Do you think your hourly workers would love having the option of getting paid tomorrow…for today’s work? You bet they would! And with on-demand pay programs, they can. That’s why these programs are becoming increasingly popular, particularly with employers who manage a low-wage, hourly workforce.
The flexibility of on-demand pay can be nothing short of a game-changer for workers who struggle to make ends meet, and there are many of them. Nearly 80% of American workers live paycheck to paycheck, and that was before the COVID-19 crisis.
Now, as employers scale back and tighten their belts, hourly employees may be working fewer hours, escalating already-existing financial pressures. On-demand pay can help ease these rising pressures, while creating a huge differentiator for employers.
According to the research firm Gartner, only 5% of large U.S. employers are currently offering on-demand pay, also known as earned wage access programs. However, Gartner expects that number to increase to 20% by 2023. If you’re looking for an edge when it comes to attracting, retaining, and engaging hourly workers, this is something to consider right now.
How On-demand Pay Programs Work
On-demand pay programs are typically administered through a third-party provider, which works in coordination with the employer’s payroll provider. The platform is integrated with the employer’s time and attendance and payroll systems. Workers are given access to the program via an easy-to-use app, which allows them to request on-demand pay at the end of their workday, according to their program’s rules.
After they clock out of their shift, employees can request anywhere from 50-100% of that day’s pay (it varies by program). Those funds are then transferred to the employee’s pay card, debit card, or bank account. Employees are charged a fee—typically ranging from $1 to $3, not unlike ATM fees—per transaction. In addition to next-day payments, some providers often instant payments for a slightly higher fee.
Employees are limited to a certain number of on demand payments per pay period. At the end of the pay period, they receive the remainder of their net pay on schedule. Taxes, benefits and garnishments are deducted on their original pay day.
On-demand Pay Program Benefits for Employees
The potential benefit to low-wage workers cannot be overstated. After all, one in four Americans can’t pay their bills on time, and 40% couldn’t cover a $400 emergency out-of-pocket in a crunch.
On-demand pay programs can help workers stay current on bills, avoiding late fees and hefty overdraft fees. It can also help them steer clear of predatory payday loans, which charge an average APR of nearly 400%. And because pay can be transferred onto pay cards, it allows unbanked workers to avoid check cashing fees.
In short, on-demand pay programs can improve workers’ financial picture by easing their cash flow—and that in turn will ease their financial stress. At the end of the day, this can potentially improve the mental and physical health of your hourly workforce, which benefits employers, too.
Worried that it might lead workers to squander their pay in the moment? According to Gartner’s research, “there is little evidence that instant pay leads to more impulse spending.” Because there are fees associated with each transaction, workers tend to think twice before requesting funds.
On-demand Pay Program Benefits for Employers
Many companies who employ a large hourly workforce operate on thin margins, which makes it challenging to offer attractive benefits that are meaningful to hourly workers. On-demand pay is not only an extremely compelling benefit for this population, but is one that can be offered at no cost to the employer, since the program is funded by the employees’ transaction fees.
Employers who have implemented on-demand pay programs report increases in employee retention and recruitment rates, as well as productivity. They find that workers are now clamoring to pick up open shifts—and that it appeals especially to younger workers, who expect and demand “instant everything.”
Furthermore, as Gartner has noted, it can be a marked differentiator for employers eager to lower turnover. While it’s common in low-wage industries for workers to change jobs for a mere 25 cent per hour pay increase, the thought of losing their on-demand pay option may be enough to make workers think twice.
On-Demand Pay Considerations for Employers
On-demand pay program rules and fees vary by provider, so weigh your options carefully. In addition, your planning should include:
- Setting usage parameters for workers, such as how many transactions can be made before payday.
- Evaluating fee structures—and making sure workers understand them clearly upfront.
- Learning the relevant laws in the states and localities where you do business, ensuring compliance at every location.
- Making sure payroll controls are in place, so taxes, benefits and garnishments continue to be deducted correctly.
If you’re an employer with a large hourly workforce, we know you have unique challenges when it comes to managing and engaging your people. We know because EPAY’s HR, time and labor, and payroll software is geared specifically to help employers like you meet those very challenges. We do offer a highly-competitive on-demand pay program in conjunction with our HR solutions. If you’d like to learn more, we’d love to hear from you.