, and without any need for intervention or processing by the company’s payroll team.

In real terms, this method of paying wages on-demand moves the whole culture of pay much closer to how the accrual and use of paid leave works. From an employer’s perspective, it also breaks the cycle of running payroll for an entire workforce on a fixed date each week or each month.

How on-demand pay benefits employers

It may seem like running payroll on-demand gives employees much more control at the expense of the business. However, there are many positives for employers in allowing the workforce to access early pay.

Employee engagement

Employees who are trusted to take control of their own payroll affairs will feel more valued. This will help them feel more engaged with their work, and more willing to contribute positively to the company culture.


Reduced absenteeism

Connected to the previous point, employees who are more engaged will be less likely to find ways to stay away from work. With lower rates of absenteeism, overall productivity across a company will improve.


Talent attraction and retention

When employers give staff more flexibility in all areas, they will feel more inclined to stay with the company for longer. It also gives the company a major selling point when trying to attract the best talent in today’s highly competitive, candidate-driven job market.

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How on-demand pay benefits employees

Obviously, all the above points around how payroll on-demand helps employers have a certain feel-good factor for individual employees, too. But as well as those more practical pay-offs within work, on-demand payroll solutions can also be transformative for employees in their personal lives


Employee wellbeing

When employees feel more engaged and trusted in their work, and are more productive, they are more likely to feel happier and free of stress. This major change in their mental wellbeing can have knock-on positive effects on their physical health by reducing the risk of stress-related illness.


Financial stability

By using on-demand payroll solutions, employees’ financial literacy will improve, helping them manage their personal arrangements better. Through access to early pay when unexpected bills arise, employees can avoid having to resort to debt or payday loans, reducing their financial stress further and ultimately saving them money in the long term.

 

Challenges to on-demand pay

Implementing a model of running payroll on-demand is not without its obstacles. As well as representing a major cultural change for the payroll team tasked with overseeing it, there are also a number of more practical headwinds to consider when evaluating on-demand payroll solutions. Three in particular stand out, as follows:

 

Transaction fees

The financial models offered by different on-demand payroll providers vary substantially, and some charge fees on a per-transaction basis. It’s important to understand how these costs might mount up, especially among larger workforces where the number of transactions could be very high.


Instability

While withdrawing wages on-demand can help employees better manage their finances (see previous section), this can be a double-edged sword. Overuse of the service to constantly withdraw wages can cause more problems than it can solve. A balanced solution that encourages financial literacy and places a sensible limit on frequency of withdrawals can therefore give employees and employers the best of both worlds.


Additional admin

Some payroll solutions feature more automation than others, and so the amount of admin burden that these solutions can relieve from the payroll team varies considerably. Any evaluation of a solution should include a detailed analysis of what duties a payroll team would have to perform when using it, and whether it’s viable for them to do so in conjunction with their other functions.


In summary

It’s clear that on-demand pay can transform the way employers run their payroll and the way employees feel about their jobs… but only if implemented correctly. Finding a solution that’s a perfect fit for everyone concerned - business, employee and payroll team - is the best way forward, and ensures that all the benefits that can be gained from on-demand pay can be maximized.


CloudPay’s global payroll solution is ideal for businesses exploring on-demand pay, and how it can integrate with their wider business operations. Learn more about what we do and how we do it here.