06 May How On-Demand Pay Apps Work
What is on-demand pay? How can it boost your company’s bottom line? Through on-demand pay apps, you can provide workers with additional benefits and improve your employee turnover rate. Many of these apps can be integrated into your payroll system, so you don’t have to do any extra work to incorporate them into your workplace.
What Is On-Demand Pay?
On-demand pay is when your employees are able to access their wages as they earn them. This is typically set up through your payroll provider or on-demand pay apps.
Basically, on-demand pay allows your workers to access their paychecks as soon as they clock out from their shifts. Depending on the app you use, the employee may only be able to access a certain dollar amount at a time. These on-demand pay providers are exceptionally good at estimating an employee’s expected pay, which is how they know the amount they can give each worker before payday rolls around.
The Advantages of On-Demand Pay Apps for Employers
What is on-demand pay? And how can your company enjoy the benefits? Once you set up on-demand options for your company, you can enjoy having a range of different benefits as an employer.
- Improved Focus: Workers can focus on their jobs instead of worrying about how they will pay their bills.
- Lower Absenteeism: Employees might use their paid leave to drive for Uber or moonlight somewhere else if they need money right away. Thanks to on-demand pay, your employees don’t have to miss work to make money somewhere else.
- Better Profitability and Productivity: Because employees can focus on their jobs and are less likely to be absent from work, your company can be more profitable and productive.
- Higher Talent Retention: With pay-on-demand services, you can enjoy having an easier time attracting and retaining talent. Today’s workers expect pay-on-demand technology, so they’ll prefer working for a company that has this type of option.
- Stress-Free Tracking: When you use on-demand pay apps, you don’t have to handle any of the payment tracking or payroll adjustments. Everything is automatically dealt with through the app.
- Improved Company Culture: Pay-on-demand services can improve your company culture and boost your employees’ financial wellness. By adopting this type of pay option, you can help your employees feel valued and supported.
- Lower Turnover: When employees are happy and receive the benefits they need, they are less likely to quit and work somewhere else.
- Better Employee Engagement: Providing support and benefits has a circular effect. When you help your employees, they want to help your business. This type of emotional connection to a workplace can increase employee engagement and make your workers more productive.
The Disadvantages of On-Demand Pay Apps for Employers
In the past, it just wasn’t possible for employers to offer on-demand pay apps. Calculating payroll by hand was already an incredibly time-consuming, expensive task. Trying to recalculate taxes and wages on a daily basis would have been impossible for employers.
These early disadvantages to on-demand pay no longer exist. Thanks to technology, payroll providers and on-demand pay apps can offer instant access to an employee’s wages for a low price. This means employees and employers can enjoy the advantages of on-demand wages with minimal disadvantages. However, you may encounter a few of the following downsides on occasion.
- Impulse Spending: For employees, receiving multiple payouts can make budgeting more complicated and encourage impulse spending.
- Time and Resources: Employers may need to invest their time and resources into offering on-demand pay.
- Administrative Costs: Figuring out how to administrate on-demand pay can be challenging.
Fortunately, most of these downsides can be avoided. Administration can be outsourced to an on-demand-pay platform. Since many of these apps only charge workers for accessing on-demand services, the employer doesn’t have to pay the cost of offering on-demand pay.
Meanwhile, concerns over employees’ impulse spending and budgeting issues are often unrealistic. Employees can exhibit impulse spending with their normal checks, and budgeting has the same level of difficulty without on-demand pay.
Currently, 37% of American adults can’t cover a $400 emergency expense with cash. On-demand options give workers an added level of security to cover unexpected emergencies without having to miss payments or use payday loan companies.
How Can Small Businesses Use On-Demand Pay?
After learning the answer to, “What is on-demand pay?”, the next step is figuring out how to use this service in a small business. Fortunately, on-demand pay apps make this process easier by integrating their services with your payroll provider.
When your employees need to access their money early, they simply have to download the app. As soon as the payroll information has been integrated into the platform, the employee can log into the app and select the way they want to receive their pay. Afterward, their money will automatically transfer to the type of account they choose.
How Do On-Demand Companies Make Money?
While each company is different, most on-demand pay apps use a similar formula for earning revenue. They charge employees a fee for accessing their paychecks early. Typically, this fee is between 2.5% and 5% of the employee’s paycheck. In return, employees can access the funds they need and avoid getting hefty finance charges from a payday loan company.
Is On-Demand Pay Necessary in Today’s Labor Market?
In March 2024, the unemployment rate was at 3.8% in the United States. Normally, an unemployment rate is considered healthy if it is between 4% and 6%. When it drops below these figures, it indicates that employers are hiring workers who wouldn’t normally be employable.
Part of the reason why there is a tight labor market is because of a decline in the birth rate several decades ago. Because the birth rate dropped back then, there aren’t as many young employees to replace Baby Boomers as they retire. This is going to be an ongoing issue, so the labor market will continue to be quite competitive for employers.
Ultimately, this type of employment situation means that businesses must offer competitive wages and benefits if they want to attract the best workers. If two jobs have similar pay and benefits, workers are more likely to pick the job that offers on-demand pay. In fact, 78% of workers say they would be more loyal to an employer that offered on-demand wages. To compete in today’s labor market, you have to be willing to give workers the benefits they need.
Find Out More About Ways to Incorporate Pay On-Demand Into Your Workplace
What is on-demand pay used for? How can it help your business succeed? If you start using on-demand pay apps at your company, it can help your company attract and retain top talent. Best of all, these apps can easily be integrated into your current payroll system, so you don’t have to do a lot of work to get them started.
If you are interested in providing earned wage access, we can help. To find out more information about on-demand pay, reach out to our HR and payroll experts today.
This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.